Yesterday, we received a troubled call from a young man who was way over his head in mortgage debt. He is between jobs, living with his parents, and has no savings to support a $1.2 million mortgage--on a home located more than 100 miles away.
It took time to ferret out the facts of this complicated story, and it only got worse with the client's telling.
John's Story:
1. John purchased the property with the aid of a silent partner earlier this year. He was told that his 780 FICO score would allow him to purchase a $1+ million home with no money. In fact, the partner promised to pay John $15,000 at close of escrow and further promised to make the first three mortgage payments ($21,000).
2. Remember, John had no savings. No problem. John was told that the mortgages (first and second) would breeze through underwriting because of a VOD (Verification of Deposit)--from somebody else's account. It would all be fine because moneybags would just temporarily add John's name to his account.
3. John said it all felt like a dream. He couldn't believe his good credit would buy this beautiful $1.2 million home. John was assured by his partner that it was a steal. The owners really didn't want to sell at such a low price. In fact, the home was probably worth $1.5 million.
4. John does not recall signing any documents (none) until he sat at the escrow company's closing table, nor did he ever write a check of any sort--not even an earnest money deposit. Inspections? There were none.
5. John finally signed documents at closing. He said it was a whirlwind. He whizzed through signing two or more inches of documents, guided by his partner and the escrow closing agent. The partner said since he would be managing the property, he would take and hold all the documents.
Our Research:
1. This home was value range listed for $800,000 to $900,000 last fall and failed to sell. A note in the listing said " bring all offers." Listing was subsequently cancelled.
2. Subject home was relisted by another broker at $1.15 in January. Confidential remarks noted that seller is a licensed real estate agent. Listing was cancelled again.
3. Shortly thereafter, John goes on title with $1.2 in recorded mortgage debt.
4. The partner leased out the property for bargain rent of $3000 per month. He has been collecting the rent and lives somewhere in Riverside County, according to the tenant (whom we met yesterday). We put John and the tenant in touch with each other.
5. Today, with listing agreement and written permission from John to receive and convey information, we are contacting the escrow company to get copies of all signed documents related to this transaction--including the original contract. John wants to see if that signature is his own.
We have listed the property for around $950,000, because that is a realistic price in today's market. It will be another short sale, which selling agents try to avoid because of all the hassle involved and the uncertainty of commission to be paid (lenders set commission, not the seller). And once again, it will be the second lien holder who get wiped out.
This is a transaction that stinks and I am angry. We have a young and frightened seller whom we want to protect, and a crew of slick professionals who knew how to game the system.
I can't help but wonder how much and how many profited from this fraud?
More to follow....
(Names and exact prices have been changed to protect the client. Otherwise, I have permission to tell the story.)
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San Diego County Realtors Mike and Roberta Murphy represent buyers and sellers of real estate in Carlsbad, Encinitas, La Costa, Rancho Santa Fe, La Jolla, Del Mar, Oceanside, San Marcos and Vista.
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sniff sniff I smell someting bad
Joe: So did I. And the story is getting uglier....
This is very bad... might be time to think about involving the District Attorney.. I'm willing to bet this isn't the only con the partner has pulled.. I don't know what DRE would do but I'd involve them also once you get a looka t the docs.. Guys like the partner should be in jail for a very long time..
Holy Smoke.....and we thought it was bad that for our closing on Friday, the lender did not get the buyer a loan committment and despite getting a pre-approval, lender "lock" form and application all that say he locked at 6% until 6.30.07...they are refusing to honor the rate because the investor "forgot" to lock it. It goes back to always knowing what you don't know and if you don't know about buying a house...wait till you find someone you can trust....And of course, if it sounds "like a dream" and wayyyyyyyyyyyyyy to good to be true,then guess what.....
Which lender funded the loan?
I saw something similar the other day. It's actually in my neighborhood. This house is probably worth about 700,000 now in today's market. The house is beautiful but the yard was looking like a field. I looked up who owns it. Actually its a local mortgage broker. Seems he has been using the house as a cash machine. Owes something like 1.2 Million on it. Craziness. People like this purchasing homes at inflated values hurt everyone. Now the market is pretty much back to 'where it should have been' but those regular buyers from '04 & '05 & even some in '06 are the ones hurt in it now. Many short sales, pre foreclosures & reos :(
Roberta~
Just one more post that demonstrates why I am subscribed to your BLOG and read what you post every day.
As I read this post I was delighted. "Delighted? "you say...??? ...YES! Because your young client found YOU..YOU are going to bat for him in the manner of a true professional...and because here in this post is an opportunity for all of us to learn about an innocent party and what happens when deception interferes.
This is the kind of story I'd like the media to cover.
Unfortunately Roberta this is not the first one of these I have heard, however this is the largest one by far. The agent in the one I know about lost his license is facing civil action and may end up in jail, right where he should be. Give a follow-up post on this one. It would be interesting to know what kind of background the scam artist had to figure out this scheme. Thanks for the post.
Sounds a bit like what this group in Atlanta was doing.
Atlanta Mortgage Fraud
Wonder if they took the same late night TV class.
This type of scam isn't new and falls in the category if sounds too good to be true than it propably is. What I did not hear you say was John never looked for the down side of this. He got suckered in and will lose his proverbial shirt. I bet you the silent partner's identity is fake.
There's a bad story! Hopefully everything works out as quickly and smoothly as poosible for you :)
Scott
Classic 'Straw Buyer' scam.
We had a guy try to do that to one of our new loan officers.
If it sounds too good to be true..... it probably is.....
This is just my curiosity talking here: How did John get involved in the first place? Was the silent partner someone he knew? Did some email/snail mail/phone solicitation from the silent partner - just come out of the blue? And John responded to it? What did the silent partner say that convinced John to get involved? Was John told the property would be a quick flip and he would receive XYZ percent of the profit? I can't help wondering: What was John thinking?
Kaye: We are getting the facts--and those get stranger all the time,
Sally: This is a loan the owner wishes had never funded.
Brian: I will call you later. It was a big bank.
Susan: The history on this house is very similar.
janeAnne: Thanks so much! The seller is too frightened right now to do much of anything, He just wants it all to go away. Personally, I'd like to put the bad characters in the spotlight.
Gary: Real estate.
Cindy: Thanks for the link!
Paul: John now wishes he had used a Realtor and had had someone representing his interests.
Scott: Thank you.
Tom: The has been no upside for this straw buyer. He is scared out of his wits.
Roberta: We've heard of elder abuse, so what is this? I assume he was too young to know better? Assume the parents didn't smell something funny going on (the ones he is living with)?
I am always amazed at the amount of fraud out there. This is great that all of us in Calif. and on AR will have a heads up. Thanks, Roberta. I would be devestated if this were my kid.
PT Barnum was right.
kk
Janet: The "kid" is 32 years old, has never owned real estate before, and was living on his own at the time of purchase. I don't think his parents had any input in this matter.
KK: For sure.
John is concerned about his culpability in this matter. Very concerned.
Now you know I normally pipe up and say that the buyers should be claiming responsibility for their actions. Which I still believe. But it sounds like in this case, John didn't sign the necessary documents, that perhaps there was some forgery involved. That's beyond bad-and makes me wish for the felony counts to rack up on the lender and the 'investor' buddy.
Leigh: I am trying to pry the closing documents from the escrow company. I am betting there was lots of back-dating at closing. John swears he never signed a thing until at the closing table.
Nothing is free.
You need to call the dre and file a complaint. If you really think there was back dating, they you need to file a complaint with the DOI against the escrow company. This is a sad time in our market right now.
Roberta..... I am sadden that this happened. The only good that can come from this is that more people read this. There is a guy that I am working with that was approached by a so-called buddy, trying to get him to do the same thing. SCARY.....
Overall... please keep us posted on this. I think we'll be seeing more of this, because so many have approached me, telling me that they had lenders doing 100% financing on large financed homes.
Scary deal.
Sounds similar to a scheme that one of my clients called about. My clients are in Alaska and the investor is in Kansas. They want to "borrow" my clients credit to purchase a property there. They will manage it for them and split the profits.
I advised them to stay away.
HOLY COW! And I though my online scam event putting me $21k in was a big deal... Geesh feel alot better about my pennies in the bucket now :-P
Roberta, this one sounds worse than the one I referred to you! Frankly, as soon as you get all your facts, and documents I would contact the FBI. Slime balls each and everyone that is involved in this.
John has fallen victim to the every body wants to give me money fraud. Sounds like an old story I have heard, jack, beans, large plant grows finds gold at the top of plant. I hope no one was hurt in the making of this fairy tale. People think they can make money with out work or doing anything, we all know this we get a call a week from someone going to make us rich.
I feel bad for your client, but at some point your client needs to look at his own responsibility. You hear of people being taken advantage of all the time and in investment schemes the client's greed plays into it as well. Truthfully, what does your client have to worry about? His pride and his credit scores. If he pays off the difference from the short-sale then it will be justified concern. At this point the bank is taking the beating.
I do also think that you should report the agent to the D.R.E. because I do not like that there are these agent's who end up damaging our business.
Too many of these stories lately, I suspect we will be hearing more and more of them.
Pete, Beth and Jeff: I am still gathering facts. The owner is frightened for his safety.
Marty: Loaning one's identity is a scary business.
Jordan: Glad you're feeling better!
Gena: Your referral has problems as well, but the numbers are smaller.
Jack, David and George: The facts in this case are still coming in. Stay tuned for Part II....
Laurie: I agree.
There is definetly something extremely wrong here. Your client was taken advantage of by his so called silent partner. Agents are here to help clients and make sales happen. If someone has a deal with a silent partner and they are trying to invest then the agent just needs to advise him on the pro's and cons of such deals. Did John have a written contract with his partner and I also feel that somewhere his signature might have been forged. These sort of deals are always happening and unfortunately now with no appreciation in the market Real Estate is no longer an over night money machine. Buyer beware of and have everything in writing.
Sounds to me like he needs an attorney or maybe two, one to sue these people and one to possibly defend him for his part in the scheme.
It sounds like the same story I recently heard about a property in San Clemente. On that one, the buyer got substantial cash back at closing! It's going to take a while to sort through all the fraud that happened in the last few years!
I still hate the term Mortgage Fraud and your post shows why it is a misnomer... it is putting all the weight on the Mortgage Originator when the first red flag is that any capable appraiser would appraise it that high, that any title company would not catch that issue... and that anyone would make it through a heavy duty financial transaction and allow it to pass without checking out the paperwork.
I feel bad for the guy but this is a definite act of Collusion...
Adrian: I am trying to get copies of all the sigs for comparison.
Terry: The District Attorney might also work.
Vicki: John was nothing more than a straw buyer who was led to believe he was a real estate investor.
David: All the parties you mention are critical to the mortgage being placed. The mortgage originator is only one player in mortgage fraud schemes.
Mortgage fraud is so rampant these days. Although I have never seen your side of it, I have come across several out of state home owners who were taken for a ride on their latest home purchase. Although much smaller numbers than yours, the worst was a girl who paid $225,000 for a property that tax records show was purchased 6 months prior for $65,000. False appraisal, fake comps, the whole nine yards...
like the majority say, work with someone you TRUST
Due Dilligence , Due Dillegence , Due Dillegence !
Roberta,
That's a good lesson to everyone what not to do. It's really hard to imagine what your client was thinking when he agreed to this scam. True, the "professionals" knew exactly what they were doing and evidently presented their case in a convincing manner. At least you are trying to help him sell this property.
Very sad, please keep us posted.
Another awful example of a buyer not having a buyers agent or just simple honest representation.
Sorry to hear you're entangled in this web. I do think that John has to take some responsibility here. He said it sounded like a dream. He was right. Now he's living the nightmare!
I talked to someone who was a "straw" buyer. Bought four (4) properties, total debt approx. $1.5 million. He was going to try to short sell them, but decided on just letting the bank foreclose and ruin his credit. His buddy, a DRE licensee got him involved, and now a 30+ year friendship is over.
So sad.
Hi, I saw your post this morning and had to come back to it. The young man that you are speaking would be best served to contact the District Attorney. It appears that there might have been loan fraud, there may be more facts under sworn testitmony. Sad to hear that greed creates such horrible friendships.
Sincreely,
William
Roberta,
I've to agree with David...the post title should have read "Straw Buyer Scams Ruin Lives" or something.
I guess you could go with mortgage fraud...but the only mortgage fraud was John's fraud by allowing his name to be added to another one of con man's dupes who provided the "moneybags"account so John could falsify his assets to the lender.
The old adage, "You can't cheat an honest man" comes to mind. John is no honest man.
He got greedy when someone waived $36,000 in his face for doing nothing...easy money is never coveted by the honest man.
These straw buyer con men know what they are doing...so they slipped a contract and all the loan papers in front of him to sign at the closing...irregular, but not illegal. Same goes for no inspection.
These criminals are also good at disappearing leaving the John's of the world to hold the bag.
What a horrible nightmare. I am currently working with a couple who can't buy a house because of a foreclosure caused by a fraudulent mortgsge broker and her associated Realtor and Title copany accomplices. In the process of trying to get out of this mess and clean up their credit, they found out the mortgage broker had previously been convicted of mortgage fraud in another state! There has to be a better way to regulate this stuff.
Roberta,
Any follow up on this incident? Have the authorities locked anyone up?
Hi Roberta, I agree with David and Rob. This isn't mrtgage fraud on the surface but buyer fraud. The appraiser should have "picked up" the previous listing information and included it with the appraisal. Too much stuff is being called mortgage fraud. The mortgage originator generally never "sees" any of the parties involved or the property being liened. He has to rely on the real estate agent, the appraiser, and the underwriter to do their jobs completely and honestly. Buyers falsifying verifications, purchase agreements, etc does not equal mortgage fraud but buyer fraud.
Bill Roberts
P.S. thanks for posting this account because of the conversation it started. It's needed.
Roberta,
Any updates? It's about a month later now.....
A person with no money probably shouldn't be buying million dollar properties. 'Nuff said.