If you’ve been following the reports on the Cay Clubs con, you’ve probably met Carisa and Craig Urban — two investors who got burned by Cay Clubs and one of its property managers, Phil Graham.

On Thursday, March 27, The Oregonian ran an article entitled “Chase mortgage memo pushes ‘Cheats & Tricks’,” in which reporter Jeff Manning exposes an incriminating memo that was being circulated amongst loan officers at JPMorgan Chase. The memo, called “ZiPPY Cheats & Tricks,” encourages loan officers to fudge facts and figures on loan applications, if necessary, to gain approval for loan applications that otherwise would be rejected by the bank’s automated underwriting system, ZiPPY.

(click above to see memo)

The main problem with this practice–in addition to being illegal–is that it deceived loan applicants into believing that they could easily afford payments on the loans for which they were applying. After all, most borrowers assume, “the bank certainly wouldn’t approve a loan if I couldn’t make the payments.” This is exactly what happened to Cay Clubs investors Carisa and Craig Urban, as they relate in their own words:

We are approaching the one year anniversary of our investment in a Las Vegas Cay Club condo, but there’s not much to celebrate. We have sunk into the real estate and mortgage fraud abyss like so many others. It has been a long and grueling process to find someone who will listen to our story, believe what we have said, and assist us in seeking justice.

We purchased our first investment property during the era of the “mortgage meltdown,” when mortgage fraud was on the rise. Recently, we came across a disturbing memo that has been linked to a former Chase Account Representative, Tammy Lish. According to JPMorgan Chase, this is not an official company memo, they do not condone the practices recommended in the memo, and they fired the Account Representative as soon as they discovered who was responsible for it. We don’t doubt any of these claims. From our experience with Chase, however, we do believe that the recommendation in this memo were common practice.

The memo provides detailed information on how to work around the company’s automated underwriting system – a system designed to function as a gatekeeper, rejecting loan applications when borrower do not meet the minimum requirements. Here are the recommendations that the memo contains:

• Always select “ALTERNATE DOCS” in the documentation drop down.
• Borrower(s) MUST have a mid credit score of 700.
• First time homebuyers require a 720 credit score.
• NO! BK’s OR Foreclosures, EVER!! Regardless of time!
• Salaried borrowers must have 2 years time on job with current employer.
• Self employed must be in existence for 2 years. (verified with biz license)
• NO non-occupant co borrowers.
• Max LTV/CLTV is 100%

The memo also provides step-by step instructions on how to gain favorable SISA (Stated Income, Stated Assets) findings; in other words, how to make an applicant’s income and assets look good on paper:

1. In the income section of your 1003, make sure you input all income in base income. DO NOT break it down by overtime, commissions or bonus.
2. NO GIFT FUNDS! If your borrower is getting a gift, add it to a bank account along with the rest of the assets. Be sure to remove any mention of gift funds on the rest of your 1003.
3. If you do not get Stated/Stated, try resubmitting with slightly higher income. Inch it up $500 to see if you can get the findings you want. Do the same for assets.

We find it interesting that there were so many similarities between what the memo stated and what our loan officer from Chase Bank, Ross Pickard, actually did to us and numerous other investors who purchased Cay Club properties. Ross Pickard simply followed the #3 recommendation and plugged in inflated numbers for our income and assets to get the loan approved. That’s mortgage fraud, plain and simple.

He also labeled our purchase as a second home instead of an investment property. When we questioned him about it he said, “We can label it as a second home because with the Cay Clubs lease back agreement you would have possession of the property 2 weeks out of the year.”

In talking with other professionals, we have since come to question many aspects of this transaction. At the time, however, we believed we were working with a legitimate developer and a legitimate loan originator and lender. After all, JPMorgan Chase is no mom-and-pop operation. We approached the transaction believing we could trust these professionals. Cay Club Resorts also offered to waive our first year of HOA fees if we used their preferred vendor, Ross Pickard. I guess this shows our naivety and inexperience as first time investors.

As a result of this fraud, many of us are left struggling to pay mortgages we cannot afford–mortgages that no lender would have approved if it had been given accurate facts and figures. Moreover, we now owe mortgages on properties that are worth less than we owe on them. We can’t even refinance or sell our way out of trouble.

We know that an employee in the loss mitigation department from Chase Bank has been assigned to deal with Las Vegas Cay Club loans, but many owners do not qualify for deed in lieu of foreclosure or a short sale, which would enable us to get out from under these properties without losing any more money.

So where does that leave us? Stuck in the mortgage fraud abyss! The ZiPPY Cheats & Tricks memo is blatant proof that shady transactions were going on behind the scenes.

There is a task force currently looking into Ross Pickard’s bad practices, and it is only a matter of time before the truth comes out. Chase played a major role in the acts committed. Now it is time for Chase Bank to right its wrongs and the deceptive practices of its loan officers.

~ Carisa & Craig Urban

Fortunately, when fraud can be proven to have been committed on a loan application, the borrowers can file a RESPA (Real Estate Settlement Procedures Act) complaint and actually force the lender to renegotiate the terms of the loan. Carisa and Craig Urban have an open and shut case, proving that fraud was committed in approving and processing their mortgage loan.

Our fraud busting team is currently working with the Urbans’. We have carefully audited their loan application and highlighted the specific incidents of fraud that were committed and are in the process of filing a RESPA complaint on behalf of the Carisa and Craig. We fully expect justice to be served and the Urbans’ to receive some long awaited relief.

In “Drinking the Cay Clubs Cool-Aid: Part 1,” I introduced you to Jamie and Joe Castagna — an ambitious and hard-working couple who became ensnared by some silver-tongued con artists pushing real estate investing in Cay Clubs Resorts.

Jamie was a loan processor at the time, who eventually became a licensed mortgage broker. Her husband, Joe, is an electrician who had experience investing in real estate. They knew what they were doing, but as Jamie says, they were so impressed with the Cay Clubs Resorts promises and presentation and the professionalism of their sales reps, that they had few reservations about “drinking the Cay Clubs Cool-Aid.”

As Paul Harvey would say — here is the rest of the story.

We now had a $15,000 Reservation Agreement for a Membership in the Las Vegas Cay Club. We did not know what unit we were purchasing, what the sales price was, how big the unit was, or what the view was like, but according to Ricky Stokes we had secured our spot with another great investment.

On September 20, 2005 we wrote another $5,000 check payable to Clearwater Cay Club to reserve Unit #611. Prior to this time, we had received appraisals showing that our unit in Clearwater was worth OVER $150,000 more than what we had purchased it for. When Colin Brechbill gave us the chance to purchase another unit at the same price “per square foot” as our first unit, we jumped on it.

On October 21, 2005, we wrote another $10,000 check for the remainder of the deposit for unit #611 in Clearwater. After a few weeks, we began to realize that getting financing for unit #611 was going to be much more difficult. We asked Colin and Ricky if they would flip this $15,000 into another Las Vegas unit. They agreed, so we now had two Las Vegas Units reserved. Jamie was purchasing one unit, and her mother was going to purchase the other. The next step was to sit back and wait for the Las Vegas sales contracts to arrive.

We received the sales contracts about three months later, in December of 2005. One thing that always concerned me about Cay Clubs was the disorganization. We would receive contracts with many blanks, sales prices inflated to include the membership fees, no closing date, and so on. We never saw any addendums with the contracts to justify the inflated sales price, such as an addendum showing what the developer way paying. I always requested these sections to be completed, or I would fill them in myself, but it just seemed very unprofessional and bad business practice for a company to handle their legal documents so carelessly.

Once we had a fully executed sales contract, I started working to secure the financing for our unit in Las Vegas. I had contacted Colin Brechbill for his suggestions for who to use for a lender. He sent me an email with contact information for Jose Ramirez at Trans Atlantic. I called Jose Ramirez several times and never received return call, so I tried to obtain financing on my own through other lenders.

By May 23, 2006, I was still unable to locate a lender willing to finance the investment, so I emailed Colin again to see if he had any suggestions. He recommended Ross Pickard at Chase. I quickly made contact with Ross and sent him my loan application and the documents he requested. The appraisal had already been done by The Appraisal Team. My sales price was $296,022 (which included $7500.00 membership fee and $8,622 of seller’s concessions). The appraisal dated March 20, 2006 showed a value of $356,000 – almost $60,000 in instant equity, which represented an approximate 20-percent return, just as Ricky and Colin told us!

After working on this loan for six months, it was finally ready to close. We purchased our Las Vegas Cay Club Unit on July 13, 2006. The title company, Commonwealth Land Title Insurance Company was located in Las Vegas, so we did a mail away. I did not have a closer and had to go to my bank to get my loan documents notarized. We put 5 percent down and paid some closing costs on this property which totaled approx. $18,000 out of pocket.

We opted to have half of our leaseback checks in 2006 and receive the other half of the leaseback money in 2007, so approximately 60 days after closing, we received a check from CC704, LLC for the amount of $20,992.50 — half of our leaseback money.

At this time, we had no concerns about our Cay Club investments, as they both appraised for much higher than what we had paid for them, and we had enough money in the bank to make the payments over the next two years while the developer converted the properties into five-star resorts.

We kept in contact on a regular basis with Ricky Stokes and Colin Brechbill to stay on top of the status of what was going on with Clearwater and Las Vegas. Again, our strategy the entire time was to hold the property for a minimum of one year and one day or a maximum of 24 months. On May 16, 2006, I contacted Colin to let him know that I was interested in selling my unit. This was his response:

What was your original price and contracted price, and how much do you have left on your leaseback? The demolition on the strip mall begins end of next month, so this will create a tremendous buzz around the property, so you will be in an excellent position… of course the longer you can hold, the more capital return you will realize.

As always, Colin encouraged me to stay in the property longer, because the developers were beginning to build the amenities, and this would make the property appreciate even more.

On July 5, 2006 I submitted my first request for our $35,000 “refundable” reservation deposit. Ricky and Colin talked to us and convinced us that we would be giving up a great opportunity if we pulled out of this deal now. So a few more months went by, and we still did not feel comfortable with the project. Nothing was signed, no unit number reserved, and the price point seemed very high. So in October 2006, after requesting our money back again, I received an email from Colin stating: “I can help refund this but I need to put a replacement buyer in your position.”

On November 1, 2006, I was requested to fill out a cancellation form, which I did and sent back right away. A week later, Colin stated that there had to be another buyer that would come in with $35,000 before they could release my money. He tried to put us at ease by telling us that this was such a great deal that if another buyer didn’t show up Colin would personally take our place. A month later, we were still waiting to see if we would even be refunded our “refundable” deposit. Only after I threatened to get my attorney involved did I begin to see some action. Finally in January 2007, we received our $35,000 refundable deposit. Looking back, it was a big blessing that we requested this money when we did, as there are many owners who will never receive their refunds.

When we visited the property in September 2006, we did see some progress (the strip mall was being demolished), but progress was nowhere near what we had been led to believe. Again, I expressed my concerns and urgency to Colin to sell our Clearwater unit. This was his email response:

I may be able to move all your Clearwater Units and any family members you have in. The REIT we have been talking about is here and ready to take the units. I can place a certain amount into the plan for them to take down, this would be about $100 sq. ft. increase from what you paid. Let me know ASAP if and who you want in. I will need unit numbers and price they were in at.

Over the next six months, we waited patiently for the REIT to come in, buy our units, and for us to realize a profit of $100 per square foot (which in our case translated to: 1,140 sq. ft x $100 per sq. ft = $114,000). With that kind of profit hanging in the balance, I was willing to hang in there and keep paying over $4,000 per month even after my leaseback money had run out.

On November 16, 2006, I contacted Barbara Mills, a sales associate for Waterfront Resort Realty, to see what they could do to sell our unit. She kept brining up the fact that our leaseback was not up until May 2007 and that we should wait until then to sell the condo. She emailed me a breakdown of what the going price was ($425.00 per sq. ft., which was less than what Colin told us), an 8.5 percent broker fee, closing costs, etc. We then started to get concerned that the value was not what we thought it was.

In December 2006, we went over to the “office” — a doublewide trailer that Ricky Stokes and Colin Brechbill worked out – of and sat down with them face to face to express our concerns.

I had prepared a Microsoft Excel spreadsheet to show them that we were almost out of money; if we kept the property until the leaseback expired, we would have to pay an additional $24,409 out of pocket. I also brought the email that Barbara Mills had sent to me showing the going price per square foot to see what they had to say about it.

Colin and Ricky danced around every question and again made us drink more of their Cay Club Cool-Aid. Colin was still trying to sell us on another project out in Crested Butte, Colorado, and Ricky (the wise CPA that he is) kept throwing things back in our face, like did you write off all of the furniture package. He said that all you had to do was deed your property into a corporation, and it is a one time write-off, called a 1079. Luckily, we did NOT take his advice and sought the advice of our current CPA instead.

January 3, 2007, we received an email from Colin confirming that the REIT has been consummated and they would spend $250,000,000 over the next four years to purchase condos from Cay Club investors.

On January 16, 2007, Colin emailed me the following:

The REIT has been consummated at has made the initial offer of $1 Billion over the next 4 years, with the initial $250 Million to begin closing in March. The unit selection has not been released at this time as we are all eagerly awaiting this information. Once I receive, I will be sure to update you ASAP, so we can begin your exit of the Clearwater Cay Club.

The news started to get a little better, as we started to think that we did not need to make a big profit. Our main concern was to get out of this property. What we were being told and what we were seeing were not adding up.

In January 2007, we were suppose to receive a $20,992.50 check for the remainder of the Las Vegas leaseback from Cay Clubs, but only received $10,496.25. This came as a shock, because nobody had ever given us a heads up that we wouldn’t be receiving the full amount. It was like a big roller coaster with Cay Clubs, you never knew what to expect; you could only hope and pray for the best as we had close to $1 million on the line in our Cay Club properties.

March 2007 came and went with no sign of the REIT buying us out of our unit as Colin had promised us. We were now starting to realize that we had been drinking too much Cay Club Cool-Aid and that the blinders needed to come off. We had trusted everything that Colin and Ricky had told us. They were our point of contact, and they were in direct communication with Dave Clark, Barry Graham, and all of the other principals of the company. So, how were we to believe anything else?

By April 2007, Cay Clubs was in talks with Key Hospitality for them to acquire all of the equity of privately-held Cay Clubs. This seemed like a great thing for both us and Cay Clubs. The completion of the merger was not expected until the third quarter of 2007. We were forced to wait it out, as the property had not sold yet.

In June 2007, we decided to list our Clearwater property with an agent at Prudential Tropical Realty, as we had little to no faith in Colin Brechbill or Ricky Stokes at this time. She was very familiar with Cay Clubs, and had been around the complex since the time when the condos were apartments. We listed the property as low as we could to just break even. We never received one offer.

September 24, 2007, I received my last email from Colin:

I am in meetings still. It does not look well for Cay Clubs, we are doing all we can to get information but between us looks like they may be closing the doors soon. The lending industry is so tight they can not move any loans to close and this is stifling all payouts and construction.

I know Joe stopped by last week, but we have been doing everything we can to survive the market and save Cay Clubs. I wish there was more I could provide but this is literally all that I know. In my opinion (and only my opinion) I am letting my units go into foreclosure as I can not keep up the payments without any income coming in on these. We have not collected a payment from Cay Clubs since almost Nov. of last year floating this entire organization, they have literally bankrupted me. The SAC is still a 60% shot (this is the Public offering) but this is not until mid October which is just to far for us to continue hanging on.

We now knew that we were in BIG trouble. We contacted an attorney who was representing other Clearwater Cay Club owners and are currently involved in a lawsuit. We are now aware that there was a massive amount of fraud perpetrated in both the Clearwater and Las Vegas properties by Dave Clark and partners. During this time, we continued to pay on our “dead horse,” due strictly to the fact that we always had perfect credit.

In February 2008, after doing the research and seeing the fraud for ourselves in black and white, we made the difficult, life-changing decision to quit paying on our units. We now feel like we are on the right track and fighting back for what has been done to us. I hope that many other owners will come forward as we have to expose those who were behind this fraudulent scheme and bring them to justice.

I would like to thank both Jamie and Joe for having the courage to share their story and warn other prospective investors about Cay Clubs Resorts and similar operations across the country that are doing their utmost to scam honest people out of the hard-earned cash. Hopefully, we can team up with other investors to provide the honest investors with some financial relief and make Part 3 of this story a little less painful.

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Editor’s Note: Due to the personal and off-topic nature of some of the comments being left for this particular blog entry, one person’s privilege of being able to post comments to Flipping Frenzy blog entries has been revoked. As a reminder, comments that are intended as a personal attack or are abusive, harassing, or threatening will not be tolerated, will be removed, and may result in the offending commenter being permanently banned from commenting on this site.
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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.

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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.
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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.”

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.

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.

(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.

The people selling real estate investment opportunities in Cay Clubs Resorts were slick. They didn’t just ensnare unseasoned investors in their web of lies, but they also managed to catch some fairly sophisticated real estate investors who were already experienced.

Recently, I heard from Jamie and Joe Castagna. Jamie was a loan processor at the time, who, as this story unravels, became a licensed mortgage broker. Her husband, Joe, is an electrician who had experience investing in real estate. They knew what they were doing, but as Jamie says, they were so impressed with the Cay Clubs Resorts promises and presentation and the professionalism of their sales reps, that they had few reservations about “drinking the Cay Clubs Cool-Aid.”

Here, Jamie relates Part 1 of the story about how Cay Clubs and Partners turned her and Joe’s lives upside down.

Jamie and Joe met in October of 2002 at Fort Myers Beach. We became good friends and eventually dated. Joe’s main career was an electrician, but in 2001 he started to invest in real estate. Jamie was involved in the real estate industry since high school and at that time was a loan processor. We both had a passion and love for real estate.

We eventually got married in December of 2003 and had our first child May 15, 2004. During this time we started to invest together in different real estate properties and it was a big success. With Joe having gone to real estate training and his previous experience working for a very large real estate education company and Jamie’s background in the financing, we made the perfect team!

As a newly married couple and new parents we had a serious drive to do the best for our family. In January of 2004, Joe secured a job at Findwhat.com and was in the facilities operations department. We continued to search for good real estate deals and worked hard to support our family. In approximately October or November 2004, one of Joe’s co-workers, Colin Brechbill approached him at work one day and said:

“How does a guy like you afford an Escalade on a Findwhat salary?”

Joe proceeded to tell Colin that we invested in real estate. After that point, Colin latched onto Joe like a leach. Joe had brought home different brochures from EarthMark Companies and talked to Jamie about these investments that Colin was offering. Joe said to Jamie, “I know that these investments are a little out of our price range, but please look them over.” Jamie reviewed the brochures and really did not know what to think, due to the limited information provided. The information that was in the package was for property at Mariner’s Club Bahia Beach and Mariner’s Club Key Largo. It included floor plans, aerial views of the waterfront property, an Appreciation Analysis–(showing an average of overall appreciation of 73.22% to 158.54%)–and the history of the company. It seemed like they were established developers with a great amount of success. Jamie figured that it was at least worth taking a look at.

A few weeks later (October 2004), we decided to take a trip up to the Tampa, Florida area to check out the two new developments that Colin Brechbill had told us about. The first place that we visited was at the Mariner’s Club Bahia Beach in Ruskin, Florida. This was a pre-construction opportunity which required 10 to 20% down as a deposit. You then had to close once the construction was complete. The property was shown to us by Jodi Zartman, and she even gave us a coupon to treat us to lunch at the beachfront restaurant that was located there.

After leaving Bahia Beach, we went over to the Clearwater property located in the Grand Venezia. We were told that this was a condo conversion, originally built by the same company as the high end Bellagio Casino/Hotel located in Las Vegas. Colin Brechbill steered us more in the direction to purchase at the Clearwater Cay Club, due to the fact that Dave Clark was splitting from EarthMark and was going to be running Cay Clubs. He also sold us on the fact that we would be getting a 15% leaseback check at the time of closing to pay our mortgage payment over the next 24 months while the amenities were being built. The property at Clearwater was a beautiful condominium complex, and with the added amenities we only saw the upside potential.

After many long talks, looking up information on EarthMark and SunVest (Cay Club’s parent company), and doing our due diligence, we decided based on the information provided and history of the companies’ success we would put down a $5,000 reservation deposit.

We had decided to purchase Unit #1130, even though we had never stepped foot inside the condo. Based on us looking at the outside and imagining what the type of view we were paying for, we trusted that we were getting a great deal. The reason why we could not go inside is because it was currently occupied by tenants and they did not want us to disturb them.

During the next several months we kept reviewing the paperwork that had been given to us showing the professional artist renderings and plans for our future condo. Jamie had also been working hard contacting the “preferred lenders” on the list given by Colin Brechbill. On Thursday, October 28, 2004 Colin emailed Joe some answers to questions that we had and everything sounded good. We first talked to John Garafola, a home loan consultant for Countywide Home Loans, and he told us that he was purchasing a unit in Clearwater too. He was very excited and said that we were getting a great deal. He proceeded to pull Joe’s credit and pre-qualified us for a loan in the amount of $550,000 on November 1, 2004. We then just sat back and waited for the green light to move forward with getting a fully executed sales contract.

During this time, we were so excited about our new investment that we decided to hold a meeting at our home and allow Colin Brechbill to come over and do a presentation on the property and Cay Clubs. We invited our friends, family members, and a Realtor that we knew. Colin arrived late dressed in a suit and said that he had just flew in from Las Vegas (he seemed like a pretty busy guy with the ultimate real estate investment). He delivered his Power Point presentation on our back lanai and distributed marketing materials and his contact information.

Towards the end of November 2004, we were waiting to get our sales contract finalized. Jamie was in contact with Kim Miller in making sure that the contract was written up correctly, as the price had changed from $400 per sq. ft to $350 per sq. ft. (Now we really thought that we were getting a deal!) But there was a discrepancy in the price, as I calculated the price per sq. ft dropped by $50/sq. ft x 1140 sq. ft. = $57,000 difference. So in an email I broke down the numbers for Kim Miller, showing that $350.00/ sq. ft. x 1140 sq. ft. = $399,000 plus $61,600 View Premium, less their initial discount on the condo being $17,700 which totaled $442,900. Needless to say they did not give us the discount, and we purchased the property for $459,900 plus $14,000 towards closing costs which totaled $473,900, final sales price.

They did encourage you to roll in your closing costs and membership fee into the purchase price. (Looking at the bigger picture now, they were doing this to increase the sales prices and to make the comps look better.) The contract that was sent to me was not very professionally prepared, as I would assume it would be. There were blanks left everywhere in the contract. I requested these blanks to be filled in prior to executing any agreement. They did as I requested, so I signed it, and Fed Ex’d it back to the main office in Clearwater with the remainder of our deposit, $43,142.00. In addition to the sales contract, there was an Agreement to Lease with CC 701, LLC. This lease showed that our unit would be rented for 24 months in the amount of $68,985.00.

Now we had a 10% ($48,142.00) NON-refundable deposit sitting with their escrow agent, Stump, Story, Callahan, Dietrich, & Spears, P.A. Again, Jamie was following up with Countrywide to see where we were at with doing the closing. John Garafola at Countrywide kept telling Jamie that we could not close until Clearwater Cay Club/Grand Venezia had received its condo Fannie Mae Approval. There was some problem with the way that the condo docs were written and the developer holding control of the garage units. (Now we believe that it was because they needed somewhere