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February 29, 2008

SEC Charges Three for Victimizing Military Families in Real Estate Fraud Scheme

The Securities and Exchange Commission (SEC) has charged three people who targeted military families in a multi-million dollar real estate fraud scheme that forced victims into personal bankruptcy and their homes into foreclosure. The scam also targeted other affinity groups, including members of Southern California’s Filipino community and the accused’ fellow church members. James Duncan, Hendrix Montecastro, and Maurice McLeod stand accused of soliciting investors investors in Southern California, Arizona, and elsewhere using sham investment seminars and “referral partners” including a member of the Air Force who solicited his fellow servicemen.

The SEC’s complaint alleges the three men gained control over investors’ finances by offering them securities in the form of real estate investment contracts, and purporting that the money investors earned would help make mortgage payments on investment homes purchased on their behalf. Instead of investing client funds as promised, Duncan, Montecastro, and McLeod operated a Ponzi scheme by using money from new investors to make mortgage payments on previously purchased investment homes. When the scheme unraveled, it cost more than 75 investors an estimated $10 million.

With the type of fraud Duncan, Montecastro, and McLeod operated (commonly referred to as “affinity frauds”), con artists infiltrate tight-knit groups by showcasing a respected member of that community as one of their successful investors, giving the false illusion of a safe and secure investment opportunity and conning new investors into their Ponzi-like schemes.

Between October 2004 and June 2006, Duncan, Montecastro, and McLeod operated through Murrieta, Calif.-based Pacific Wealth Management, LLC (PWM) and Stonewood Consulting, Inc., to defraud investors from several affinity groups. The SEC’s complaint alleges that all three falsely promised investors that their funds would be invested in real estate and various other investments that would subsidize their investment homes. The SEC’s complaint further alleges that Duncan, a recidivist, raised $1.2 million in a separate offering of preferred membership units in Total Return Fund, LLC, to approximately 20 investors. The complaint alleges that the proceeds raised in both offerings were commingled and used to run a Ponzi-like scheme that fell apart and left investors with homes in foreclosure and forced some investors to declare bankruptcy.

According to the SEC’s complaint, Duncan, Montecastro, and McLeod failed to disclose several key facts about the purchase of the investment homes. They charged exorbitant real estate transaction fees financed by the investors, and submitted false mortgage loan applications on behalf of investors. The complaint also alleges that Duncan, who was touted as a financial genius, failed to disclose his prior securities laws violations.

The SEC’s complaint further alleges that Duncan and Total Return Fund misrepresented how investor money would be used. Specifically, while the Total Return Fund offering documents stated that 95 percent of investor funds would go towards the purchase of real estate, business assets, or accounts receivable, in fact, investor funds were used to pay returns to prior investors, and were used as part of the PWM fraud.

The SEC’s complaint charges Duncan, Montecastro, and McLeod with violating the antifraud and registration provisions of the federal securities laws, and seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties. The complaint also names Christopher Oetting, Anthony M. Contreras and Biocybernaut Institute, Inc., as relief defendants, alleging that they received ill-gotten gains from the defendants’ fraudulent conduct.

Posted By: Ralph Roberts @ 11:49 pm | | Comments (0) | Trackback |
Filed under: Arizona, California, Ponzi Scheme, Real Estate Fraud, SEC

February 28, 2008

Michigan passes loan officer registration legislation; State’s police train officers on investigating real estate fraud

Great news out of the state of Michigan this morning. The state’s Senate and House of Representatives has approved a series of bills, which if enacted by the Governor, will create a validating registration process for Michigan mortgage loan officers. As reported earlier week by Crain’s Detroit Business, the bills require loan officers to meet specific and measurable educational requirements, register with the Michigan Office of Financial and Insurance Regulation, and undergo a criminal background check. The newly passed legislation also include measures that prohibit loan officers from engaging in fraud, intentionally failing to provide borrowers with required information, or issuing false or misleading ads about mortgage loans or their availability, according to Crain’s.

In a press release issued yesterday afternoon by the Michigan Mortgage Lenders Association (MMLA), Dan Grzywacz, MMLA’s president said that enactment of the legislation “will be very effective in removing the small minority of ‘bad actors’ from the mortgage origination business and will enhance the skills and professionalism of loan officers.

Under the passed legislation, registered loan officers will be included in a national database in order to track their registration status and compliance record. This national database is expected to help thwart bad loan officers who travel or move across state borders to continue their unscrupulous practices.

Hats off to the Michigan Senate and House of Representatives for passing these important measures!

In related news, Michigan State Police (MSP) investigators report that they are now better prepared to handle cases of mortgage fraud following a two-day mortgage fraud investigation and prosecution training held earlier this week in Livonia, Michigan. The training, which was a cooperative effort between the MSP, Michigan Attorney General’s Office and the mortgage industry, drew more than 40 law enforcement officers and mortgage industry personnel.

With mortgage fraud becoming more prevalent, it is important that investigators have the tools needed to both identify it and build a case against an offender,” says Detective First Lieutenant Marty Bugbee, commander of the MSP Criminal Investigation Section.

Developed specifically to address mortgage fraud in Michigan, the training consisted of classroom instruction and scenario-based workshops. Officers learned how to identify fraudulent activity, as well as advanced investigative techniques that will lead to a higher likelihood of prosecution.

Here again, hats to to the Michigan State Police (MSP) for conducting this type of training and for engaging in the process of planning future training sessions for additional law enforcement personnel. Great Job!

Posted By: Ralph Roberts @ 12:43 pm | | Comments (3) | Trackback |
Filed under: Legislation, Michigan, Mortgage Fraud, Real Estate Fraud

February 27, 2008

Cash Back at Closing Perks Used to Stimulate Real Estate Sales

The mortgage meltdown and resulting foreclosure epidemics are an American crisis that will require the united efforts of all citizens of the United States to come together and resolve. Professionals in the real estate and mortgage lending industries need to stop paying homage to the almighty dollar and limitless profits of those good years and hunker down with homeowners to get through these hard times. As I see it, this is the only hope we have to keep the American Dream of homeownership alive.

Fortunately, a large majority of professionals in the real estate and mortgage industries are trustworthy and dedicated to the long-term health of their businesses and careers. Unfortunately, too many professionals are focused entirely on their own short-term interests.

Recently, one of the true blue professionals in my industry called my attention to a situation in Arizona in which she suspects rampant fraud is taking place. She is an honest, well-informed real estate agent who is dedicated to doing her part to clamp down on fraud in the real estate industry, which she loves. She has witnessed other professionals, driven by greed, become involved in cash back at closing schemes that are designed to stimulate the sales of condos by providing buyers with $18,000 to $40,000 in cash (undisclosed to the lender) following closing.

To further hide what was really going on, the people involved in this alleged scheme adjusted it so the cash back would not be paid as a lump sum but paid out in installments in the form of guaranteed rental payments. This tactic did not fool our whistleblower. She tells her story here.

I am writing this because of my concern regarding all of the mortgage loan fraud that has been in the media specifically in the past year.

You are about to read my experience over the past year and what I believe to be a sophisticated case of loan fraud.

My background

I first started in the industry as a RE/MAX receptionist in 1990, since which time I have acquired over seven years experience in the new home arena, over seven years in the resale arena, and three years in the corporate office of a mortgage company.

January 2007

I interviewed for a position the first business day of the New Year and started the following week. I was excited as this gave me an opportunity to explore a whole new area within the new homes arena.

The community, Sunscape Villas, Scottsdale, AZ consisted of 442 units. Sales of the units began in early 2006, and over 210 units were closed on from May to Dec 2006.

Developer/Seller – Partners:

  • Crown - California company
  • MCZ Centrum - Chicago company

Sales and Marketing by:

  • Urbis Properties, Cheryl King, Owner (Licensed)

We were told to get ready as they were in the process of finalizing a special program for one of their power brokers who worked with a lot of investors. We weren’t given much detail only that it was a program similar to what they were doing Landmark on Central (4750 N Central, Phoenix, AZ) that helped sell and close over 70 units. Landmark was Cheryl’s prior community, in the final stages of close out. The Developer/Seller was Crown (out of California) one of the partners at Sunscape Villas.

March 2007

The details had been ironed out and they were ready to launch the new program. A sales meeting was scheduled to go over this program along with two other similar programs that were going to be offered to different groups.

It was stressed to all of us the importance of these programs not getting out to the general public as they were only being offered to the select groups. Making matters worse, the three groups each had different deals set up and no one could know about the other.

Power Broker No. 1 - Moser & Perry

  • Greg Moser, Realty Expert (Licensed)
  • Jay Perry, Estate Planner (unlicensed)
  • Moser & Perry’s Preferred (only) Lender: House 2 Home (Mike Low, Owner)

The program was set up to allow the investors to cash flow for the first couple of years. Two days after close of escrow an Option to Purchase agreement would be drawn up by Urbis and sent to the office of Moser and Perry for Buyer’s (now owner’s) signature and bank wiring instructions. The office of Moser and Perry returned signed Option and wiring instructions to Urbis who would forward on to Seller (Crown/MCZ Centrum) for a pre-determined amount (8-21% of purchase price) to be wired into the Buyer’s (now owner’s) bank account. All parties knew there was never the intent for the property to be (re)purchased per the agreement.

Editor’s Note: This was just a way to kick back money to the buyer under the guise of paying for an option to purchase the property from the buyer, when nobody had any intent of ever purchasing that property from the buyer.)

Greg Moser was set up on a graduated co-broke: 6% for the first 25 sold, 7% for the second 25 and 8% for everything thereafter. He felt confident that he could sell between 70 and 100 units.

The sales staff was instructed that there would be nothing in the purchase contract nor would there be anything in writing regarding the Option given to the buyer. They were told just to refer any/all questions from the Moser clients back to Greg Moser or Jay Perry, all sales needed to do was show the property and print out the contracts.

We were given strict instructions that this agreement COULD NOT be signed until two days after close of escrow. In addition we were told that since this happened outside of closing, neither the real estate broker nor the title company needed to know, as well as this ‘incentive’ was not to be disclosed to the appraisers coming to the sales office for comps of recent closings.

I recalled reading an article on AZ Central.com about Cash Back at Closing, I began questioning if this could be done. I forwarded a copy of the article to the Urbis team. (I had forwarded a few helpful articles before that). After several discussions around the office, a point was made to let everyone know that this was not the same thing as what was written about on AZ Central. We were assured that the attorney’s had looked at the agreement and said that it was legal. A gal in our office was mid-way through her real estate licensing classes and Cheryl King suggested she asked the instructor, which she did and was told that they couldn’t do that. When told what she had learned, Cheryl King brushed it off as not being explained the right way.

Having been in the industry for a number of years, I understood the mechanics of the Option to Purchase. This was not the way I recalled seeing this used in the past. I started to question my knowledge base, but, I didn’t push the issue. After all, who was I to question the corporate attorney or Cheryl with her MBA and paralegal background?

I wasn’t the point person for Urbis and the Option Agreements, as Cheryl had taken on three new listings, two of which I was in charge of the entire contracts & closings process, so I was very busy with those duties. It was out if sight, but never far from my mind.

Being a reader of all things real estate related, I’ve gained valuable insight through out the years. I always make sure I can back up what I’m saying in writing via various publications, statutes, and disciplinary orders. People in my office have referred to me as “a walking real estate encyclopedia,” and Cheryl gave me the nickname “Sherlock” and would come to me frequently to find out this and confirm that, as she was beginning to trust that I knew what I was talking about.

Summer 2007

MCZ Centrum had bought out Crown, making MCZ/Centrum the sole seller / developer for Sunscape. Roles and responsibilities that had been handled through Crown in California had been moved to various people / departments at MCZ/Centrum in Chicago. Shortly thereafter, Moser was informed that certain heads at Centrum were not comfortable with the Option program currently being offered, and it was just a matter of time before they pulled the plug on it.

Moser threw a fit, he was not happy. The Option program was what he was selling (40+ had already closed). Several contracts had been printed and were out to the buyers, and he believed many more were on the horizon. He didn’t understand why they would go back on their word and not let him continue selling under the program exactly the way it was. He had held many seminars, generated from his (and House 2 Home Lending’s) regular talk radio spot on real estate investing, which aired on Wednesdays at 4:00 p.m. on 1100 KFNX-Phoenix).

Then came all the talk of loan fraud becoming a felony starting in September. The change in events piqued my interest into revisiting my original feeling of this not being legal. Why would they stop something that was obviously selling condos? Why was this program never rolled out at the other Urbis listing? Was it possible it was not as legal as everyone was lead to believe? EQR, new Urbis listing, a publicly traded company would have nothing to do with it.

Would this have anything to do with loan fraud becoming a felony in Arizona?

In mid-August, we were informed that the Option program had ended and we were rolling out a new program — Master Lease, Lease Subsidy, Rent Guarantee — it changed names several times as it was being drawn up. I felt a little bit better about this program at first, because at least the title company knew about it as they’re who connected Cheryl with Noteworld.

When the Rent Guarantee program was rolled out, the only difference was instead of the buyer getting a lump sum payment back from the seller after close of escrow, the lump sum payment was going to Noteworld and they would in turn distribute monthly installments to the buyer for 12 or 18 months depending on the terms.

Sunscape had over 30 resale properties listed for sale on the MLS, some of which had been on the market as long as I had been with Urbis. It was apparent that the developer’s pricing was factored in when setting the resale pricing. The majority priced lower than the sales office advertised price – not a single unit had sold.

The Sales office closed 84 units in 2007 (36 under the Option program, 25 under the Rent Guarantee program, and 23 advertised public program); thelast public deal closed on August 10. Not a single Sunscape re-sale sold despite being priced lower during the same time frame.

Leading me to explore further, I looked at other condo’s in our same zip code. According to MLS data there were 43 comparable condos (non Sunscape) that closed from Oct 1, 2007 – Jan 21, 2008 in zip code 85251. The average price per sq. ft. for a one-bedroom/one-bath/was $168 (ours $244 & $276); the average price per sq. ft. for a two-bedroom/one-bath was $171 (ours $276-$325); and, the average price per sq. ft. for a two-bedroom/two-bath was $163 (ours $289).

Needless to say, Sunscape is showing all of the classic signs outlined in the many articles that I had been reading for the past year. We are the only community in zip code 85251 (probably the entire valley) that didn’t see property values decline over the past year.

The appraisers were not informed that 73% of the 2007 Sunscape closings included a non-disclosed cash back after closing ($18,000 to $40,000) given to the buyer.

I originally thought NONE of the appraisers were aware of the of the program, until I discovered one of the two appraisers sent to Sunscape to do all of the appraisals for House 2 Home Lending purchased a property at Landmark on Central under the program. The Owner of House 2 Home, Mike Low, his son Justin Low, his brother Andy Low purchased several units at Landmark under the program.

The final piece of this horrible puzzle has begun with the foreclosures (three are currently scheduled for trustee sale, which were bought under the original Option program with cash back given back to the buyer after close of escrow).

I understand from everything that I have read that it can sometimes take years for these cases to unfold and difficult to prove. I hope that all of the information that I have compiled over the past year will help in expediting the process and stop this before it goes any further.

Ruth Lamb

When you see rampant mortgage fraud like this being committed by the very professionals that we trust to do the right thing, it becomes very difficult to place faith or trust in our fellow Americans or to trust the systems we have in place to protect us. In this case, the perpetrators are being rewarded, not only with increased commissions from selling properties with inflated values, but we also see the companies they work for rewarding them for their supposed achievements.

Until this stops and we get serious about policing our industry and shutting down the fraud, it will continue to chip away at the very foundation of our industry. It will generate distrust among our clients and potential clients and eventually lead to the demise of the industry on which all of us earn a living and feed our families.

We need to begin to follow this whistleblower’s lead and, like her, have the tenacity to follow through and put the fraudsters out of business for good!

Posted By: Ralph Roberts @ 10:17 pm | | Comments (83) | Trackback |
Filed under: Appraisal Fraud, Arizona, Cash Back at Closing, Foreclosure, Mortgage Fraud, Real Estate Fraud

February 26, 2008

The Year of Lending Dangerously

The Santa Clara County (California) District Attorney’s Office has been hit with a surge in complaints about real estate and mortgage fraud, even as funding to prosecute these cases is plunging. From The Mercury News:

The district attorney’s office opened 125 new investigations into mortgage scams last year, four times as many as in 2006, prompting one prosecutor to call 2007 “the year of lending dangerously.” The total loss to victims topped $40 million during the 2006-07 fiscal year, the office said.

Funding to prosecute these cases is tied in part to the real estate market, so the slowdown in home sales has led to a drop in the amount of money coming into the district attorney’s office.

The situation has led to grumbling in the legal community over the pace of prosecutions.

Ron Rossi, a San Jose real estate lawyer who said he is seeing more mortgage-fraud cases now than in his 39 years of practice, is “convinced the DA is probably overwhelmed with the number of cases. They are very hard to prosecute and are not normally what DAs do. DAs are normally involved in hard crime. The staffing is probably not enough to even get close to what’s going on in the industry.”

‘Slow,’ ‘frustrating’

“It’s incredibly slow, it’s incredibly frustrating,” said a civil attorney who has dealt with the district attorney’s office on real estate fraud matters; he asked not to be named because he expects to do so in the future.
“The cases are streaming through the door, and we’re doing our best to cover it,” said Deputy District Attorney Mike Fitzsimmons, one of only two lawyers assigned full time to real estate fraud. Fitzsimmons said he’s working nights and weekends to keep up with the volume.

The budget shortfall could exacerbate the problem. If funding continues to decline, the office may have to cut staffing, the district attorney said in a report to the board of supervisors this month.

The primary funding source for the district attorney’s real estate fraud unit is a $2 portion of a county real estate document recording fee. The money declined from $1 million in previous years to $544,000 last fiscal year because fewer documents were recorded due to the record slowdown of home sales.

That’s the same amount of money the district attorney’s office had nine years ago with a much lighter caseload, Fitzsimmons said.

Fitzsimmons has drafted legislation, sponsored by the California District Attorneys Association, that would give county boards of supervisors the option of doubling the amount set aside for real estate prosecutions to $4.
The legislation, SB 1396, was introduced by Sen. Dave Cox, R-Roseville.

Complicated cases

The cases pose a particular challenge for prosecutors because they tend to be complex. A typical criminal real estate fraud case involves multiple parties, voluminous documents and three to five search warrants, according to Deputy District Attorney James Sibley, the other lawyer assigned full time to real estate fraud.

“That means that from when somebody walks in the door, it could be six months” before charges are filed, he said.

The unit has 2 1/2 investigators and a paralegal.

The cases are a mixture of identity theft, misrepresentation of loan terms, loan applications with exaggerated statements of income and assets, and flippers who illegally skim equity from homes they never intended to occupy or pay for.

A recent case involved 90 boxes of seized records, according to the real estate fraud unit’s annual report. Another involved 100 boxes of evidence, along with seized computers.

In one case, Sibley said, a minister who signed his name to a home loan for one of his parishioners had his identity stolen by the mortgage agent, who used it on two other properties.

In another case still under investigation, elderly victims lost their life savings to a man who falsely claimed the money would be used to fund loans on Bay Area property. Victims’ total loss in that case is more than $43 million, the district attorney said.

A husband and wife are facing prosecution on an illegal flipping scheme in which the couple bought 10 homes in the San Jose area worth $8.5 million, qualifying for the loans with false statements of income and assets.
Some of the workload is being shifted to other deputy district attorneys, and larger cases may be referred to the U.S. attorney “because it just chews up too many of our man-hours,” said Scott Tsui, supervising attorney for economic crimes.

Other district attorney’s offices around the state have been hit with similar floods of cases, according to Stanislaus County Deputy District Attorney Marlisa Ferreira, who compared notes with other prosecutors at a recent meeting of the state association.

In Stanislaus County, “We’re completely overwhelmed with complaints,” Ferreira said.

Posted By: Ralph Roberts @ 10:16 pm | | Comments (0) | Trackback |
Filed under: California, Mortgage Fraud, Real Estate Fraud

February 25, 2008

Cay Clubs Resorts: What Crime?

Many people who read my posts about Cay Clubs Resorts and the various individuals who promoted Cay Clubs properties as no- or low-risk, no-hassle investment opportunities may wonder whether a crime was ever committed. Perhaps Cay Clubs investors were simply speculators who got burned when the housing bubble burst. After all, this happens to investors in the stock market all the time — stock prices rise and fall, and the speculators who buy in just before the crash take the biggest hit.

Unfortunately, the people who were promoting Cay Clubs Resorts knew they were carefully orchestrating a smoke and mirrors scheme to deceive investors. In this blog entry, Paul Doroh–my colleague at Ralph Roberts Realty and a co-author on my latest book, Foreclosure Self-Defense For Dummies–lays out the case against Cay Clubs Resorts and its promoters.

Cay Clubs Resorts: What Crime?
By Paul Doroh

Everyone who bought a Cay Clubs Resorts property had a special set of circumstances and an independent reason for signing up with Cay Clubs or one of its affiliates. What is common to each investor is that they were materially misled concerning several elements of their Cay Clubs transactions.

Most investors were roped into the sale by the expectation of huge profits at little or no risk to them and little or no money out of pocket. The properties were presented to mom and pop investors using elaborate marketing brochures and claims of huge equity returns. Although Cay Clubs promoters were usually careful to insert a small disclaimer that “past results are no guarantee of future returns” and “invest at your own risk,” the predominant message in all of their marketing materials was that investors could expect huge returns, sometimes in excess of 200 percent over a short period of time. These returns were presented as reasonable expectations, when they were, in fact, anything but reasonable.

Many owners were induced to “sign up” based on these representations alone. At the time Cay Clubs was making these representations, they knew them to be inflated, self-created, and patently false and misleading.

Pressuring Investors to Act Quickly

Many investors were given little or no time to perform their due diligence. Cay Clubs used high-pressure tactics to elicit closings without the proper measure of investigation by prospective buyers. Cay Clubs created its own hype and used it to pressure owners into buying units, often times sight unseen, for fear of losing out on the “opportunity.”

Pushing Its “Preferred Lender”

Cay Clubs often encouraged owners to use its preferred lender as a way to control the process and prevent investors from obtaining information from unbiased, independent sources. Cay Clubs went so far as to promise additional returns if buyers would agree to use Cay Clubs’ inside loan originator. Cay Clubs had pre-selected brokers to help them pull off the closings. Loan officers placed loans using falsified or misstated incomes and other financial information about the applicants. The loan officers often falsified the nature of the purchase (claiming an investment property as a second home, for example) in order to receive larger commissions. Brokers knowingly encouraged owners to leave vital information blank, explaining that they would fill it in as needed to guarantee approval. Applicants relied on the loan originator’s advice. Cay Clubs held these loan originators out as mortgage professionals. Owners were confused in many cases and relied on expertise of Cay Clubs and the people it recommended.

Providing Inflated Appraisals

To validate the prices they were charging for properties, Cay Clubs hired cooperative appraisers to provide inflated appraisals. In several cases, the appraiser was from a distant geographical location and had no idea of what comparable properties were selling for in the same neighborhood as the Cay Clubs properties. Investors were lead to believe and did believe that the unit values were a true reflection of their market values. Cay Clubs knowingly created a false market value for its units either by fixing the price of comparables or by promising glamorous renovations and improvements. Most of the improvements were never completed and promises never fulfilled.

Investors were discouraged from using their own real estate agents, who would probably have encouraged them to hire their own independent appraiser. A local agent representing the investor would have easily seen that the property values were inflated and discouraged his or her client from buying the property.

Falsifying Homeowner Association Documents

Cay Clubs proffered one set of homeowner association documents to prospective buyers and then changed the documents before recording them with the recorder’s office. The duly recorded documents were never provided to buyers for review before closing. The recorded documents appear to exempt all common areas and retain them in fee to Cay Clubs. Owners in many Cay Clubs locations do not own an undivided interest in the common areas. This misrepresentation materially affects the value of the property and was intentionally concealed from buyers.

Recruiting Cooperative Real Estate Professionals

Cay Clubs recruited real estate professionals who were not licensed to conduct business in the state where the properties were located in order to validate Cay Clubs’ wild claims and give investors a false sense of security. Owners relied on the information and representations made by these real estate agents, believing that they were receiving unbiased, independent advice.

Enticing Investors with Illegal Cash Back at Closing Kickbacks

Cay Clubs promised and provided cash back to buyers that was not disclosed to the lenders, making it illegal. The cash back was disguised as “guaranteed lease back money.” Lenders knew nothing of the lease back money, and it was not disclosed on the HUD – instead it was part of a separate side deal. Owners were misled to believe that this was a legitimate and perfectly legal process. Cay Clubs employed attorneys and licensed escrow professionals to assure owners of the legality of the cash back money. This misrepresentation was just one more piece in Cay Clubs’ shell game. It allowed Cay Clubs to continue to perpetuate its fraud without creating questions in the minds of investors. Cay Clubs, by way of an affiliated company, kicked back as much as 20 percent of the purchase price to buyers, all without the lender’s knowledge.

The Fallout: Property Values in a Freefall

The final common element among all Cay Clubs transactions is that every investor has seen the values of their units plummet. As the scam unravels and units are foreclosed or abandoned, or left in a state of disrepair, values continue to fall. Many units have seen the value drop as much as 60 percent. The inflated values are coming to light and true market values are being reflected. Lenders are facing the loss of hundreds of millions of dollars. Owners are facing foreclosure or the proposition of continuing to make huge monthly payments on fraudulently placed, massively inflated mortgages. Owners cannot sell their units for the debt owed and in many cases cannot even pass clear title. In some cases, Cay Clubs has cost investors their life savings and retirement savings, ruined their credit, torn apart marriages, and shattered people’s lives. Cay Clubs has benefited to the tune of millions of fraudulent dollars and continues to perpetrate the fraud on unsuspecting buyers through shell successor companies.

= = = = = = =
About the Author: Paul Doroh is one of the co-authors of Foreclosure Self-Defense For Dummies and a subject matter expert in the legal implications of foreclosure. Paul works alongside Ralph Roberts and many other talented real estate professionals and support personnel at Ralph Roberts Realty in Washington Township, Michigan, where he frequently assists homeowners grapple with foreclosure and gain more control of their housing-related situation.
= = = = = = =

Posted By: Ralph Roberts @ 11:24 pm | | Comments (25) | Trackback |
Filed under: Cay Clubs Resorts

February 24, 2008

Taking the Foreclosure Crisis Personally

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Editor’s Note: The following Guest Commentary was written exclusively for FlippingFrenzy.com by Larry Rubinoff, branch manager of a Clearwater Beach, Florida office of Mortgage Lending Direct, a dba of MLD Mortgage, Inc.

Larry’s commentary is his and his alone and does not necessarily reflect the views or opinions of the management of FlippingFrenzy.com. You can read Larry’s thoughts here on FlippingFrenzy.com most Saturdays or Sundays.
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As mentioned in the recent post, “Rally Is on to Stem Foreclosure Epidemic,” the government, mortgage lenders, and consumer advocacy groups are scrambling to come up with all sorts of solutions to stem the rising tide of foreclosures in the United States and resuscitate a flagging economy. Unfortunately, all of these fixes tend to be stopgap measures designed to make their proponents look good rather than offering real long-term solutions to suffering homeowners.

I say that we need to take this foreclosure crisis personally. By that, I mean that we need to toss out all the traditional policies and automated foreclosure systems and put people in charge of solving this very human crisis. We need to replace the collection robots with living, breathing, caring people. We need to give management back the decision-making powers based on their knowledge and knowledge of the situation. Throw away the policies and procedure manual that might read like this:

“…upon a 90 day default from a borrower, no remedial action shall be taken by our firm and the file is to be immediately turned over to our attorneys for foreclosure action regardless of any extenuating circumstances that may exist with a borrower which would otherwise have us rethink and possibly restructure our loan with them.”

No, this isn’t a real policy quoted from anyone’s manual, but it’s a pretty good depiction of how the system currently operates. In fact, I was told by one lender when attempting to work out a loan for a client, “They will have to bring the account current before we can even begin to discuss anything.” That’s just mind boggling — a Catch 22 if there ever was one. “Well,” I replied, “if they could do that they wouldn’t be delinquent nor need my services and we wouldn’t be having this conversation.”

Where is the logic? A lender forecloses, incurs thousands of dollars in legal fees, earns no interest, pays thousands of dollars to prepare the property for sale (in addition to holding costs, including property taxes and insurance), sells the home for well below what was owed them, and pays the listing agent a commission. They take the write down, diminishing the value of their own company and reducing their operating income. As a result, they have to lay off a good portion of their personnel to compensate. (GMAC had to lay off 15% of its automotive finance unit due to collection problems. Citigroup recently laid off 20,000 due to their mortgage shortfalls. Employees of Merrill Lynch faced similar layoffs, as did employees at other lending institutions.)

Would it not be better to freeze a rate for a homeowner who has been paying at that rate rather than foreclosing and kicking the person (and his or her family) out on the streets? In the extreme, would it not be better to cut the rate in half rather than foreclose? Any contractual obligation can be renegotiated by both parties. If the lenders/mortgage note holders wanted to offer solutions to borrowers, they could.

Look at the benefit of the extreme — cutting the rate in half.

Say someone is paying 8%. Due to extenuating circumstances, such as an expensive family illness or company layoffs (see “Homeowners Aren’t the Only Ones Hurt by the Mortgage Meltdown“), the person is unable to make the monthly mortgage payments.
If you were the lender, would you rather have:

  1. A non-performing loan that will cost you tens maybe even hundreds of thousands of dollars if you foreclose.
  2. A property physically deteriorating, as vacant foreclosed homes typically do.
  3. A further reduction of the property value and neighborhood value.
  4. A loan returning zero percent income prior to, during, and after the long foreclosure process that can last for 12 months or more.
  5. A loan that loses value for the investor in the mortgage-backed security (MBS).
  6. Moreover, most of all, creating a homeless situation for an American family.
  7. A LOSE/LOSE situation for EVERYONE.

Or

  1. A well maintained property, maintaining value.
  2. A property maintaining the value of the neighborhood.
  3. A loan that is no longer a complete write off but is still producing income.
  4. A return to the investor in the MBS, albeit smaller. Isn’t something better then nothing?
  5. No cash expense and loss to the lender.
  6. A steady stock value of the lender.
  7. A family that remains in its home.
  8. A WIN/WIN situation for EVERYONE.

This solution is not for everyone. The speculative “investor” earning $25,000 a year who purchased 10 properties while living in an apartment (true story) should not be saved. Investors in general, who purchased for little or no down payment with the intent to “flip” and got caught up in this crisis, BY NO MEANS deserve a break. However, to the owner occupant, with qualifications, I say why not?

We don’t need legislation or political maneuvering. The government can’t and shouldn’t bail out mortgage lenders and homeowners. The people who created this crisis are the best people to resolve it, and “people” is the key word; this crisis requires people working together to develop rational, practical solutions. Our country has always prided itself in coming together when times are tough. Now, times are tough. Corporate America, you are part of the citizenry and should “come together.” Your profit motives brought this crisis on, and the fallout is destroying you as well. Do you not see the potential for self-preservation?

There is more to this story and additional solutions. More is coming. Stay tuned.

Posted By: Larry Rubinoff @ 6:35 pm | | Comments (4) | Trackback |
Filed under: Adjustable Rate Mortgages, Foreclosure, Larry Rubinoff, Mortgage Meltdown, Uncategorized

February 22, 2008

Former Florida Mortgage Broker Sentenced to 7 Years in Prison

A U.S. District Judge in Florida has sentenced a former mortgage broker to seven years in prison and ordered him to pay more than $2.3 million in restitution for his role in a mortgage fraud scheme that racked up more than $17 million in fraudulently secured loans. Justin D. Barker, 31, of Jacksonville, Florida, who was sentenced earlier this week in the Middle District of Florida, was also ordered to forfeit $4,419,024.15, jointly and independently with other conspirators.

According to court documents, Barker’s scheme operated in 2005 and 2006 when he negotiated the purchase of residential real estate properties, either on behalf of himself personally, on behalf of a company he controlled, or on behalf of a third-party buyer. Barker, his company, or the buyer would then enter into a purchase and sale agreement with the seller of the property in question. Barker then retained a licensed real estate appraiser to appraise the property at a significantly inflated price. The appraiser would appraise the property at the price Barker requested, using inappropriate comparable properties and other fraudulent methods to obtain the price requested.

At the closing on the properties in question (more than 40 in total), Barker or his company would receive the difference between the loan amount, which was based on the inflated appraisal, and the actual purchase price, usually described with terms such as “assignment fee” or “payoff of second mortgage” that did not exist. This difference was the proceeds of the fraud.

During the course of the scheme, fraudulent loans totaling about $17.7 million were obtained on more than 40 properties. These loans would not have been approved but for the fraud. To recover some of these illicit proceeds, the government seized from Barker the following items:

  • 2004 Bentley Continental
  • 2007 Cadillac Escalade
  • 2002 BMW 745Li
  • 2005 Chaparral 330 Signature 36′ boat
  • 1997 19′ Wellcraft boat
  • 2006 and 2001 Yamaha motorcycles
  • 2-carat loose diamond
  • 1-carat diamond necklace
  • .5-carat diamond necklace
  • Diamond stud earrings
  • Two Movado watches

Barker’s co-conspirator in the case, a title agency manager named Robert W. Hulbert Jr., pleaded guilty to the same charges and was sentenced this past December to three years in prison.

Posted By: Ralph Roberts @ 10:16 pm | | Comments (2) | Trackback |
Filed under: Appraisal Fraud, Florida, Mortgage Fraud

February 21, 2008

Michigan Tax Accountant Sentenced for Mortgage Fraud

A Dearborn Heights, Michigan, tax accountant has been sentenced serve five years in prison and ordered to pay more than $11 million for his role in a mortgage fraud scam that defrauded lenders nearly $22 million in loses. Kalil Khalil, 36, according to court documents and information released by the United States Attorney for the Eastern District of Michigan, admitted that during a 2½-year period beginning in January 2001, he participated in the preparation of fraudulent loan applications and related documents that were submitted to mortgage lenders. Each of Khalil’s loan packages was fraudulent in one or more of the following ways:

  • The purpose of the loan was not to buy or refinance a residence
  • The borrower described on the application was not the true borrower
  • The description of the borrower’s employment was false
  • Documents purporting to substantiate the borrower’s employment (W-2 Forms, check stubs) were bogus
  • The appraisal was inflated and forged
  • Title to the property was not free and clear
  • The title company purporting to guarantee clear title was merely a name used by Khalil and his codefendant, Tariq Hamad, to carry out the scheme
  • Photographs were included that depicted a property other than the property identified in the loan application

Many of Khalil’s fraudulently prepared loan packages were approved and the loan proceeds were wired from the mortgage lenders, which were located outside of the State of Michigan, to bank accounts controlled by Khalil and Hamad that were located in metropolitan Detroit in the names of straw title companies. Khalil used most of the fraud proceeds to buy and sell stocks.

In addition to his prison sentence and order to pay approximately $11.1 million restitution to mortgage lenders and a legitimate appraisal company whose name he used on bogus appraisals, Khalil received a three-year term of supervised release following his exit from prison. He also agreed to forfeit his interest in bank and securities accounts containing about $300,000 that were seized by the government as part of its investigation.

Khalil’s codefendant, Tariq Hamad, 37, of Dearborn, pleaded guilty to one count of wire fraud in December 2006 and was sentenced in September 2007 to 9 years’ imprisonment and ordered to pay restitution in the amount of $11.4 million. The judge in the case, U.S. District Judge David M. Lawson, noted that he would have imposed a similar term of imprisonment on Khalil had it not been for Khalil’s substantial cooperation with the government in unrelated investigations being supervised by the U.S. Attorney’s Office.

Posted By: Ralph Roberts @ 1:15 pm | | Comments (0) | Trackback |
Filed under: Appraisal Fraud, Michigan, Mortgage Fraud, Real Estate Fraud, Trial

February 20, 2008

Cay Clubs Resorts & the International Association of Investors: The Old Pump and Dump

In the first decade of the 21st Century, Cay Clubs Resorts with a little help from its friends, including IAI (International Association of Investors), were involved in what can best be described as a pump and dump scheme. During the first half of the decade, when real estate was a hot commodity, they were busy pumping–selling Cay Clubs Resorts condo conversions as low-risk, no-hassle investment opportunities. In 2007, when the housing bubble burst, they converted to dump mode–leaving investors with inflated mortgages, unfinished condo conversions, and property worth a fraction of its purchase price.

One of the investors who got burned by Cay Clubs Resorts and IAI recently forwarded to me an email letter she received during the pump phase of this operation from Don Burnham, CEO and Founder of International Association of Investors (IAI) and Creator of the Christian Wealth Builders Seminar Series. The letter, which is pasted in below word-for-word (punctuation and all) with the recipient’s permission, shows former Federal Reserve Chairman Alan Greenspan’s concept of “irrational exuberance” applied to real estate investments.

Sent: Monday, January 10, 2005
Subject: Hi Sharon, Don Burnham Here!

Hello Sharon,

The year 2004 year was a real great year. And 2005 will even be better. IAI has evolved into an incredible investment tool for its members. Now member/investors can invest all across the country just as if they are investing in their own neighborhood. IAI has become an investment instrument which packages high yielding real estate investment while minimizing the risk. Our members are making money because IAI has open up the hottest real estate markets to them no matter where they live.

My son Marc grossed $120,000 in profit on a Condo Conversion deal in Tampa while he lives in Portland, Oregon. He bought 3 units at IAI prices and flipped all three, making $40,000 each.

Don and Judy Jacobs spent the summer in Maine while their IAI investments made them over $50,000. Then they still had a unit left over so they came down and lived in it while their brand new home was being built

Walter and Deborah Bakaletz in Salem Massachusetts bought two units at Latigo in Vegas for $159,000 in November. Next month they will close on both that are now appraised at $192,000.and get $66,000 in equity. They bought these units after buying 2 units in Clearwater Fl $300,000 that are now worth $447,000. That’s about $300 grand in equity and they did it from their easy chair. They have not even seen their Vegas units yet.

The Hughes’ wrestled with using their home equity to buy a couple of units in Orlando. They live In Miami. Well they did and made $50,000 on each unit.

Put a couple of more testimonials

!FANME!, Clearwater Cay which you may have gotten in at $300 per foot and $350 per foot was just appraised at $447 per foot. No kidding, I told you it would happen. Now that means if you got a 1000 sq foot unit you made about $150,000 a unit. Folks, I have five of them. On those five units combined, I made $750,000. You are reading this right. If you who bought in Las Vegas Cay, I believe the same thing is coming down the pike.

Sharon, if you bought at $300, I believe we will see appraisals of $450 by the time we close (I have five of those too?) Bingo another $150,000 a unit. Some of you paid $350 but against an expected $450 appraisal that is still $100,000 a 1000 sf. The numbers work great.

Look at Latigo which were much less expensive units. Some of our members paid $159,000 for a two bedroom and it is now worth $192,000 and it is not going to closing until next month. Now tell me what’s that unit going to be worth next year at Vegas appreciation

Sharon, last week we introduced a high rise, up scale, condo conversion deal at $350 a foot with high-rise condos in the same area going at $500 a foot. Now that deal is a moneymaker for our member/investors. In a few weeks I will be introducing a great investment deal in Sarasota right on the water. Not only is it on the water, but it also has a marina. Also we got deals coming up in Key West and Nassau.

Sharon, we are humming with real estate deals that are great moneymakers. Of course, as always you must do your own due diligence and not depend on my opinion or what I say.

And while are projects, all our projects are making money for out member/investors we must always inform you that past investment results are not necessarily indicators of future investment performances. Be that as it may IAI members are making money so IAI has to be doing something right

Well Sharon, that is what has been going on. I hope to see you out there in Miami, Sarasota, Vegas, Key West, Nassau and all the hot markets that are yielding fantastic returns. Be er oa faithful member of IAI. Consider all the investments presented. Listen to my National Tele-Conferences. Come to the seminars across the country using our Fly & Buy program.

Take our bus rides to the investment projects. Come earn, come learn that is what IAI is all about.

Happy New Year

Don

What I find most disturbing about this letter is that Burnham uses the old caveat “past investment results are not necessarily indicators of future investment performances,” to warn investors, but throughout the letter, he uses past investment results to pump up the prospective investor’s expectations of future profits! This only goes to prove what has been said time and time again, “If it sounds too good to be true, it probably is.

Posted By: Ralph Roberts @ 5:37 pm | | Comments (5) | Trackback |
Filed under: Cay Clubs Resorts

February 19, 2008

2nd Person Sentenced in St. Louis Mortgage Fraud Scam

Daniel Mann of Arnold, Missouri, was sentenced to 15 months in prison today for his role in a mortgage fraud scheme that previously netted his partner-in-crime a three-and-a-half-year jail term. Mann pled guilty to a one-count information filed by the U.S. Attorney for the Eastern District of Missouri in November of 2007. At that time, he admitted to participating in a mortgage fraud ring headed by Dack Daugherty of St. Louis. Daugherty was sentenced last month and ordered to pay more than $576,000 in restitution.

Mann admitted to teaming up with Daugherty on several properties for a scheme that involved lining up properties from distressed sellers who were willing to take a below-market sale price for a property and matching them up with willing buyers (in and of itself, there’s nothing wrong with that). Daugherty and Mann, however, arranged 100% financing for the buyers by means of false mortgage applications, which typically included lies about a buyer’s finances and intention to occupy a property. Buyers were also promised cash payments after closing that were not disclosed to the lending institution (can anyone say, illegal cash back at closing). In all, the scheme involved more than 60 properties, mostly in South St. Louis, that ran from 2005 through 2006.

Mann’s 15 months sentence was accompanied by an order to pay $84,820 in criminal restitution to six mortgage companies defrauded by his actions.

Posted By: Ralph Roberts @ 11:54 pm | | Comments (0) | Trackback |
Filed under: Missouri, Mortgage Fraud

February 13, 2008

Federal Jury Convicts Mortgage Fraudsters

Following a two-week trial, a jury in federal district court returned guilty verdicts late Monday afternoon against Keith Garner, Gregg Savage, Shalonda Harris, all of Atlanta, Georgia, and Latesha Garner, of Durham, North Carolina, on charges of conspiracy to commit mortgage fraud and wire fraud related to $6 million in fraudulent real estate financing from SunTrust Mortgage Company over a ten week period in the summer of 2006.

According to court documents, Keith Garner, 48, solicited his daughter, Latesha Garner,27, a loan processor with SunTrust Mortgage, in the spring of 2006 to handle fraudulent loan applications submitted on behalf of straw borrowers recruited by the elder Garner and his co-conspirators. Because she was responsible both for verifying borrower employment and asset information as well as for approving closing documentation, Latesha Garner was uniquely positioned to defraud SunTrust Mortgage, which she did by falsely verifying borrower credentials and approving hundreds of thousands of dollars in false payoffs to her father.

Keith Garner paid Latesha $33,000–the equivalent of one year’s salary–across four transactions to facilitate his criminal scheme. He also enlisted the help of Susan Khodadad, a closing paralegal with several area real estate firms, to ensure that the false payoffs to Garner and his co-conspirators were included in SunTrust Mortgage’s loan documentation. Khodadad pleaded guilty to the conspiracy count of the indictment prior to trial and testified against her co-conspirators.

Focusing on the “Country Club of the South” and other high-end developments and subdivisions in the Atlanta area, Keith Garner and his fellow fraudsters acquired numerous properties in the name of their straw borrowers, often without the straw borrower’s consent. Each of the properties was accompanied by an inflated appraisal, which, in addition to the submission of false loan applications, enabled Garner to secure real estate financing from SunTrust Mortgage in excess of the fair market value of the properties. He then stole the “spread” between the inflated and fair market value of the properties primarily through Latesha and Khodadad, who ensured that SunTrust Mortgage either directly paid a bogus seller’s obligation or was never made aware that a substantial portion of seller’s proceeds was being paid to the defendants outside of closing pursuant to a criminal agreement with the seller.

Gregg Savage, 24, was convicted of realizing more than $830,000 in false profits in just seven days as a seller of two properties, from which he paid Keith Garner $200,000 for supplying the straw buyers. Shalonda Harris, 36, a licensed REALTOR, was convicted of receiving $66,000 from Keith Garner and Savage related to her role in locating properties and straw buyers on two indicted transactions.

Each faces a 20-year prison term and $250,000 fine on the conspiracy count of the indictment and a separate 20-year prison term and $250,000 fine on each of their wire fraud convictions. A sentencing date has not yet been scheduled.

Posted By: Ralph Roberts @ 11:41 pm | | Comments (0) | Trackback |
Filed under: Arrest, Georgia, Mortgage Fraud, North Carolina, Real Estate Fraud

February 12, 2008

Rally Is on to Stem Foreclosure Epidemic

Just yesterday, Countrywide Financial Corp. announced that it was partnering with the community advocate group, ACORN (Association of Community Organizations for Reform Now) to expand relief for its borrowers who are facing foreclosure. Today, the Bush administration followed up with its own foreclosure relief expansion plan — “Project Lifeline” — giving distressed homeowners an additional 30 days to work out more affordable payment options with their lenders.

The new program is designed to help all homeowners who are having trouble making their monthly mortgage payments, instead of restricting assistance to those with high-interest, subprime loans. Project Lifeline was developed through the collaborative efforts of six of the largest lending institutions in the United States, which collectively service nearly half the mortgages in the U.S. The banks that have agreed to participate in the program so far are:

  • Citigroup
  • Countrywide
  • Bank of America
  • JPMorgan Chase
  • Washington Mutual
  • Wells Fargo

According to this new program, lenders will contact homeowners who are more than 90 days delinquent in their mortgage payments and offer them the option of delaying the foreclosure for 30 days while they explore options for making the mortgage more affordable.

Who does not qualify?

  • Homeowners already in foreclosure.
  • Those who have a foreclosure date within the next 30 days.
  • Investors who took out the mortgage loan to purchase an investment property or vacation home.

Both of these expanded relief programs are steps in the right direction, both for homeowners and for neighborhoods and communities. Hopefully, more mortgage lenders will follow suit to cover 100% of those who are in jeopardy of losing their homes and their equity as a result of foreclosure. It is only right that the lenders who contributed to creating the current crises do their part to fix it.

Posted By: Ralph Roberts @ 5:10 pm | | Comments (4) | Trackback |
Filed under: Countrywide, Foreclosure, Mortgage Meltdown

February 11, 2008

Cay Clubs Resorts: An Incriminating Letter

The people behind the Cay Clubs con are like shape shifters, constantly changing their cash back at closing scheme to avoid detection, but they cannot hide from the fact that they used lease back at closing as a way to draw investors into their trap.

Recently, I received a copy of a letter sent by Ricky Stokes to a prospective Cay Clubs investor. This incriminating letter demonstrates just how slick of a salesperson Ricky Stokes really is. Even knowing the history of Cay Clubs Resorts, after reading the letter, I was just about ready to pick up the phone and buy a Cay Clubs condo!

I am joking, of course.

I share this letter for two reasons:

  • To provide evidence of Cay Clubs marketing modus operandi
  • To help inoculate consumers against this real estate fraud virus — by reading the letter, you will be better equipped to spot the warning signs of fraud

As you will see from this letter, Stokes was certainly stoked up about Cay Clubs Resorts and its lease back at closing (aka cash back at closing) kickbacks. He promoted Cay Clubs Resorts as best thing to come along in real estate since FHA financing.

Dear Laura,

It was really great to speak with you over the phone today, and nice meeting you at the conference as well. Thank you for your interest in our investment properties I have attempted to assemble information on most of the projects that might be pertinent. I realize this is a lengthy letter, but please take the time to absorb the information. I want to make sure that I tell you as much as I know concerning “Cay Clubs” and this way of investing. Let me begin.

Here are a couple of very important highlights:

The minimum increase in property values any investor has experienced in the last 7 years is 48%, the most anyone has realized is over 300% and the average year over year for most properties is 164%.

After looking at the information, I feel very sure you will agree nothing compares to the value. Historically I have done very well with investments on these Cay Club properties.

CONVERSIONS

The first of two choices to property investment vehicles with this company is the conversion process. Our conversion is not just slapping paint and carpet in the building, changing the paperwork and calling it a condo. Cay Club conversions take what use to be a hotel or townhouse rentals and completely renovate them to incredibly high standards, rezone them to allow daily and nightly rentals, and then build a resort around them.. The renovations include: expensive upgrades (granite counter tops/plasma TVs/professionally interior designed), expensive furniture packages, marble and tile floors, and multiple amenity additions. The cost of the furniture package alone ranges from $30K to $70K depending on the size of the units. These renovations are necessary to bring the property up to the status required by the signature “Cay Clubs”. We build resorts with short term vacation rentals.

“Cay Club” members have reciprocal rights at all Cay Clubs nationwide. The membership has many values in and of it self, including private jets, yachts, lodging and dining discounts. Cay Club membership are required for each property purchased. After your purchase, we can lease your property back from you for a period of either one or two years depending on the property. This lease money is paid in one lump sum 30 days after the rescission period following closing on the property.

Investor level properties are available at $50-$100/SF below replacement cost/appraised value Because the property is sold below value cost, our lenders may provide 100% financing on condo’s and town homes, 90% financing on condo-hotels.

Your value increase is realized when the unit is sold to the end user. There are sizeable tax advantages owning investment property. You may sell your unit at anytime. We provide exit strategies. After the property is sold out to investors, our retail sales force will handle the resale. This process is what you are normally accustomed to, with realtors and brokers etc. Secondly, we offer property management if you desire to continue to own your property. Looking at the rental history before your lease expires will help in your decision.

Example: In Clearwater/St. Pete, a purchase of a townhouse conversion for $500K was made. Your lease back for this example is $75K (this is their guaranteed lease back…kick backs are illegal). The lease monies after closing should cover most of your outflow for the next 2 years. With appreciation sitting at around 23%, you could sell the property before your lease expires and realize a significant property increase

Example 1 20% appreciation:

Original purchase price: $500,000 (@400/sf=1250)
Appreciation year 1: $115,000 (20% $642800)
Purchased at 400/ft
Appraised/worth 450-500/ft
Appreciation year 2: $115,000
Recap: Purchase for $500K, worth $642800
Plus 2 years appreciation 230000
Total Value $872800
Less 6% at time sold ($52368) realtor fees etc. est.
Profit $320,432

Example 2, 5% appreciation.:
Original purchase price: $500,000 (@400/sf=1250)
Appreciation year 1: $32,140 (5% $642800)
Purchased at 400/ft
Appraised/worth 450-500/ft

Appreciation year 2 $32,140
Recap: Purchase for $500K, worth $642800
Plus 2 years appreciation 64,280
Total Value $707,080
Less 6% at time sold ($42,424.80) realtor fees etc. est.
Profit $164,655.52

This is a unique ability to purchase property with little money out of pocket.

With over 6000 people moving to Florida every week, there really is no end in site as to when prices will stop rising on housing, especially waterfront. Monroe County is at 27%, Hillsborough is 23%, and Lee County was 44%. You can’t find any printed material which has “bubble” and “resorts” in the same paragraph.
You ability to become part of our group is dependant upon future openings and the result of a simple screening process

I don’t want to appear to be too good to be true, but the figures speak for themselves. After taking a look, decide to invest AT YOUR OWN RISK.

We want you as a customer for life. While performing your due diligence, please refrain from obtaining information from our retail sales staff, or web pages. There are entirely different price levels between the retail and the investor levels and policies in place preventing overlap.

Availability is as follows:

Marathon
600-800K
$35K membership
14 available.
Condo-hotel

IMG Acad.
1.049-1.3M
$35K membership
4 available
Townhouse

Orlando
250-$550K
15-25Kmembership
450 available
Condo

Tavernier
310-380K
$35K membership
259 available
Boat slips

Sarasota
180-300K
$15K membership
80 available
Boat slips

Walkers Cay
500K-5M
$50K membership
550 available
Condo

Preconstruction:

Las Vegas
400-1M
Membership fee TBD
Units available TBD
Tower condo

Clearwater
Price TBD
Membership fee TBD
Units available TBD
Condo/hotel

Tavernier
Price TBD
Membership fee TBD
Units available TBD
Townhouse

Your next step is to make the decision. Should you be interested you may call my office for more information. I am an investor, just like you. I am taking the risk just like you.

Feel free to contact my office should you have any further questions at 239-466-2886. I believe in striking while the iron is hot.

Good luck with your investing and call me when you are ready to move forward.

Regards,

Ricky Stokes
Director of Investor Relations
Suite 318 PMB 321
5100 S. Cleveland Avenue
Ft. Myers, FL 33907
239-823-0696
239-728-2886 fax

Following are some items in the letter I would like to highlight, to call your attention to some of the warning signs inherent in these types of scams:

  • Exaggerated estimates of appreciation: The minimum increase in property values any investor has experienced in the last 7 years is 48%, the most anyone has realized is over 300% and the average year over year for most properties is 164%. Wow! Who wouldn’t want that?!
  • More goodies: Private jets, yachts, lodging and dining discounts. This sounds like Lifestyles of the Rich and Infamous.
  • Leaseback payment: No out of pocket expenses. You get a lump sum payment covering your first two years of expenses. Never mind that cash back at closing is illegal. As the letter says, “This is a unique ability to purchase property with little money out of pocket.”
  • 100% financing on investment property: Legitimate lending institutions rarely approve 100% financing, particularly on investment properties.
  • Hassle-free way to invest in real estate: We take care of everything. Just tell us when you’re ready to sell, and we’ll sell it. If you want to rent your property, our property management team can find renters, collect payments, and care for the property.
  • Limited opportunities, act now! : You ability to become part of our group is dependant upon future openings and the result of a simple screening process.
  • CYA (cover your assets) : “…invest AT YOUR OWN RISK.” If this weren’t so serious, this line would be hilarious. Stokes does everything possible in the letter to allay the recipient’s fears of any risk and then says, “invest at your own risk.”
  • Don’t do your own research: Whenever someone tells you to “refrain from obtaining information from our retail sales staff or web pages” or any other independent source, watch your wallet.
  • Different price levels: As long as you don’t poke around too much, we’ll offer you a special price.
  • I’m taking the risk with you: “I am an investor, just like you. I am taking the risk just like you,” Stokes writes.
  • Act now! Strike while the iron is hot.

Remember, if it sounds too good to be true, it probably is. If you receive an offer like this and feel the urge to invest, just make sure you have your own people watching your back:

  • Order an independent appraisal of the property.
  • Hire a Realtor who specializes in representing buyers and who knows the local market.
  • Hire an attorney who specializes in real estate review the paperwork.

Is hiring all these people expensive? Yes, but not nearly as expensive as buying a worthless piece of real estate for a half million bucks.

Posted By: Ralph Roberts @ 7:37 pm | | Comments (16) | Trackback |
Filed under: Cay Clubs Resorts

February 9, 2008

The Credit Crisis - Subprime Mortgages and Various Idiots

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Editor’s Note: The following Guest Commentary was written exclusively for FlippingFrenzy.com by Larry Rubinoff, branch manager of a Clearwater Beach, Florida office of Mortgage Lending Direct, a dba of MLD Mortgage, Inc.

Larry’s commentary is his and his alone and does not necessarily reflect the views or opinions of the management of FlippingFrenzy.com. You can read Larry’s thoughts here on FlippingFrenzy.com most Saturdays or Sundays.
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Below is the first (and sadly the last) email message I ever received from Richard Whitworth (it arrived in December 21, 2007). Even though it is a solicitation for MORsystems, after reading the copy, as reprinted in italics below, I felt compelled to excerpt it here as it exposes much of the causes to what has been called the “mortgage meltdown.”

As regular Flipping Frenzy readers know, I have written several articles on this topic and will write even more. It is probably one of the greatest economic disasters in this country’s history, and history may record it along with the Great Depression of 1929.

Richard Whitworth said the following, and I have added my comments below each of his. I admire his ability to see what is and report what he saw and knew. We need more like him, and with his passing this great country of ours loses an important voice.

Richard Whitworth: We are in a credit crisis brought on by a lack of confidence–so what’s next? The crisis has exploded beyond Wall Street, driving the dollar to record lows–and now it appears to be sending the prices of commodities, especially oil, to historic new highs. The results could be extremely destructive for the economy in general. The subprime crisis and the ripple effect in commodity and foreign exchange markets raise the odds of a recession.

Larry Rubinoff: The crisis truly has exploded beyond Wall Street and well beyond the mortgage industry. Little is reported on the effects it is having in world wide economics and finances. Recession is now being reported by major economists and Wall Street firms, yet I believe that we have been in a “silent” recession for the past six months. Major banks worldwide (Deutche Bank, UBS and HSBC to name just a few) have been impacted by what has happened here. You can add French banks, Australian banks and even the Chinese government investment fund.

Richard: Estimates from various sources show that the subprime mess will ultimately cause $250 to $500 billion of losses. It is inevitable that more players will have to revalue at least a portion of assets that are presently held. Another important point — the majority of these collateralized debt obligation or “CDO” assets do not reside in institutions; they are scattered through various pension funds, insurance portfolios, hedge funds, etc. Those losses haven’t even been addressed yet.

Larry: Mr. Whitworth makes some very good points here. I feel his estimates of losses to be conservative at this point in time, although it may not have been when he authored this. All players will eventually have to revalue and report their asset positions and write downs, but until it all comes out in their reports, we will not know the actual extent of the damage. We know that Fannie Mae delayed their reporting, and when delay was no longer an option, they reported write downs of almost two billion dollars with much more to come. Freddie Mac also will report billions in write downs and the so called safe, government-supervised buyers of conventional loans are racking up their losses as well. This is not and has not been just a sub prime crisis as we are being led to believe.

Mr. Whitworth referred to losses in pension funds, insurance portfolios, hedge funds, etc. which are now beginning to surface, but losses to stockholders of public corporations have not even been addressed or factored in yet. Just on example of stockholders’ losses would be American Home Mortgage, trading at over $42 per share and whose stock value went to 34 cents in one day after they ceased operations and closed all of their offices nationwide. They were one of the leading mortgage lenders at the time, not in subprime and in business for over 10 years as a real estate investment trust (RIET). There are many more examples of this in the over 200 mortgage companies that ceased operations since the end of 2006. This loss of equity has yet to be calculated into this crisis.

Richard: The banks are not forthcoming with any detailed information on their true positions, making it difficult for anyone to assess what the future really holds. Uncertainty is holding the financial and real estate markets in a huge vacuum, where it is difficult to function normally.

Larry: So true. Banks are not forthcoming and are hiding not only from the public and their depositors but to their stockholders as well. The uncertainty is not only making it difficult for us to “function normally” but making it difficult to function, period. This will only cause a prolonged resolution to this problem. Until we admit to it, how can we begin to resolve it?

Richard: So let’s see if we can get a clearer picture of the players, and the mistakes made by some of the most powerful institutions in America. How did the banks begin purchasing huge amounts of high-risk mortgage debt and bonds that most investors and analysts thought the firms were selling to their customers?

Larry: Here, Mr. Whitworth raises one of the most relevant questions.

Richard: Instruments of Doom: First on the list of instruments involved; the collateralized debt obligation, or CDO, a type of investment vehicle that buys and sell Bonds. Wall Street banks typically do not actually operate CDOs; instead, they create CDOs for their clients, take a fee, and then move on.

Larry: CDO stands for collateralized debt obligation, a security created for sale by investment houses. These CDOs were typically secured with mortgages on American real estate, which has always been considered to be one of the safest investments in the world. So, did Wall Street have a very beneficial, economic, self enriching motive to create and sell these?

Richard: This is the main point of departure and the critical mistake made by the Wall Street banks–greed and fear set in, and they began to change their normal mode of operation–they became huge investors in the funds they generated. A very risky move — more on this as we move ahead.

Larry: Probably more greed then fear. Let’s hear more.

Richard: Here’s how a typical CDO backed by subprime mortgages works. The game begins when a client comes to a Wall Street bank and requests financing for a CDO that will hold, for example, $2 billion worth of bonds backed by subprime mortgages. The banks also created a variety of bonds backed by the interest and principal payments the CDO collects. Wait — there’s more… the bankers also create tranches of securities with different interest rates and levels of risk.

Larry: OK now, let’s see if we can understand this. The “game,” and it was a game even Las Vegas could not duplicate, had a structure most could not understand or comprehend. The client went to Wall Street and wanted to finance a CDO, a financial instrument, which was comprised of bonds, another financial instrument, which was backed by mortgages, yet another financial instrument that had first or second lien positions on real estate. Whew! Do you get it? Let me see if I can explain it. Credit for credit backed by credit backed by more credit backed by an asset that was financed for more than its value. In other words, at the end of this pyramid there was very little compared to what was pledged all the way up the line, all paying interest to someone that owned any part of it. Down at the bottom of this pyramid were the homeowners who were paying some pretty high interest on property they could not afford, but they were sold on the fact that homeownership was a tradable commodity, not a necessity of life called shelter — a place to live and raise your children, retire, and pass on to heirs. The game, as Mr. Whitworth calls it, is the game of Monopoly. We all played it, not with real money or real property. The only winners in the game of Monopoly were Milton Bradley, the creators of the game. Who were the only winners of the real life version of Monopoly?

Richard: The banks then peddle their wares to hedge funds, pension funds, money market funds and other investors. The appeal to investors is simple: The CDOs pay better rates than corporate issues with identical credit ratings–which brings me to the rating agencies.

Larry: Hedge funds would borrow up to 20 times the money invested. Barclay Bank of England is suing Bear Stearns for their $400 million investment into one of their hedge funds. This is yet another example of borrowed funds used to loan to other borrowers who would loan to other borrowers. Getting confusing yet or are we beginning to see a clearer picture?

Richard: Here’s another genius move made by the banks–many of those instruments offered, in essence, guaranteed returns. The refund policies, technically known as “liquidity puts,” were crucial. Those guarantees allowed the credit rating agencies to bless the investments with AAA ratings. An example of the idiocy of this particular move: The two now defunct Bear Sterns hedge funds relied on guarantees from Citi to raise $10 billion from money-market investors for three CDOs, well derrr!!

Larry: “Guaranteed returns?” Guaranteed by what? Do I need to tell you that the only two things guaranteed in life are death and taxes, and I’m not too sure about taxes when it comes to the top 5 percent. Now, let’s look at the rating agencies — Fitch, Moody’s, and others. Oh, if they rate something good, then it must be good, right? Were they part of this, and are they complicit in some of this fraud? For the past few months, they have been downgrading to negative ratings almost everything they gave AAA rating to. Didn’t they know how all of this was structured? If they are so called financial experts and when “they speak, everybody listens,” then they knew and understood much better then you and I about the house of cards they were rating.

Richard: The rating agencies may be the main culprit in the game. They were extremely lax in their initial ratings on subprime mortgages — none of those offerings ever deserved an AAA rating. Never mind that now with the cat out of the bag, they are still slow to downgrade subprime paper and securitizations.

Larry: They were not lax they were negligent in their fiduciary responsibility knowing the extent to which their evaluations are relied upon as accurate and factual. We believe they do the research and let us know what they find. What research did they perform and what do they make from all of this?

Richard: This should not be a surprise to anyone, because the ratings agencies also prosper from the rising tide of credit issuances. Moody’s, Fitch, and S&P literally ignored the erosion in the credit quality of the offerings and basically elected to give the issuers the ratings they asked for. Amazing that issues that were rated AAA just months ago are now being re-written at junk bond status. Sadly, the rating agencies are great at passing the buck when things go wrong, and they will probably sneak by any SEC scrutiny.

Larry: Well public, let’s not let them get away with this. Everyone needs to bear the true consequences of their actions. They should be held accountable.

Richard: Back to the Banks…as the fees kept rising through the good times, the banks got greedy; they began buying big chunks of AAA paper themselves and loading the debt onto their own books. Even when the markets began to sour–foreclosures, home prices dropping, etc., the banks continued on their buying binge. All of a sudden, they found that they needed to feed those CDOs in order to keep the game alive. That was the kiss of death for Merrill’s CEO, Stanley O’Neal, and for Citi’s CEO, Charles Prince.

Larry: Well, I’m not so sure that it was the “kiss of death” for the CEOs. How much did they get in severance? Did I hear over $150 million for one? But even more important is that they were rolling the same dollar back into their balance sheets over and over again. They bought the paper they sold, got the deposits from all of the cash-out refinances, created more loans, sold more loans, helped create more CDOs, bought the CDOs, and so on in a never-ending circle–no real dollars in this game, all paper, all credit, all bookkeeping entries from money that was borrowed from the borrowers who borrowed from other borrowers who borrowed…

This could be the greatest Ponzi scheme in the history of the world, and the perpetrators have the nerve to blame it all on mortgage brokers.

Richard: Wall Street banks are now holding tens of billions of dollars in risky securities on their own books. At this point in the game, it is difficult to assign an actual value to them. The banks are changing their estimates of the value of these assets as frequently as they change their underwear.

Larry: They are holding paper. If these companies are public and under the regulation of the SEC, then the SEC should call for a major independent accounting that the SEC would oversee. Let’s account for what is actually there, like real cash values. The more I read and write, the more I want to play this game of Monopoly. Can I pay? Somewhere even if everyone loses, the house wins. My game, my house, I win!

Richard: The SEC is on the attack, requesting real numbers and information from Merrill and other banks on what they knew at the time they were telling investors and the public that all was wonderful and they were in control of the situation.

Larry: My message to the SEC is this: Don’t request, demand! You are our regulatory agency that we have charged with the responsibility of keeping things honest. Are you still on our side?

Richard: Bottom line, the subprime story is far from over… it will likely take a few years for the whole thing to shake out.

Larry: No this story is nowhere near being over. The problem will take more years to discover and many more years to fix. This cannot be done overnight, cannot be done by blaming and destroying an industry (mortgage brokers), and is so international in scope that the whole world needs to come together on this one in order for it to be fixed.

From Richard’s Office: Sadly, this is Richard Whitworth’s last economic report that you’ll receive. He was in a fatal motorcycle accident 12-8-07. Since he nearly finished this report the night before, we needed to share it with you. Thank-you for your support.

Larry: I wish to express my sympathy to the family, friends, and business associates of Richard Whitworth. I am sure he will be missed by all and by me as well. This one writing of his that I was privileged to have received showed me his true character as a person, a business man, and an American.

God bless you Mr. Whitworth. May you rest in eternal peace.

Larry Rubinoff

Posted By: Larry Rubinoff @ 7:05 pm | | Comments (0) | Trackback |
Filed under: Larry Rubinoff, Mortgage Fraud

February 8, 2008

Friday’s Real Estate & Mortgage Fraud Round-Up

25 Indicted in Chicago mortgage fraud scheme: Federal authorities have charged 25 people in what is considered one of the largest mortgage fraud schemes in Chicago area history. Following a four-year investigation, the FBI and U.S. Attorney’s office alleged in three indictments that more than 150 homes were involved in fraudulent mortgage transactions worth $25 million.

Colorado real estate agents get lesson in fraud: Summit County, Colorado, real estate agents got a lesson in identity theft prevention this week at a workshop detailing a nationwide problem quickly seeping into the industry. Janet Elkins, a fraud specialist at Alpine Bank, gave a quick tutorial on how individuals can prevent against identity theft, as well as how business can make smarter choices to prevent thieves from getting their foot in the door.

Ogden, Utah, businessman charged with real-estate fraud: The Utah Attorney General’s Office has filed criminal charges against an Ogden businessman accused of bilking hundreds of investors out of more than $140 million. Val Edmund Southwick, 62, was charged in Salt Lake City’s 3rd District Court today with nine counts of securities fraud, a second-degree felony. Prosecutors accuse him of bilking 817 investors out of millions in a commercial real-estate investment scheme. The federal Securities and Exchange Commission filed a separate civil action against Southwick over his Ogden-based business, VesCor Capital, which it alleges was a “massive Ponzi scheme.”

State cracks down on mortgage brokers: Colorado regulators Friday announced their first actions against mortgage brokers under a new set of state laws aimed at curbing unscrupulous lending practices. In one case, the state’s Division of Real Estate issued a cease-and-desist order against Cade Emerson Lee, who it accused of acting as an unregistered mortgage broker in Colorado despite having been convicted of felony securities fraud.

Mortgage fraud spiraling out of control in London, England: “Endemic” mortgage fraud on new homes has triggered a wave of repossessions and forced a widespread crackdown by regulatory authorities. Initiatives to address lenders’ concerns that residential mortgage fraud is on the rise are either under way or will be launched by the Council of Mortgage Lenders, Financial Services Authority–the City watchdog–the Royal Institution of Chartered Surveyors and police forces around the country.

Michigan tax accountant sentenced in $21 million mortgage fraud case: A Dearborn Heights, Michigan, tax accountant, convicted of stealing $21 million in a mortgage fraud scheme, was sentenced in federal court Thursday to five years in prison. U.S. District Judge David Lawson sentenced tax accountant Kalil Khalil, 36, to 60 months in prison for wire fraud based on a two-and-a-half-year scheme to defraud mortgage lenders.

Kingpin of $30M mortgage fraud scam in Canada jailed: The kingpin of a $30-million mortgage fraud believed to be the largest in Alberta (Canada) history was sentenced Thursday to six years in prison. Gohar (Carmen) Ahmed Pervez, 45, pleaded guilty to 54 counts of fraud that netted him more than $1.8 million in profit in less than five years. He received two-for-one credit for the two years he has served in the remand centre and is now slated to spend two more years behind bars.

Texas couple indicted for $3 million real estate fraud: A Navarro County, Texas, grand jury handed down indictments against three individuals Thursday, in connection with what prosecutors are calling “an organized mortgage fraud scheme.” Lynn Marriott, 54, and Kandace Y. Marriott, 51, both of Gun Barrel City, along with Karen Hayes, 56, of Kemp, were indicted for the first degree felony. Cpl. Mark Nanny of the Corsicana Police Department uncovered the operation, subsequently bringing in the Housing and Urban Development department (HUD) to the investigation. The defendants were doing business as One Way Home & Land, dealing with manufactured housing. Prosecutors allege the company falsified residential loan applications in order to assure the buyers’ loans were approved by mortgage lenders.

Posted By: Ralph Roberts @ 10:23 pm | | Comments (0) | Trackback |
Filed under: Canada, Colorado, England, Illinois, Michigan, Mortgage Fraud, Real Estate Fraud, Texas, Utah

February 7, 2008

More from the FBI on Real Estate Fraud

Imagine buying your dream home. Your credit is a bit shaky but you manage to secure a subprime loan with an adjustable rate mortgage. A few years later, interest rates jump and you can no longer afford to pay your mortgage. You see an advertisement in a local newspaper for a business that’s willing to help–the ad states they can pay your mortgage for a modest monthly fee while you take the necessary time to get back on your feet. But here’s the bad part: It’s a scam. The company just takes your money and runs!

This is just one of the real estate and mortgage fraud-related schemes the FBI is concerned about, and according to senior criminal investigators at the Bureau, the problem is only going to worsen over the next 18 months. These scams–which I write about in my latest book, Foreclosure Self-Defense For Dummies–include plenty of shenanigans with mortgages and subprime loans and are costing this great nation of ours tens of billions of dollars a year, if not more.

foreclosure1.jpg

“Greed is definitely not good for our economy right now,” says Ken Kaiser, the FBI’s top criminal investigative executive. “It’s hurting homeowners. It’s hurting honest businesses. And it’s hurting investors and markets around the world.”

With those thoughts in mind, the FBI says it is now squarely focused on proactive initiatives designed to crack down on the largest of these financial crimes, and is even shifting resources as trends emerge, all the while working hand-in-hand with a host of government and private sector partners.

In particular:

  • As we wrote last week, the FBI is now investigating 14 corporations involved in subprime lending as part of its “Subprime Mortgage Industry Fraud Initiative” launched last year. The companies being investigated come from across the financial services and real estate industry, from mortgage lenders to investment banks that bundle loans into securities sold to investors.
  • The Bureau now has more than 1,200 open real estate and mortgage fraud cases (that’s up about 40% from last year), mostly involving fraud for profit, where straw buyers and real estate industry insiders rig schemes to buy properties that are illegally flipped or allowed to go into foreclosure.

The FBI also says suspicious activity reports–for potential real estate and mortgage fraud–have increased from 3,000 in 2003 to 48,000 in fiscal year 2007, and are projected to reach more than 60,000 such reports in 2008.

Finally, the FBI’s latest “hotspot list” for real estate and mortgage fraud includes: California, Texas, Arizona, Florida, Ohio, Michigan, and Utah (Utah is new to the list); and, on a somewhat surprising note, the Bureau now says it sees no links whatsoever to organized crime syndicates, street gangs, or terrorist groups in its real estate and mortgage fraud case portfolio.

February 6, 2008

Don Burnham: Good Seed or Bad Apple?

IAI (the International Association of Investors) bills itself as “a Professional Membership Organization that trains and supports its members in developing effective skills, practices, and profitable relationships in a variety of investment areas.” The organization promises to make investing EASY, so easy, in fact, that they uppercase every letter in the word “easy.”

Whenever somebody advertises real estate investing as easy, especially when they use all capital letters, that’s a pretty good sign that you should turn 180 degrees and start running.

Unfortunately, many investors took the bait. One of them recently wrote the following piece, entitled “Good Seed or Bad Apple?”

“I was recently on a conference call with Don Burnham, CEO and Founder of International Association of Investors (IAI) and creator of the Christian Wealth Builders Seminar Series. On the call were Cay Clubs condo owners, some whom were introduced to the Cay Club investment by Don Burnham through IAI. These people were fraud victims who were desperately looking to anyone for help and advice. Knowing this, Don should have been mindful of what he said and how what he said would be interpreted. I found many things said on this call disturbing.

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(photo via Trump Marketing Expo)

One of the topics of conversation was foreclosures on real estate investments. Don Burnham was asked if he thought a borrower should continue to pay their mortgage if it looked like foreclosure was imminent. His comment was to the effect of ‘Why throw good money after bad?‘ The rationale was that too often borrowers try to resolve the situation by calling the lender to no avail. The lenders do not have time to deal with the borrowers until they are in pre-foreclosure or already processing their foreclosures. Those who are trying to prevent foreclosure get ignored — a sad and frightening scenario.

He went on to tell us that we needed to hide our assets, take out a line of credit against our houses, and spend all the money on vacations and whatever else we desired before we went into foreclosure. After the call ended, I wanted to know more about Don Burnham, so I decided to look at his many websites. I found that he is still promoting the Las Vegas Cay Club Resorts property as a ‘Condo Conversion’ investment and has a picture of the property on www.iaimember.com. I also noticed this statement about the Cay Clubs Resorts property:

… members purchased Las Vegas Property 1 Block off the strip at $300 a foot. Later that day at a public offering, that price had gone up to $350 a foot AND NOW THAT PRICE IS AT $400 A FOOT AND CLIMBING! Some of those members made over $50,000 in a single weekend!’

Below are a few quotes from some of his other websites that are used to attract people to use his company for real estate investments:

  • ‘The Christian Wealth Building Institute Seminar Series teaches people to Learn wealth building techniques based on biblical principles and how to become wealthy in the world as well as in the Lord.’
  • ‘Lives changed, marriages saved, fortunes made because people were able to get in touch with the true power, not the financial power, not the social power, not the physical power or the mental power but the spiritual power.’
  • ‘The single most powerful source of success in your life and the best financial partner you can have…The Holy Spirit.’

I learned from FlippingFrenzy.com that con artists often use religion as a way to build trust. I know that many of the Cay Club con artists used this tactic by portraying themselves as religious, church-going Christians who sang in the choir and donated money to charities. Could Don Burnham be doing the same thing? Was he really a victim who purchased several condo units unknowingly or another Cay Club accomplice?

Unlike the con artists, I have no answers, only questions, and I would like to know the truth.

Signed,

The Truth Seeker

I hate to see con artists using religion to build trust. Imagine, this Bible-thumping, church-going, singer in the choir telling investors to rack up debt before the foreclosure! Criminals always find comfort when they can convince others to join them in committing crime.

Fortunately, we still have a few truth seekers who are dedicated to doing what’s right.

If you have had any experiences with Don Burnham, the International Association of Investors (IAI), or the Christian Wealth Builders Seminar Series, please let FlippingFrenzy.com readers know what happened. Through your stories, perhaps we can reveal the truth that our whistleblower is seeking.

Posted By: Ralph Roberts @ 2:18 pm | | Comments (15) | Trackback |
Filed under: Cay Clubs Resorts

February 4, 2008

Georgia Attorney Sentenced to Prison for Mortgage Fraud

Raymond Costanzo, Jr., 63, of Clayton, Georgia, was sentenced last Friday to three years, five months in prison, followed by four years of supervised release, and was ordered to pay $7,843,184 in restitution related to charges of bank fraud and conspiracy in a multi-million dollar mortgage fraud scheme.

From 2004 through 2006, Costanzo participated in closing millions of dollars in fraudulently inflated mortgage loans for unqualified straw borrowers. These straw borrowers were paid as much as $600,000 from fraudulently obtained loan proceeds through shell companies. Costanzo himself obtained mortgage loans totaling over $1.5 million by providing lenders with false qualifying information, and he also falsified down payments. Costanzo received $250,000 in scheme proceeds from this transaction, and arranged for disbursements of fraudulently obtained loan proceeds to co-conspirators.

Such blatant fraud by a licensed professional and real estate market ‘gatekeeper’ cannot be tolerated, which is exactly what U.S. Attorney David Nahmias said about the Costanzo case. “Closing attorneys are the lenders’ eyes and ears at the closing table and must guard against mortgage fraud,” Nahmias said.

The integrity of closing attorneys is essential in the effort to prevent real estate and mortgage fraud. Attorneys who choose to be part of the fraudulent transactions rather than part of the solution should understand that their future may be in a federal prison, right alongside Raymond Costanzo, Jr.

Posted By: Ralph Roberts @ 10:54 pm | | Comments (0) | Trackback |
Filed under: Attorneys, Georgia, Mortgage Fraud, Straw Buyer

February 1, 2008

Friday’s Real Estate & Mortgage Fraud Round-Up

Some mortgage fraud cases will not be criminally prosecuted!: Amid all the anguish arising from the swelling volume of home foreclosures in and around Stockton, California, there has been much talk about real estate fraud. But most of the complaints cannot be criminally prosecuted, representatives of the San Joaquin County Office of the District Attorney said yesterday.

Foreclosure vultures prey on Portland, Oregon, homeowners: As national foreclosure rates hit their highest levels ever, people calling themselves “foreclosure consultants,” are filling Craigslist, billboards and mailers with offers to “save your home.” Detective Liz Cruthers, who investigates white-collar crimes for the Portland, Oregon, Police Bureau, says she’s spending much of her time learning the intricacies of “mortgage rescue fraud” and chasing down the bad guys.

Utah seeks stiffer penalties for real estate fraud: A Utah legislative committee is recommending the passage of a bill aimed at increasing criminal and civil penalties against people involved in mortgage fraud. The Senate Business and Labor Standing Committee on Tuesday unanimously approved SB134 for further consideration by the state Legislature.

FBI targets mortgage fraud in Hawaii: The FBI has opened multiple mortgage fraud investigations in Hawai’i as a result of the fallout from the nation’s subprime mortgage crisis, the bureau’s director said yesterday. FBI Director Robert S. Mueller III, speaking to reporters on a stopover following a trip to Asia, confirmed the subprime mortgage mess has reached Hawai’i.

Countrywide accused of mortgage fraud: Already burned in the subprime mortgage meltdown, lending giant Countrywide Financial Corp. is now under investigation in Florida for possible unfair and deceptive trade practices, state officials said Thursday. Officials say they have received more than 150 formal complaints about Countrywide since setting up a mortgage fraud hotline last year.

Arrest made in Erie, Pennsylvania, real estate fraud case: A key figure in an ongoing federal investigation into suspected mortgage fraud in the city of Erie, Pennsylvania, will plead guilty to fraud and money-laundering charges. The U.S. Attorney’s Office in Erie on Thursday filed criminal charges against Frank Kartesz II. Kartesz, 39, is accused of one count each of mail fraud and criminal conspiracy to commit mail fraud, wire fraud and bank fraud. The government alleges he was part of a scheme in which he and others bought run-down houses and sold them at artificially inflated prices. Most of the buyers were low-income people who knew little about the home-buying process.

Illinois mortgage broker in jail for selling credit histories: Homeowners already worried about with a slumping real estate market and tighter restrictions on home loans should look to the case of an Illinois mortgage broker as another cautionary tale.

Georgia real estate appraiser sentenced to prison for mortgage fraud: After submitting fraudulent appraisals on incomplete houses as part of a mortgage fraud scheme, a Georgia real estate appraiser has been sentenced to prison.