Tuesday, May 01, 2007

Fraud Grove

UPDATE: Part 2 from KCRA:

As part of a three-month investigation regarding the purchase of 20 Elk Grove homes, KCRA 3 shared details of the scheme with a retired FBI agent who said it appears laws were broken by organizers.

The investors who said they were duped are accusing their loan officer and mortgage broker of lying on loan applications by inflating incomes.

Jim Wedick, a retired FBI agent, said the numbers may have been fudged to ensure banks would loan the money. In the end, those organizing the deal would be assured of receiving commissions.
...
KCRA 3 also found that the value of every house involved in the scheme was also inflated. For example, a home on Otter Creek Way listed for slightly more than $400,000. But investor Walter Bakos ended up paying an additional $20,000. Another house on Borreal Way listed for $420,000, but Johnston, another investor, paid nearly $435,000. By inflating the values, Martin and his partners increased their commissions, KCRA 3 found.
Part 1:
Pat Romano said she was just trying to make a little extra money when she and a friend got lured into a real estate scam. In the end, both Romano and her friend ended up with their credit ruined.
...
Ramono purchased two of the homes. In a lawsuit on file at Sacramento Superior Court, Romano alleges James Martin and his business partners at VFM Investment conned her into buying the homes.
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Six other investors allege they were taken advantage of by Martin and his business partners as well. Walter Bakos, a contractor who makes less than $40,000 a year, alleges he was duped into buying six homes worth more than $2.6 million.
...
Tim McDaniel purchased two of the homes. Jeffery Johnston brought three. Peter Correa purchased three as well. And, Reagan Olivares purchased five.
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A three-month-long KCRA 3 investigation has uncovered millions of dollars of fraud in the local real estate market...KCRA 3 found the overwhelming majority of fraud involves the sale of 20 homes in Elk Grove. All 20 homes are now in default, many of them are in foreclosure.
Read the complete story and watch the video at KCRA.

25 comments:

rocklin renter said...

"For instance, McDaniel was listed as an employee of VFM Investment with an income of $12,900 a month as an investment analyst."

"According to his loan application, Walter was earning more than $11,000 a month. That is more than $138,000 a year, more than four times his annual income."

Did they not look at the loan apps before they signed them??!?!?!

I'd say there is blame on both sides of these transactions. One side was felonious, one side was ignorant/stupid.

That "loan" firm that used to be upstairs from me... with all the 20-somethings showing up in 50k+ cars... is no longer there after just 6 short months (or so). My theory is they went "Boiler Room" and moved ops (& changed name) elsewhere to avoid being found. I spotted the head scammer two days ago in Roseville in his 750li (with dubs, no less).

The situation in this story is going to repeat itself all over the nation in the months to come. I asked an acquaintance of mine (DOJ agent) what he thought - he basically said he felt the feds are going to be very, very busy with white collar crime enforcement for the foreseeable future.

Gwynster said...

"he basically said he felt the feds are going to be very, very busy with white collar crime enforcement for the foreseeable future."

I really hope so. So many people used the state income loophole to get a loan and then the market valutions started being based on all these 11k per month fantasy salaries. Frankly I hope the Feds nail each and every stated income mortgage holder.

Cmyst said...

"with all the 20-somethings showing up in 50k+ cars..."

I listen to Dave Ramsey's radio program and one thing that has really begun to steam me is the number of high-earning kids that are calling in to him. None of them sound particularly bright about financial matters (why else be calling a really basic help program??), all of them work in financial services, and none of them seem amazed that they are earning huge salaries and commissions. Yesterday, one did express some concern that his company was being bought out by another company and that he thought his earnings may drop because the market was changing, but he remained basically confidant and upbeat that he could continue to earn high income.
There is something extremely wrong when so many very young people with no education to speak of and very little (and unrelated -- one guy in a story on Ben's blog had worked in a pizza parlor prior to his financial services job) work experience are earning high 6 digit, low 7 digit income.
That being said, if you sign a legal document you had damn well better read and understand the thing. Personally, I think all of the characters in this story on both sides of the litigation are going to go down. The investment company surely knew that these people did not work for them, and the IRS will have no records to back that claim up. And the people should never have signed those documents, they're wrong, they were greedy and they got used by con men.
I feel very sorry for elderly people who are confused and forgetful who are conned into losing their life savings. I don't feel so sorry for perfectly alert and oriented people who just felt "rushed" into signing legal documents.

norcalray said...

This RE bust is showing more and more signs of the dot com bust. With fraud by loan firms and their employees making big bucks for their limited skills. This will very likely end similarly with a RE bust and a lot of firms out of business and their employees looking for another job. Another classic boom/bust investment cycle.

smf said...

I don't necessarily see a good reason for most of these people to go to jail.

Their situation after the bust should be punishment enough. I would hate to be a person that earns so much, lives like that (cars, houses, etc.) and then LOSES IT ALL.

That is punishment enough. And that is not including that since people lost so much money, litigation should keep the courts busy for years to come.

rocklin renter said...

SMF - good call.

What is more punishing for someone who had it all and lost it all?

1) Going to jail

OR

2) Asking what produce I want on my Subway RB sandwich for a living


I'd say #2. Pimping loans to idiots is not a skill. I wouldn't even place them in the realm of "financial services". They have no useful skills to the "financial services" world. They have no credentials or licenses. Not much value there to real financial service firms.

Well, maybe Ameriprise. They will take anyone. :P

Gwynster said...

I have zero tolerance for white collar crime and that's what this comes down to. Now that I think about it, we don't have enough room in any of our correction facilities for everyone.

I'm just sick of people thinking that just because their crime didn't result in a physical injury that it doesn't constitute corrective measures.

ps - worked in IT before the bust. I know how bad it's going to get.

Gwynster said...

Most of those idiots don't even know what GAAP is. I'm looking forward to seeing the RE market regulated much like the stockmarket in how they handle valuations. It takes some actually braincells to digest policy in a meaningful way.

Cmyst said...

There should be a special level of Hell for con artists of various ethnicity who specialize in ripping off their own communities, as well.
But they're only doing what they see is so successful in the macro economy on a micro level.

smf said...

The best part is that most of the RE people drank their own Kool-Aid, and bought more of their share than us mere mortals.

If you keep reading stories, most of those in deep trouble are involved in Re, whether they are brokers or agents.

It is punishment enough to realize how badly things went, and look back at the short boom period for the rest of your life, than sit in min. security for a few months.

RMB said...

cmyst,

Are these kids still earning the high dollars? With the decline in sales I have to think their incomes have already been cut drastically. The next place to go is the couch or the next get rich quick seminar, because when they get laid off they don't get unemployment, so I am not surprised those are showing a change yet.

I think most of them are like Casey Serin and are living in a dream world where 100K+ jobs are a dime a dozen and debt = income. When the great "trout of truth" comes and slaps them upside the head I imagine there will be a lot of toys available on Craigslist and a hell of alot of stories about the good old days. Unfortunately these people will never realize that the good old days were only good because they were screwing someone over.

The really scary thing is that there isn't just a handful of these people out there. There are 10s of thousands if not 100s of thousands of them. Where are all these people going to find jobs?

Patient Renter said...

"The really scary thing is that there isn't just a handful of these people out there. There are 10s of thousands if not 100s of thousands of them. Where are all these people going to find jobs?"

This is true. I think of it like this - pretend the bubble never happened, and ask yourself where these individuals would be working? I know for sure where a few of them were working before the bubble.

Cmyst said...

"When the great "trout of truth" comes and slaps them upside the head I imagine there will be a lot of toys available on Craigslist and a hell of alot of stories about the good old days."

Actually, according to Celtic myth, it is the Salmon of Wisdom, ya know. :)

Gwynster said...

I'm going with the sturgeon of stupidity - they pack a bigger wallop.

BTW does anyone remember how mnay of the pot houses turned up in EG so far? 29? I can't remember.

Funny aside: for years I had this little led flashlight with it's body shaped like a fish. I used to call it my great salmon of wisdom with the little of knowledge shining out of it's mouth. That was always funnier when I'd been drinking >; )

Don't forget that part duex of the KCRA fraud piece is going to air tonight at 11.

Sittin' Out This One said...

I will bet you that all those houses were mortgaged for $50,000 over the purchase price with googy appraisals. Then the loans were bundled up and sold to CalPERS, where Gynster will pay a small price, along with 100,000 other state employees.

Maybe SMF will contribute to make up the loss, since he thinks these people should not be prosecuted. Working at Subway will be enough? If you let these idiots go, they will not work at Subway. They will move along to the next town and commit more crimes. I say put them all in jail and make them pay up for everyone's losses.

fishtaco said...

when i saw the piece last night, my first reaction was that the "victims" should be thrown in jail for sheer stupidity. how dim do you have to be to go for some kind of crazy lease to own bs story and involves multiple properties and liar loans. this is just absurd.

btw - my brother has worked in the lending industry down in san diego from time to time. his new thing is doing short sales and he had 3 mil in listing his first months.

Perfect Storm said...

Don't forget that part duex of the KCRA fraud piece is going to air tonight at 11.

I think you can catch it at 10 on channel 58.

Sittin' Out This One said...

Yesseree, part II confirms VFM mortgaged all the houses for $20-30,000 over the contract sale price. Stupid buyers, stupid lenders. And now a few stupid mortgage brokers are going to have felony records.

Patient Renter said...

Could KCRA have chosen a more non-commital title to this story:

"Real Estate Scheme Probably Broke Laws, Experts Say"

Probably? Are they incapable of figuring out if any laws were broken?

"By inflating the values, Martin and his partners increased their commissions, KCRA 3 found."

They 'found' this information, as if it's not common sense.

Jim said...
This comment has been removed by the author.
rocklin renter said...

That is pretty rich Jim.

So how again did these folks become employees of your firm?

Wait...don't answer that...

Here is how it works in reality-land:

YOU are the EXPERT. The person sitting in front of you may know jack about loans, or he may know all. Doesn't matter. YOU are the PROFESSIONAL. YOU should have warned them about the inherit risks and dangers of going 100% + 3% or whatever you are claiming.

That is the b___h about working in the financial services industry. WE are the EXPERTS not THEM.

You do have the right to refuse service. If you don't want to flat refuse it, you should have at least asked counsel to draft a "hold harmless" or a "non-solicitation" letter to cover your butts.

Even that can't stop a ship from sinking, but it goes a long way to making sure the crew doesn't go down with it.

No sympathy will be found here. I hope this was all worth it for you - if you keep playing with fire you will eventually get burned.

fishtaco said...

If I am not mistaken, lying about ones monthly on income on mortgage applications was par for the course these past years. Companies that prey upon peoples stupidity and ignorance are nothing new. McDonalds comes to mind. These speculators that wanted to sell the properties in two years were nothing more than flippers. I have, and I expect many that read these blogs do as well, little sympathy for speculators trying to make easy and quick money by flipping new houses. Owning four houses on a 40K salary? Come on, this guy should know better. Would the same guy buy 1.6 million in stock on margin? The lenders profited and that is what always happens during speculative bubbles. Someone is always left holding the bag and it is usually the dumbest person in the room.

Patient Renter said...

Jim - Here are some thoughts you can maybe respond to.

Whether the buyers came to you or were somehow solicited doesn't really matter. Even if you told them they could rent those houses for a monthly profit (which is ridiculous in this market with 100% financing), that also doesn't matter. If they were stupid enough to believe this regardless of where they got the idea, it's their own fault.

"In a lawsuit on file at Sacramento Superior Court, Romano alleges James Martin and his business partners at VFM Investment conned her into buying the homes"

Again, whether this is true or not doesn't matter. Someone *chooses* to buy a home. How they come to feel compelled to buy it doesn't matter. The potentially dubious parts come into the story with the appraisals of the homes and how they were financed.

"Romano would purchase the home, and VFM Investment Group would provide the tenants. She was told the tenants would provide a deposit of $5,000 to $10,000."

Why would VFM feel any obligation to provide tenants for some homeowner they're not associated with? Obviously this would be part of an agreement that compelled the owner to buy the homes in the first place, where of course, VFM would profit from the transaction. We know that the stated loans were covered with lies about income and employment. The only question is who filled out this information, the buyers or VFM? Someone is in trouble.

"KCRA 3 also found that the value of every house involved in the scheme was also inflated."

If there were inflated appraisals involved, which would obviously benefit VFM, again, someone is in trouble.

"So what do the defendants have to say? Nothing. KCRA 3 tried talking to everyone involved. All of them had no comment."

So, nothing to hide, why hide?

Jim said...

I am visiting with my lawyer today at 1pm. I will be writing a comment in the afternoon. I have contected the sacbee to tell our side of the story. Hopefully this will come out soon,

Jim said...
This comment has been removed by the author.