A Gold Hill man who spearheaded a massive mortgage fraud scheme was sentenced to seven and a half years in prison and ordered to pay $22 million in restitution.

A Gold Hill man who spearheaded a massive mortgage fraud scheme was sentenced to seven and a half years in prison and ordered to pay $22 million in restitution.

Tyler Fitzsimons, 35, was the president of Desert Sun Development, which he formed in 2004 in Bend to orchestrate a real estate scheme with Shannon Egeland, 39, of Kuna, Idaho, the organization's vice president.

The ensuing large-scale fraud caused the Bend housing market to collapse, which cost the community jobs and left it "littered with partially finished developments and homes," said U.S. Attorney Amanda Marshall in a release.

"The illegal actions of these defendants exemplify the conduct that wreaked havoc in the mortgage, financial and real estate industries for the past several years," said Marshall.

From 2004 through 2008, DSD built commercial buildings and residential housing throughout Central Oregon and caused financial institutions to lose more than $20 million.

Fitzsimons pleaded guilty in February 2012 in U.S. District Court to money laundering, bank fraud and conspiracy to commit bank fraud, wire fraud and loan-application fraud. U.S. District Chief Judge Ann Aiken sentenced him Thursday, along with Jeremy Kendall, 36, of Camano Island, Wash., who was ordered to serve 18 months in prison and pay more than $22 million in restitution. Egeland's sentencing is set for Jan. 29.

Fitzsimons and Egeland obtained more than $4.2 million for five commercial building projects by submitting false financial statements, tax returns and leases to various banks, as well as fictitious contracts and invoices. However, no construction took place. Fitzsimons and Egeland used money from their first commercial loan to buy Dodge Vipers. Other purchases included large homes in Powell, luxury vehicles and a Malibu Wakesetter boat, according to the U.S. Attorney's Office.

Fitzsimons and Egeland also developed DSD's employee house program, a real-estate flipping scheme that recruited DSD employees, mortgage brokers, a loan officer and loan processor to help push through bad loans for the scheme's participants. Under the scheme, Fitzsimons and Egeland promised to build or sell homes at cost, and the participants agreed to flip or sell the homes and split any profit with DSD.

Because most of the participants could not qualify for the loans, Fitzsimons and Egeland, among other things, undermined the loan-approval process by "seasoning," or falsely inflating, participants' bank accounts through temporary deposits of DSD money. Most of the homes involved in the flipping scheme either were partially constructed or not constructed at all, with many properties foreclosed or short-sold.

"This bold fraud scheme was born out of the housing bubble long ago, but its effects will be felt by the construction and banking businesses in Central Oregon for many years to come," said Kevin Rickett, acting special agent in charge of the FBI in Oregon.

In addition to Kendall, the DSD office manager, others sentenced for their roles include former loan officer at West Coast Bank Jeffrey Sprague, 50, of Bend; former mortgage broker Shaun Little, 44, of Bend; former bank building inspector for Umpqua Bank Robert Brink, 62, of Junction City; former loan processor at West Coast Bank Barbara Hotchkiss, 44, of Redmond; former DSD employee Garret Towne, 34, of Eugene; former mortgage broker Del Barber Jr., 44, of Spokane, Wash.; former escrow officer Teresa Ausbrooks, 51, of Farmington, N.M.; former DSD employee Michael Wilson, 61, of Merrells Inlet, S.C.; and Kevin Mandlin, 50, of Bend, who submitted a false document to a bank on behalf of DSD for Egeland's home in Powell Butte. Sentences ranged from more than a year in prison to supervised release and community service.

John Partin, a building-materials supplier in Bend, is scheduled for a March 12 sentencing.

Dismantling the criminal enterprise involved the FBI, IRS and Oregon Division of Finance and Corporate Securities.

Reach reporter Sarah Lemon at 541-776-4487, or email slemon@mailtribune.com.