A knack for loans, now trouble

8/14/2005 8:55:55 PM

For Ernestine Malone, Tony Daniloo was a financial adviser with a personal touch. He even called her Mom."

Malone, 76, is the daughter of Tony Silva, a Portuguese immigrant who, while working at a local dairy, managed to assemble a portfolio of property that included four houses and a small office building in Newark.

After Silva died and his widow's health declined in the mid-1990s, Malone, a retired school bus driver, borrowed against some of those properties to pay for her mother's nursing care. After her mother died in 1996, Malone inherited the property.

Daniloo brokered a refinancing deal for Malone's daughter in 1998, and then for Ernestine Malone. Soon, she was relying upon him to manage her finances and prepare her taxes. Daniloo told a business associate that Malone had come to view him as a godson.

But in May 2002, as she scanned a local newspaper, Malone found something that shattered her faith in her "godson." The small house inherited from her parents that she lives in was scheduled for a trustee's sale by the underwriter of her mortgage loan.

And although Daniloo assured Malone that it was all a mistake and urged her not to worry, she eventually asked her son-in-law to look into her financial situation.

What he found, according to allegations in investigators' records filed with a criminal complaint in Alameda County Superior Court, was that Daniloo, a mortgage broker who worked for four years out of offices in Dublin and Pleasanton, had taken more than a million dollars of "Mom's" money and property.

Prosecutors say Daniloo took a total of $1.34 million from Malone and two other elderly women, $230,000 from a San Ramon couple and $37,700 from Union Bank. Daniloo was arrested in December and remains in Santa Rita Jail.

A quick sketch of Daniloo's life sounds like an only-in-America tale of success. Daniloo, 31, is the son of Assyrian immigrants who came to America from Iran and settled in Turlock. Daniloo attended Turlock schools and from 1993 until 1996 was a partner in a small used-car lot in Modesto.

By 1998, Tony Daniloo had a new job: mortgage broker. And he seemed to have a knack for it. John Lazar, Turlock's vice mayor and a real estate agent, says that Daniloo once arranged financing for a house that Lazar sold. "He did a very professional job in every respect," Lazar says.

For a while, Daniloo lived in Tracy and worked in Tri-Valley offices with clients from around the Bay Area.

Eventually, he returned to his hometown of Turlock and became chief executive and part owner of DreamLife Financial, a mortgage company with six offices in the San Joaquin Valley. Last year, he capped his triumphant homecoming by pledging $5.5 million to a local college and hospital.

But on Dec. 12, Daniloo's dream began to dissolve into a nightmare in the wake of a Modesto Bee article that questioned the character and business record of Turlock's newly minted philanthropist.

Things turned bad quickly for the young broker. On Dec. 13, First American Title Co. filed a lawsuit in Stanislaus County seeking to recover more than $4 million that Daniloo allegedly stole from the escrow accounts of 15 borrowers.

A week later, Daniloo and his wife were arrested. Prosecutors filed a total of 56 charges against Tony Daniloo, including counts of grand theft, elder abuse, fraud and forgery. Nansi Daniloo was named in five counts of the indictment, including charges of grand theft, elder abuse and fraud.

Then in April, a judge attached the $966,000 house where Daniloo lived, his $88,000 recreational vehicle, 2004 Lamborghini Gallardo, two 2004 Mercedes Benzes and assorted jewelry, including five Rolex watches.

In May, the Daniloos pleaded not guilty to all the charges. Tony Daniloo's bail was set at $800,000, and he remains in jail. Nansi Daniloo is free on $100,000 bail.

The U.S. Attorney is also investigating the Daniloos and could file federal criminal charges, according to a filing by a lawyer representing Nansi Daniloo in a federal forfeiture case. Nansi Daniloo has sought to block the forfeiture of cars, jewelry, an RV and a $250,000 cashier's check that prosecutors allege were obtained through mail, wire and bank fraud and involved in money-laundering transactions.

Deborah Levine, the attorney representing Daniloo in the criminal case, did not respond to repeated requests for comment. Timothy Rien, who had been Nansi Daniloo's attorney, said Nancy Daniloo would not be available to comment for this story.

On Aug. 4, a judge granted Rien's request to drop Nansi Daniloo as a client, citing her failure to pay for or cooperate in her defense. Scott Sugarman, an attorney representing Nansi Daniloo in a civil case, also said she could not be reached for comment.

Tony Daniloo's criminal charges capped a trail of financial and legal setbacks extending to 1997, when he was charged with 14 misdemeanors, including seven counts of grand theft and seven counts of rolling back automobile odometers at his Modesto car lot.

Those charges were dropped a year later after prosecutors concluded that the alleged offenses had occurred in 1995, outside the one-year statute of limitations for misdemeanors.

Daniloo's subsequent career in the Bay Area was mired by fraud allegations. Working under the banner of at least five Bay Area mortgage companies, Daniloo was named as a defendant in several fraud lawsuits and became the target of a criminal investigation.

And even as Daniloo and the company he owned were promising multimillion-dollar donations, his wife remained in the late stages of a Chapter 7 bankruptcy case.

The revelations about Daniloo shocked his neighbors and the recipients of his rich pledges. More surprisingly, much of Daniloo's record came as a surprise -- or a very late discovery -- to key regulators responsible for overseeing lending and property transfers in California's huge real estate market.

That's a market where millions of Californians seek the American dream, spurred on in recent years by rapidly accumulating real estate wealth.

But there are pitfalls on the path to riches. In California, house prices have risen much faster than incomes. With half the houses in the state now selling for more than a half-million dollars, starter home prices exceed the cost of mansions in other, less exalted regions.

As consumers seek to bridge the widening gap between house prices and household incomes, mortgage lenders have stepped forward to offer them low interest rates, enticing loan terms and aggressive marketing campaigns. The resulting tide of money has helped first-time buyers get in the market and existing homeowners tap the accumulated equity in their properties.

But shopping for loans from an ever-widening supply of products and sellers remains a daunting task. For guidance through the legal and procedural maze, millions of Californians rely on a small army of brokers, agents, lawyers, appraisers and employees of title firms.

Although that army contains many honest and conscientious professionals, the financial interests of those real estate and finance experts often aren't identical to those of their customers. That potential for conflict of interest isn't unique to real estate; it also exists when buying a car, investing in stocks, seeking medical care or arranging an estate.

In real estate, the stakes are especially high. And in January 2004, the Government Accountability Office, a congressional investigative agency, reported on government efforts to restrict predatory lending -- loans with exorbitant interest rates or fees. The report noted that seniors and minorities are frequently the targets of predatory lenders and found that while the extent of such abuses could not "be easily quantified, several indicators suggest that it may be prevalent."

The GAO cites multimillion-dollar settlements by mortgage lenders as evidence that abuses are widespread. Last month, Ameriquest Capital Corp., a large mortgage lender based in Orange, announced it had set aside $325 million to settle lending practices complaints by authorities in 30 states.

Big financial institutions that underwrite billions of dollars of residential mortgage loans rely heavily on independent mortgage brokers to drum up business. And those brokers, working for fees or commissions or both, can sometimes boost their income by persuading a borrower to take a loan on disadvantageous terms.

Meanwhile, lax rules and inadequate enforcement provide surprisingly few restraints on bad actors who knock on consumers' doors intending to separate them from their wealth through exorbitant charges or outright fraud.

Ideal target

Tony Daniloo found Linda Malone, Ernestine Malone's daughter, while making "cold calls" to drum up refinancing business for a Bay Area subsidiary of a Florida-based bank called Ocwen Financial Corp.

In the Malones, Daniloo had struck cold-calling pay dirt: a blue-collar family looking for ways to cash equity out of a small but valuable portfolio of property.

Investigators say he soon took on an expanded role managing Ernestine Malone's affairs. At his direction, she handed over financial documents, signed papers and even went with Daniloo to open a joint bank account, investigators say.

But the price of that help was steep. Investigators say that over a four-year period Daniloo took more than $1 million from Malone and without her knowledge transferred the title of two of her properties to his wife and another to a business associate.

During that same period, another local senior who entrusted Daniloo to arrange loans saw her home transferred to one of his relatives, according to prosecutors and a lawsuit.

Ann Moody, an 89-year-old Oakland woman who still works as a licensed real estate broker, sought Daniloo's help in arranging refinancing, including a $337,000 loan in December 1999, according to an investigator's report.

Then, in March 2002, prosecutors say, Daniloo submitted a forged deed transferring ownership of Moody's house to his father-in-law.

And in May 2003, Moody was evicted from the Oakland hills home that she and her late husband had built 48 years earlier. She remained locked out for 10 days until a bank lawyer relented and allowed her back in, according to her lawsuit. Moody's lawsuit seeks to restore her clear title to her house.

Prosecutors and title companies say Daniloo also used another scheme, one that exploited his clients' reliance on him to do paperwork and the companies' reliance on him as they handled large sums of money in escrow.

Sometimes using forged documents and payments to key employees at title companies, Daniloo got escrow money sent to bank accounts that he controlled, according to an affidavit filed in U.S. District Court by an Internal Revenue Service investigator.

Daniloo's clients assumed that money had been used to pay off their previous loans, according to court filings in the criminal complaint and civil lawsuits.

The escrow scheme affected dozens of people and gave Daniloo access to millions of dollars, according to filings in lawsuits and by criminal investigators.

While managing the Dublin office of Residential Credit Corp., a now-defunct mortgage company based in Westminster, from December 2000 until January 2002, Daniloo "improperly diverted" $592,000 from 17 escrow accounts, according to an investigator's affidavit.

Daniloo used some of that money to make "lulling payments" to dissatisfied clients, but netted about $350,000, according to a petition filed by the U.S. Attorney in U.S. District Court in San Francisco.

But Daniloo's scheme, as described in filings by criminal investigators and civil plaintiffs, had a major flaw. While his clients might assume that their old loans had been paid off, it repeatedly left two separate lenders holding claims against the same collateral, both expecting to get paid.

And when monthly payments failed to arrive, those lenders sent past-due notices to Daniloo's clients and sought to foreclose their property.

Fortunately for Daniloo -- and unfortunately for some of his clients -- the young broker proved adept at persuading clients to leave it to him to deal with such problems.

For example, when Malone began to receive demands for payment from the holder of the original first mortgage on her house, Daniloo told her it was just harassment and to ignore the notices, according to a police investigator's report.

He also told Malone and her daughter that he had made them parties to a class-action lawsuit that would pay them hundreds of thousands of dollars, investigators say.

Daniloo could be persuasive. Sharon Pillado wasn't intimidated by paperwork. She had worked for a lawyer, and she and her husband had both bought houses previously.

When Daniloo kept missing deadlines to arrange a mortgage and sell property for the San Ramon couple, the two convinced themselves that "we were just being paranoid," she says.

Daniloo described a complex set of transactions that he had arranged and persuaded the couple to kick in $310,000 to fill gaps in the deal, according to a lawsuit filed by the Pillados.

Unbeknownst to the couple, Daniloo transferred to his sister the title of a house they owned. He also failed to deliver a promised buyer for another of their houses. Prosecutors say Daniloo took $230,000 from the couple.

Daniloo was "shrewd" and "knew his stuff and knew what to say to draw you in," Sharon Pillado says.

Daniloo also knew how to schmooze his clients. Notes from wiretaps done after the Malones went to the police show that he called Ernestine Malone "Mom" and Linda Malone "Sis." He talked with Ernestine Malone about her grandchildren and his new baby. They even chatted about professional wrestling.

Investigators say that Daniloo also used a tactic common to operators of Ponzi or pyramid schemes: lavishing gifts and payments on some victims by using money collected from other victims.

He invited the Malones out to dinner. He rented a car for Linda Malone. He comped the Malones rooms in Las Vegas and during April 2002 sent them on a $4,200 trip to China.

It was not until she returned from China and happened upon a notice that her house was about to be sold out from under her that Malone asked her son-in-law to look into how Daniloo was handling her affairs. That brought to the surface the transferred titles and debt that had piled up while Daniloo managed her affairs and, finally, in late June 2002, prompted her to go to the police.

Some of Daniloo's alleged victims had more personal relationships with him. Veronica and Perry Gaa were Daniloo's neighbors in Tracy, and Veronica Gaa worked in the same office as Daniloo's wife. "We were all best friends," says Perry Gaa. "We used to go on camping trips. We used to go to their house for football parties."

In April 2001, the Gaas asked Daniloo to arrange a mortgage refinance that would help them pay for a new swimming pool. The Gaas built their new pool, but the deal Daniloo arranged tacked an extra $1,000 onto their monthly mortgage payment. In March 2003, they sued Daniloo for $71,000 and, after a 19-month court battle, he agreed to settle for $40,000. The Gaas eventually got their money, but only after returning to court to get a default judgment against Daniloo.

"I think my clients trusted him because he was a neighbor," says Michael Quirk, the Walnut Creek lawyer who represented the Gaas. "I was shocked to find out that he opened his own company in Modesto."

Escape to the valley

It is not surprising that a beleaguered businessman might flee his legal and financial problems, and seek a fresh start somewhere else. What does seem unusual is that Daniloo, facing lawsuits and a criminal investigation in Alameda County, could find refuge in the San Joaquin Valley, a mere 80 miles and a single county line away.

Back near his Turlock home, Daniloo appeared to be a man on the way up, not a man on the run. Lazar, the Turlock real estate agent and city councilor, ran into Daniloo at events sponsored by the Chamber of Commerce. "Everyone was surprised that a man of his young age succeeded financially" so that he was able to make such large donations to the community, Lazar says.

But things seemed to fit. Daniloo ran DreamLife Financial, a company based in a suburban Modesto office building where the neighbors included Morgan Stanley, Chicago Title and New York Life. (Less auspiciously, a doorway down the hall led to the U.S. Probation Office.)

DreamLife got a license from the Real Estate Department in August 2002. It grew to six locations with about 100 employees. DreamLife signed a $100,000 contract with a public relations firm, according to that firm's lawsuit. DreamLife issued a news release saying that "for fiscal 2005 our goal is to hit a billion dollars a year."

And Daniloo seemed willing to share his riches. In recognition of a $1 million pledge from his company, on Nov. 16, a committee of the California State University Trustees approved renaming Cal State Stanislaus' basketball stadium DreamLife Financial Arena.

Two days later, the 5-foot-7-inch Daniloo participated in an honorary jump ball before a women's basketball game.

Daniloo also pledged $4.5 million to Emanuel Medical Center, which gratefully agreed to rename a new cancer center for DreamLife and a remodeled children's ward for Daniloo's wife, Nansi.

A few blocks away, the Daniloos had moved into a 4,700-square-foot house. "They were nice," says Christine Tallent, the Daniloos' next-door neighbor. "We'd see them in the driveway and they'd say, 'How are you guys doing?'"

The Tallents were surprised to read about their neighbors' seven-figure pledges to local institutions and were unaware of their expensive possessions, Christine Tallent says: "We didn't even know they had a Lamborghini."

Then the scandal broke. When police cars filled the cul de sac and Daniloo was arrested, Tallent remembers, she felt sorry for her neighbor as he stood handcuffed in the middle of the street on a chilly day.

It was a very cold December for the Daniloos. Following their arrest, the hospital rejected their pledge and Cal State Stanislaus erased the DreamLife name from its arena. Then DreamLife shut its doors, leaving Tony Daniloo and his wife to answer to angry borrowers and prosecutors.

Rick Jurgens covers real estate and energy. Reach him at 925-943-8088 or rjurgens@cctimes.com.