I recently received a letter from a real estate agent whose son had apparently fallen victim to a classic real estate fraud con called a chunking scheme.

With a chunking scheme, the con artist pitches an attractive investment scheme, promising anyone who’s willing to listen (sometimes an individual and sometimes a roomful of prospective investors) that they will be the proud owners of investment properties and that the con artist will take care of all the details–obtaining the mortgage, placing renters, making the mortgage payments, and so on. Investors are told that the rental payments will cover the mortgage and perhaps generate a little extra cash each month and that investors will make money when the homes are sold.

Unbeknownst to the investor, the properties are typically overvalued, the renters are nonexistent, and the con artist never even makes the mortgage payments. Investors are left with dilapidated homes, unpaid mortgages, and destroyed credit.

In this particular case, a company by the name of Cay (K) Clubs Resorts allegedly purchased condo complexes with plans to build a highrise hotel and casino around the complexes to boost their value.

Instead of promising to make the mortgage payments on behalf of the investors, Cay Clubs allegedly promised to lease back the property from the buyer for two years. Along with the leaseback proceeds (to be paid soon after closing), the investor would receive a portion of the rental income, so the investor could make the mortgage payments while the complex was being improved.

Unfortunately, according to many investors, Cay Clubs failed to make the promised leaseback payments, so investors were faced with refinancing, finding other sources of cash to make their payments, or losing their properties in foreclosure. According to one source, Cay Clubs owes investors about $10.5 million in leaseback payments.

Here is a copy of the letter I received and have obtained permission to use:

Mr. Roberts,

I just read the article you wrote for RISMedia, and was hoping you might be able to help in a serious financial problem that we believe may have been mortgage fraud.

My son purchased a condo in Las Vegas from Cay Club Resorts – The actual seller was Flamingo Palms Villas, LLC out of Hallandale, FL and the Lender is JP Morgan Chase. My husband and I went to see the project and learned that when buying you would be guaranteed 2 yr. leaseback .

What we have come to learn is that our son’s credit assets were inflated and when he challenged the salesperson, was told we do that because if you want to buy more properties, this helps. Like a lamb to the slaughter, our son went along. To avoid Private mortgage insurance, they had him take out a 2nd loan for $50,000, but told him he would get that $50,000 back after closing. He has since paid off this line of equity but wants to take it back since he never got the money he was promised. The appraisal was inflated to reflect the value of when the project was completed, so the higher mortgage could be obtained.

We understand there are some 250 plus buyers who have been “scammed.” A law firm is working on a class action suit. My son, today, was told that the law firm has made contact w/Chase’s in-house counsel and they will temporarily substand from all proceedings, etc. while they further investigate allegations.

Our son has not been paid any monies, and Cay Club has supposedly been taken over by another company. While our son had a lease agreement with Cay Club, he has not signed another with the new company, because in it is a release to Cay Club, which means he has no recourse against them for non-payment. So his condo is being rented, and he receives nothing.

I’m looking to find a solution for my son. He is out his down payment, the $50,000 he was going to receive after closing, and all rents. Plus starting in May, he and others will have to begin paying a Eugene Burger Mgmt. Corp. $400 a month for association fees.

Any advice you can provide or leading me to the right people who can help us out would be appreciated.

Thank you in advance,

Arlene

If you think this letter describes a nightmare scenario, check in with us tomorrow as we share the story as told by the investor and his wife, revealing additional details about what happened when Cay Clubs Resorts became insolvent and was taken over by a company called Desert Tides.

If you have had any dealings with Cay Clubs Resorts, as an investor or employee, I invite you to share your story with other readers of FlippingFrenzy.com. Any first-hand accounts you can relate can help us determine the truth about Cay Clubs Resorts and may help other would-be investors avoid becoming the next victim.

Above, I say: “If you think this letter describes a nightmare scenario, check in with us tomorrow as we share the story as told by the investor and his wife, revealing additional details about what happened when Cay Clubs Resorts became insolvent and was taken over by a company called Desert Tides. Click here for Part II.

= = = = = = = = = = =
EDITOR’S NOTE

Before commenting on this blog entry, please read this important message:

The comments left on this and all other Flipping Frenzy blog entry are now closely monitored by site editors for relevancy to the specific information presented herein. According to our Terms of Use, comments that are intended as a personal attack or that are threatening, harassing, libelous, false, defamatory or offensive will be removed. When commenting, if you stray from the specific topic of this particular blog entry, your comment(s) will be removed.
= = = = = = = = = = =

Investigators from Nevada’s Secretary of State office today arrested a 64-year-old Las Vegas man on 32 felony charges related to the fraudulent purchase of Las Vegas area homes. State officials served Matthew Marlon with an arrest warrant earlier today when he arrived at the home of two of his victims who were cooperating with investigators. Marlon, who is described as a local businessman, is scheduled for arraignment tomorrow morning at 7:30 a.m.

Marlon is currently facing numerous charges, including:

• Thirty-two (32) counts of offering a false document for filing or recording
• Two (2) counts of theft of property by false pretenses
• Two (2) counts of obtaining property by false pretenses from victims over the age of 60
• Five (5) counts of forgery

According to Secretary of State officials, Marlon targeted homeowners who were anxious or desperate to sell their homes. Using an alias, he would tell a homeowner that he would assume the responsibility of their mortgage in exchange for the deed to the home and, in some cases, a small amount of cash, sometimes as little as $200.00.

After taking physical possession of the home, Marlon would then rent the home to new tenants, collecting rent, but never paying the mortgage as he had promised the original homeowner. Homeowners would then find out after a few months had passed, that no payments had been made on the loan, which was still in their name.

Nevada officials believe Marlon used a series of fraudulently created corporations as part of the transactions, and made promises to his victims that were not made in the documents he presented for the victims to sign. He also told his victims that a real estate agent could not be involved in the transaction, and that he would take care of all the paperwork. To the unsuspecting victims, what Marlon presented was an opportunity to avoid looming foreclosure and a ruined credit rating.

State officials are continuing their investigation by working directly with the office of Nevada’s Attorney General. Homeowners should always be aware that if they sell their home but do not make sure that the mortgage is paid off as part of the transaction, they will still be obligated to pay the lender and the property will go into foreclosure. Using a reputable title company should assure that the mortgage is paid off by the buyer before title to your home is transferred. Most mortgages cannot be “transferred” to a new person without the lender’s written permission.

Some of the warning signs of potentially questionable or fraudulent mortgage deals include:

• You are asked to sign a deed or other papers, and the seller promises to pay off your mortgage, but no escrow is opened
• You are told that a real estate agent or title company “doesn’t need to be involved”
• You are told that the buyer will “take over the payments”
• The buyer tells you he will buy your house for the sum of the mortgages owing and an additional amount of money which he will pay in cash.

State officials are seriously concerned that the initial charges against Marlon represent just the tip of the iceberg. If you live in Nevada and believe you have been the victim of real estate or mortgage fraud, please contact the Nevada Secretary of State’s office at (702) 486-2440, or (775) 688-1855.

For more about this case, read the Criminal Complaint against Matthew Marlon.