Appraisal Scoop

Runt Rants - A Tale of Two Loans - "It was the best of cases . . it was the worst of cases."

Tired of Sub Prime news yet?  Well, it's a story that's three years in the making.  Hope you're not bored by it yet!  We’ve discussed the Sub Prime Crisis several times since August. We’ll continue that theme as it seems appropriate.

Today we have two actual case examples . . Best and Worst Case scenarios.

THE BEST CASE

Michael Gordon a Florida Appraiser provided this example of a Florida ARM set to increase payments by 37% for a borrower who had also experienced a business reversal related to the real estate crunch. The borrowers contacted the lender, explained the situation, and a few days later received a Fed Ex delivered letter informing them the ARM portion of the loan contract was rescinded, and converted to a fixed rate at the original rate. Crisis resolved.

The homeowners contacted Countrywide per my suggestion. As far as the situation with Countrywide, they were very excited to get the great news that Countrywide was going to drop their interest rate back down to 6.5% which is what it was at the origination of the loan. They had unfortunately chosen an adjustable rate that went up after 2 years.

In June 2007 (the 2 year anniversary of the loan) their rate jumped up to 8.5%. Their mortgage jumped from approximately $1,750.00 up to $2,400.00 (these figures include escrow numbers as well). That was really hard on them because the homeowner just had a situation happen with a Painting Contractor he had been subbing work that did not pay on $30,000 in work and he lost that business as a source of income as well.

Several months later, they fell behind on the mortgage. The homeowners called Countrywide and asked for help. They forwarded the call to the Relief and Recovery Department of Countrywide. The representative told the homeowners that they would have to gather paperwork (bank info and debt info) to prove their situation before Countrywide could help them.

Before the homeowners had time to gather all the paperwork, they got a letter from Countrywide via Fed Ex and it basically said they were going to drop their interest rate back down to 6.55 percent and they didn't have to do one single thing to make that happen. They said the new mortgage rate and payment would go into effect Jan 1, 2008.

In this situation both the borrower and the lender are better off. Exactly what Runt Rants suggested in the Thought Experiment. There are many, many circumstances where this solution could be adopted for the benefit of the borrower, the lender, the community, the economy.  Well done Countrywide!

Click here for the WORST CASE . . .

'Flip This House' star accused of fraud

What if you found out an American Idol contestant was lip-synching? What if the Bachelor was really married? How real is reality TV? 

On an episode of A&E's popular reality series "Flip This House," Atlanta businessman sits in front of a run-down house and calls buying and selling real estate his passion. 

But according to Business Week, "Now authorities and legal filings claim that Leccima's true passion was a series of scams that included faking the home renovations shown on the cable TV show and claiming to have sold houses he never owned."   

Sam Leccima has some major serious fraud allegations on his hands today!  The Atlanta FOX 5 I-Team has done an investigative report on Flip This House , one of America's favorite reality shows, and their "star" flipper in Atlanta. 

You can learn more by reading about Samuel P. Leccima’s Real Estate License Revocation, or watching part one and part two of Dale Russell’s Fox 5 I-Team Report.

Mortgage Fraud: Six convicted in case that cost banks more than $5 million

The 12/28/2006 Inman News Story (Click Here) "Ex-mortgage loan officer to do heavy time for fraud" says: "A federal judge has sentenced a former mortgage loan officer convicted of organizing a Washington, D.C., house-flipping scheme involving mortgage fraud to more than 24 years in prison."

Five others charged in the scheme have also entered guilty pleas.

I've listed Brad Geary's, “Universal Truths of Mortgage Fraud” in the Appraisal Scoop many times. According to Mr. Geary "Virtually all mortgage fraud combines at least two of the "Universal Truths" of mortgage fraud. This case is no different!

As usual, an appraiser was needed to seal the deal. 

BUT . . .this time they didn't even use a "licensed" appraiser!

"Robbie Colwell, who was paid to write appraisals that inflated the values of the properties, pleaded guilty to conspiracy to commit bank fraud. Prosecutors said Colwell was not a licensed appraiser but used other appraisers' names and licenses to write "completely fabricated reports on the value of the houses."

"Nearly all of the appraisals claimed the homes had undergone complete rehabilitation and remodeling, when in fact none had renovated kitchens or bathrooms, many had crumbling walls and ceilings, and one was merely a shell, with no interior walls or floors at all."

Buy it. Fix it. Sell it…..That’s flipping

In the tradition of mockumentaries like “Best in Show” and “Waiting for Guffman,” Flipper Nation is a hilarious new series about a couple of ill-fated guys trying to cash in by “flipping” houses, and in the process debunking the myth that anyone can getting rich quick in the real estate game. From the promo:

Flipper Nation: a country of people getting rich on real estate. Then the bubble bursts. That’s when David Kimball and Richie Tatum have chosen to get into real estate. A day late and a dollar short, they’re trying to make it to a million dollars. Follow their path to fortune at FlipperNation.com!

Head on over to FlipperNation.com to see the first episode, get real estate tips (to be taken with a grain of salt of course), and even print your own masks of the show’s personalities!

Cash Back at Closing Strictly Illegal!

Ralph R. Roberts writes in his article: Cash Back at Closing? Strictly Illegal! - Cash-back deals are stitched into the fabric of the U.S. economy. manufacturers promote products with cash rebates. Credit card companies offer cash back on purchases. Even banks dangle cash-back deals to attract new customers. Now real estate con artists have jumped on the cash-back bandwagon, and plenty of home buyers--and even some real estate professionals--are falling for these schemes. Click here for an example.

On first glance, cash back at closing looks like a win-win situation. The buyer pays a little more for a property than it’s worth, and the seller agrees to return the surplus cash to the buyer, who can then use it to pay off outstanding debt or renovate the property. The seller gets close to or better than the asking price, the real estate agent gets a bigger commission, the loan officer chalks up another successful loan, and the lender scores a larger loan and stands to earn more interest over the life of the loan.

Unfortunately, cash back at closing schemes are illegal and potentially damaging to the lender, who is fooled into making a risky loan. “And lenders aren't the only losers,” warns real estate and mortgage fraud expert Ralph R. Roberts. “Buyers can be tricked into buying more house than they can afford. Click below to read on . . .

Sales of 14 upscale homes at well-above-market prices raise suspicions of flipping in Ohio

Geoff Dutton of The Columburs Dispatch reports:  "The peculiar but tempting offers sometimes came a year or more after homeowners planted for-sale signs in their front yards."

"Interested buyers suddenly appeared, proposing to pay hundreds of thousands of dollars more than the asking price for houses in some of central Ohio’s elite neighborhoods, including Muirfield Village and Tartan Fields."

"The catch: the sellers must agree to immediately refund the difference between the asking price and the sale price. "  Click here for the complete article.

Additionl Resource: Are kickbacks at closing illegal?  Read Ralph R. Robert's article - click here.

FSI: Fraud Scheme Investigation

Interthinx™ and leading mortgage professionals have teamed up across competitive boundaries to develop a fraud prevention training video that will help the industry thwart the expansion of mortgage fraud schemes nationwide.

Frederick Cabanes aka "Appraiser Dennis Outlaw" (pictured above) is just one of the characters in the FSI: Fraud Scheme Investigation project sponsored by Interthinx™

Click below for more information on ordering a free DVD . . .

What NOT To Do In Real Estate - 24 Years Old, $2.2 Million in the Hole

I'm a 24-year-old aspiring real estate investor from Sacramento CA. After going to few seminars I bought 8 houses in 8 months across 4 states with no money down. I fixed and sold 2 and then ran out of cash. I am now facing foreclosure on 6 5 houses. I'm learning my lessons, finding solutions and blogging about it. Comments appreciated!  - Casey Serin

That's the way that the I am Facing Foreclosure.com blog site starts out!  This guy's story has been picked up by the news media, blogs like The Motley Fool, and even NPR Radio.  If there's a poster child for everything that went wrong in the real estate boom, it just might be Casey Serin.

In one year, the 24-year-old website-designer-turned-real estate-flipper bought eight homes in four states — and in every case but one, he put no money down. At his peak, in April, Serin had $93,000 he'd taken out of the homes as he bought them. By July, he was broke, desperate for one last deal.

In a nutshell, click below to find out what the "10 Mistakes That Made Flipping A Flop" are.

Red flags preceded home-fraud lawsuit

All levels of government received grievances about the lawsuit's key figure, Robert Penn, according to the IndyStar.com news story about homes being sold at inflated prices, defrauding lenders out of tens of millions of dollars and leaving investors on the brink of financial ruin.

"Federal, state and local authorities received warnings, some dating back two years, about the Fishers man at the heart of a mortgage fraud lawsuit involving the foreclosure of scores of Indianapolis-area homes."

According to the full article (click here) - Suspicions that something was wrong were so widespread in the real estate community that two title companies sent out notices warning other title companies to be wary about any deals involving Fishers businessman Robert Penn.

CLICK BELOW FOR HIGHLIGHTS. . .

Mortgage Fraud Suit Says ‘Trust Us’ Led to Fleecing

According to the New York Times story (click here) , dozens of residents of Martinsville, VA, were persuaded to join a mortgage investment group.  Using their "church" connections, according to a recent lawsuit, two women and another relative in Indianapolis perpetrated one of the largest mortgage frauds in American history, victimizing dozens of local residents and, according to sources with knowledge of the accusations, at least $40 million in fraudulent loans — perhaps even twice that amount.

Most of the participants appeared to be pawns in a quick-flip mortgage scheme, designed to gain control of a property at a low price and sell it quickly at a profit. The game is often rigged at every level — from doctored applications, to bogus property appraisals, to the loan approvals themselves. (see Mortgage Fraud - "Universal Truths" - Part 1)

The Countrywide suit asserts, for instance, that the founder of the group, Robert Penn (the son of Beulah Penn and brother of Sharon Penn), acting through a variety of companies, secured purchasing agreements for Indiana properties at market value, then had them appraised at substantially higher rates.

Mr. Penn’s group then bought the homes, according to the lawsuit and documents reviewed by The Times, in the names of the Martinsville residents at the inflated prices — or even higher — but paid only the agreed-to market price to the seller. Mr. Penn’s companies then received the substantial difference, the documents contend.    For the full N.Y. Times story click here.

For more on Mortgage Fraud - click here.