DOJ: Former attorney pleads guilty to wire fraud tied to reverse mortgage misuse

A former attorney in Washington state this week pleaded guilty in federal court to defrauding a disabled client out of an estimated $800,000 — in part through the misuse of a reverse mortgage, according to an announcement by the Department of Justice (DOJ) and the U.S. Attorney’s Office for the Western District of Washington.

The former attorney pleaded guilty “to wire fraud for his embezzlement from a vulnerable client’s trust account,” according to acting U.S. Attorney Teal Luthy Miller.

“Colby Parks, 65, stole more than $530,000 from a client who received about $1.66 million due to significant permanent injuries she suffered as a passenger in a motorcycle accident.”

In 2010, Parks became the trustee for a living trust designed to pay the victim’s expenses stemming from the accident, from which the victim’s account contained the $1.66 million.

But over the next seven years, the DOJ said that Parks “siphoned the funds for his own personal use in such large amounts that only $20,000 was left.”

The DOJ said that in 2018, Parks encouraged the victim to take out a reverse mortgage and use the proceeds to fund the trust account. Bolstered by the loan proceeds, Parks “continued to make transfers from the account for his own use,” the DOJ said.

“Records from the account show that Parks repeatedly transferred funds to his own bank accounts and then, on the same day or soon thereafter, Parks would make a payment for a personal credit card for the same amount as the transfer.”

There was a total of more than 600 transfers of the victim’s funds to accounts controlled by Parks, the DOJ said. By October 2017 — one year prior to opening the reverse mortgage — “he made 13 different transfers from the victim’s account to the ones he controlled.”

Over a period of 10 years, the transfers totaled $880,000, with Parks paying himself “at least $530,000 more than he was entitled to receive as his fees for trustee services,” the DOJ said.

Ultimately, the victim’s account contained only $15 by 2019, forcing her to sell her home. At that point, Parks “diverted proceeds from the sale by claiming the victim owed him money he had advanced to her,” the DOJ explained.

Soon afterward, the state’s Adult Protective Services (APS) division initiated an investigation into Parks and the arrangement.

After claiming he only received about $24,000 per year as trustee, the division requested supporting documentation, at which point he “revised his statement and said he was paid varying amounts that averaged over $54,000 per year,” the DOJ said. “However, Parks collected well over $80,000 per year from the victim.”

When the Washington State Bar Association initiated an investigation, Parks elected to give up his law license rather than face disciplinary action, according to the DOJ. The case was investigated by the state APS and bar association, as well as the FBI.

Prosecutors are seeking a prison term of “no more than 33 months” and Parks is scheduled to be sentenced on Aug. 29.

Industry professionals often encourage anyone considering a reverse mortgage to include their closest family members, friends or trusted advisers — often all of them, if possible — in initial meetings with loan originators. This ensures that everyone within the customer’s sphere of influence is in full understanding of the lending process and agreement.

Some organizations are also spearheading broader educational initiatives within the industry that are designed to demystify reverse mortgage products and requirements for anyone who may be considering these loans in the future.

“Our sole focus is to ensure that the consumer is well educated about the product, and that from a nonprofit base is really a safe place for consumers to come without any pressure,” said Robin Hillary, chief innovation officer at Credit.org, in an announcement of the organization’s new reverse mortgage education program.