Here’s how it was done. - Posted by Rolfe Mpls/StP
Posted by Rolfe Mpls/StP on March 21, 2000 at 11:50:48:
Tis case involves investors and mortgages brokers. The case you cite in your post shows how it was done, but the numbers in your example are far less than the normal scam. 1000’s of properties were involved throughout the Twin Cities. The focus of the investigation is on large groups of associated investors, or “families”. Once, I was invited to “join the club”.
I had some rehabs for sale. You would not believe the number of people who came out of the woodwork, asking me to inflate the price by 20% (fine!), then agree to a phoney 20% seller carryback, which I would terminate after closing by signing a satisfaction of mortgage letter conveniently brought to closing by the lender(not fine!).
People at CREONLINE flip property with the intention of making as much money as possible, and rightly so. The people involved in this scam set out with the intention to commit fraud to make money, thus profiting via fraud, which is illegal. The fallout from all of this has made investing in Mpls much more difficult. Lenders, city officials, neighborhood representatives, the media, and the general public are now very suspicious of investors. Things are improving - the good guys always win in the end.
The investigation has nothing to do with legitimately flipping property. Instead, the scandle in Mpls is fraud, plain and simple. Phony appraiasals were done, showing tremendously inflated prices, such as $130k for a $70k duplex. Out of state lenders were foolish enough to be duped, actually trusting the people they were dealing with. Hundreds of times. The flipped property would either be sold to a buyer, using a phony 20% seller carryback, or sold to a straw(fake) buyer, who would then resell to the eventual buyer, offering the phony carryback. In my experience, buyers came to see my properties, saying they were pre-approved for a loan. Later, I’d find out the mortgage broker wanted me to inflate the price, then do a phony carryback. After closing, the carrybacks would be destroyed, complete with a fraudulant 'satisfaction of mortgage" letter. The out of state lenders fell for it. Hook, line, and sinker. Big time. Hundreds of times. The mortgages they sold on the secondary market were based upon fraudulant information. People lost a lot of money.
The whole idea was to defraud mortgage enders using unsafisticated buyers. Low interest rates at the time allowed unsafisticated buyers into the market, often attracted by “no money down” advertisements placed in the paper. These buyers could not qualify for a loan legitimately, but sellers offered a phony 20% carry back. Lenders believed the phony appraisals and the phony carrybacks, and were tricked into believing a 80%L/V loan.
In some cases, buyers were unable to keep up with payments. The lenders foreclose, subsequently repossessing a property worth far less than the appraisal indicated. They were ticked off!
The defrauding of lenders is obvious. The lenders were foolish not send someone out to check up on things, taking the time to verify property values. They trusted the people they did business to a fault, and paid the price. Open for debate is the impact of all this on the buyers. Many of the affected buyers would not have qualified to purchase a home in any other manner. If they can keep up with the payments, they’ve got a home.