A Newport Coast man pleaded guilty this morning to fraudulently obtaining mortgage loans that went into default and caused more than $2.7 million in losses to the federal government and commercial lenders.

Lorenzo Espinoza, 39, pleaded guilty before United States District Judge Stephen V. Wilson in Los Angeles. Espinoza pleaded guilty to conspiracy to defraud the Department of Housing and Urban Development, two counts of bankruptcy fraud, one count of money laundering relating to his bankruptcy fraud, and one count of willful failure to pay tax to the Internal Revenue Service.

In a plea agreement filed last month, Espinoza admitted that, from April 1995 until May 2001, he engaged in a scheme to defraud HUD and several commercial lenders. To facilitate the scheme, Espinoza and his associates purchased residential properties. They then sold the properties to “straw buyers” who purported to be the actual purchasers of the properties, but in fact did not provide the down payments or did not have the means to legitimately obtain a mortgage. Espinoza and his associates supplied the down payments for straw buyers and obtained bogus tax forms and paycheck stubs that were submitted with the loan applications. After the straw buyers purchased the homes, they defaulted on the mortgages, leaving the lenders, including the Federal Housing Administration, with properties worth much less than the amount funded in the mortgages.

In addition to defrauding lenders, Espinoza also admitted that he engaged in bankruptcy fraud. In February, 1999, Espinoza filed for bankruptcy and failed to tell the United States Trustee that he owned a Rolex Daytona watch, a 1990 Ferrari, a 1995 Ferrari and a 1989 Lamborghini. In late 2002, Espinoza laundered the proceeds of his bankruptcy fraud when he sold the Ferrari automobiles for $127,500.

Espinoza also pleaded guilty to willfully failing to pay income tax, admitting that he did not pay $199,053 due for the 1996 tax year.

As a result of today’s guilty pleas, Espinoza faces a statutory maximum penalty of 26 years in federal prison. Judge Wilson is scheduled to sentence Espinoza on March 12.

The investigation of Espinoza was conducted by IRS Criminal Investigation, the United States Department of Housing and Urban Development and the Federal Bureau of Investigation.