Re: Creative or Dumb investing (?) - Posted by luke
Posted by luke on November 05, 2006 at 06:12:33:
You may also want to read this article:
Suspicious Property Deals On The Rise
By SHANNON BEHNKEN The Tampa Tribune
Published: Nov 5, 2006
TAMPA - State agencies are investigating potential mortgage and title fraud involving 36 unorthodox real estate deals in the Bay area.
The deals aren’t an anomaly.
A Tampa Tribune investigation into the questionable practice of inflating home sales prices so a third party can walk away with tens of thousands of dollars has resulted in the discovery of other suspicious contracts across Florida.
Lenders rank Florida first in the country for mortgage fraud, and experts say rapid appreciation in home values has made the state even more ripe for fraud and questionable real estate deals. Now that the market is cooling, lenders fear they will be on the hook for a flood of bad mortgages.
“The reports we’re getting are incredible,” said Doug Pollock, president of Information Data Services, which investigates problem mortgages. “This scheme is hitting every county in Florida. It’s like people are going to classes to learn how to do this.”
Adding to the problem, state real estate experts say, is that Florida might not have the broad regulatory authority to root out suspect mortgage arrangements. They point to complaints by industry professionals to state officials that went unheeded. Contrast that with states such as Georgia, once the nation’s leader in mortgage fraud, where authorities now routinely raid property closings, sometimes with guns drawn.
“We have laws on the books, but we need a higher level of enforcement at the level of attorney general and chief financial officer,” said Joseph Falk, legislative chairman for the National Association of Mortgage Brokers.
More Local Cases
How widespread are the inflated deals?
The answer, industry experts fear, is that they’re everywhere, but there’s no way to determine the extent.
“This is prevalent in some areas,” said Brad Monroe, president of the Greater Tampa Association of Realtors. “It just makes you wonder how many of these deals are going on that we don’t know about yet.”
Local listing agents and sellers shared with the Tribune details of some recently proposed initial contracts. The documents show sellers being asked to transfer large sums of money to someone else during or after closing. Here is a sample of some deals that have not closed:
?A widow in Riverview was presented with an offer for $55,000 more than her asking price. But it came with a catch: The real estate agent was to inflate the official list price, and the $55,000 was to be paid back to the buyer after closing.
?Purchase prices on two south Tampa homes were bumped up by a total of $830,000. The sales contracts stipulate sellers would pay the money to an overseas construction company.
?Two sales contracts were created for one home in Seminole Heights. The one presented to the seller shows a sales price of $180,000. Without the knowledge of the seller, a different cover page, showing a price of $286,600, was sent to the lender.
?A frustrated seller in Lutz dropped his sales price by $50,000 and was then presented with an offer contingent on a $70,000 “payoff” to an investment group.
Such examples follow a Tribune investigation of 36 similar transactions that involved the same real estate agent, title company and group of buyers. In all of the cases, the sales price was inflated by thousands of dollars. In total, $2 million more than the sellers received for the homes was paid to two local companies. In two of the transactions, separate copies of settlement documents were created. The lender’s copy omitted the large payoff.
The state attorney general’s office, regulatory boards and lenders have since launched investigations.
Getting An Offer
Jody MacPherson, the widow who was offered her asking price in exchange for inflating the sales price by $55,000 and returning that money to the buyer at closing, recently canceled the contract on her Riverview home.
First, her real estate agent refused to change the listing price of $233,000. Then, she discovered that the lender listed on the contract couldn’t be verified.
“I’m heartbroken,” MacPherson said. “I’ve been waiting to move on. Now, I have to unpack and start showing the house all over again.”
Kent and Mary Miller listed their south Tampa home for $1.2 million. An offer came from an investor for $1.5 million. The contract included two addendums: One stated the offer was contingent upon the property appraising for the higher price; the other said $435,000 was to be paid at closing to an overseas construction company for “remodeling.”
The Millers said no.
“This just doesn’t look right,” Mary Miller said. “It makes me furious because I know people will be willing to sell like this because they’ll feel desperate to move.”
Loans made on homes with inflated sales prices are problematic. If the loans go into default, the lender could be stuck with a mortgage worth more than the property.
Also, investors who purchase some of these homes through investor groups may not be able to make mortgage payments or resell the home at the inflated value. Also, sellers could discover they’ve fraudulently signed federal loan papers.
Neighborhoods can be harmed as well when potential buyers can’t afford homes and tax increases based on the inflated sales. If those homes are foreclosed on, sellers of nearby homes may have to lower their prices.
Lenders nationwide say they expect mortgage fraud cases to rise this year. Countrywide Home Loans, the nation’s largest mortgage lender, sued various defendants for mortgage fraud on properties in Indiana in June. The loans, estimated at $80 million, could make it the largest such case in U.S. history.
Closer to home, Lehman Brothers Holdings, a global financial services corporation, filed a suit last week against a group of companies and individuals involved in a case of potential mortgage fraud at a Pasco County condominium complex. Overvalued appraisals were used to justify loans worth more than the property, according to the suit.
Appraisers and real estate agents say their warnings to state and federal officials have gone nowhere.
“There’s a big problem with enforcement,” said Tom Gregg, a Pinellas County real estate agent with Marie Powell and Co. His office received a questionable offer from people involved with last month’s Tribune investigation. He reported it to the state agency that regulates licensed agents. The office also called the local Realtors board, Gregg said. No one seemed interested, he said.
Scattered Authorities
Part of the enforcement problem in Florida is that there isn’t one central agency devoted to investigating mortgage fraud. Instead, an array of state agencies investigate pieces of mortgage and title company activity.
The state Department of Business and Professional Regulation oversees licensed agents and brokers. The Office of Financial Regulation monitors lending institutions, and the Department of Financial Services handles oversight of title companies.
Many within the industry don’t know where to file complaints to get results. Pollock, the mortgage investigator, said there have been several efforts over the years to concentrate state investigations.
“The bottom line is that the private and public sectors have to work together,” he said. “And you have to have the political mood in the Legislature to find funding for investigations and prosecution.”
The Mortgage Asset Research Institute in Virginia rates the top 10 states for mortgage fraud, based on reports of suspicious activity by lenders. Florida has been first on the list for the past two years, up from ninth in 2001.
Georgia, which held the top position in 2003 and ranked second in 2004, has slipped to fifth.
Georgia’s Tough Stance
What is Georgia doing? Ann Fulmer, co-founder of the Georgia Real Estate Fraud Prevention and Awareness Coalition, said the state’s regulators, real estate professionals and law enforcement officers now work together.
That wouldn’t be possible, she said, without Georgia’s Residential Mortgage Fraud Act, which was passed in May 2005. The statute makes mortgage fraud a crime and encourages federal and state law enforcement officers to investigate and make arrests promptly instead of waiting for loans to default.
In Georgia, authorities can arrest suspected mortgage fraud participants even if the transactions haven’t reached the settlement table. Before the statute, Fulmer said, state and federal agencies were reluctant to take on such cases. Now the FBI and local authorities are more likely to investigate, she said.
“Under most state laws, you have to prosecute this as a theft case,” Fulmer said. “The charges are things like bank fraud, mail fraud, money laundering. The problem is that it takes a village to commit mortgage fraud, and it’s very difficult to prove what law all those people broke.”
Reporter Shannon Behnken can be reached at (813) 259-7804 or sbehnken@tampatrib.com.
TRIBUNE INVESTIGATION
Research showed that 36 homes - 34 in working-class Pinellas County neighborhoods - were sold for an average of $60,000 more than the asking price. The sellers received near or below the original asking price.
The rest of the money was paid to investor groups involved in the deals.
In two cases, two sets of settlement documents were created: one for the lender, and one for the broker. Federal and state laws prohibit misrepresenting where the money goes in closing documents.
Since the story was published last month, four state agencies, including the state attorney general, began investigating the deals, and dozens of listing agents have said they’ve been approached on similar deals by other investor groups.
In a separate case, global financial giant Lehman Brothers Holdings filed suit in Tampa against investors and real estate companies, saying they worked to defraud the lender on 13 New Port Richey properties.