By Tim McGlone
The Virginian-Pilot
January 27, 2012

A Chesapeake woman was sentenced Thursday to 4-1/2 years in federal prison after pleading guilty to operating a mortgage foreclosure rescue fraud scheme.

Kathy P. Harps, 51, admitted that at the height of the mortgage bubble in 2006 she promised to bail out homeowners struggling with their mortgages and make them money at the same time. She pleaded guilty to one count of conspiracy to commit mail and wire mortgage fraud.

Harps and her companies New Beginnings Group and IMAK Group siphoned off proceeds from mortgage refinance loans and caused the default of at least four mortgages, according to court filings. Harps admitted using straw buyers and falsifying loan documents to get the refinancing approved.

In one example, Harps helped a retired Chesapeake couple refinance their home. Harps walked away from the closing with $95,000 while charging the couple rent for a year with the promise that they would get their house back. Instead, Harps tried to evict the couple when the year expired, and the mortgage payments, which had grown by $800 a month, remained due. The couple lost their home and the equity in it.

A federal prosecutor wrote to the judge that her plan might have succeeded if the real estate market hadn't crashed.

"The crash of the real estate market in 2007 caused Harps' plan to disintegrate and exposed the fraud in which she engaged," Assistant U.S. Attorney Robert J. Krask told the judge.

Krask said in his court filing that Harps obtained about $1.2 million in mortgage refinancing and that the banks and the homeowners lost a total of around $650,000.

U.S. District Judge Rebecca Beach Smith rejected a request by Harps for leniency. The judge sentenced Harps to within federally recommended guidelines.