REAL ESTATES FORUM

L.A. Land: latimes.com
May 2, 2008

Peter Viles on the rapidly changing landscape of the Los Angeles real estate
market and beyond

Wondering about the fraud next door

Burbank

Yesterdays post about the possible loss of $6 trillion in housing wealth
brought me a small flood of e-mail. One of the most provocative notes came
from an old friend in suburban Phoenix who poses the question: How much of
that $6-trillion bubble was created by outright fraud?

He writes, I havent seen articles surrounding the common fraudulent scheme
where mortgage brokers worked with a home appraiser to overvalue homes, then
direct owner to sell home to a pre-identified buyer at hundreds of thousands
over market value with large kick-back from seller to buyer at closing.

This happened with great frequency in my former neighborhood just north of
Phoenix. In fact, three homes out of six homes on my former street are in
foreclosure due to this scheme. An example: I sold my house in Dec. of 06
for $815K (legitimate sale and value at the time at height of price boom).
Five months later the same house sold for $1.2 million. The people who
bought it from me sold it to an investor at the $1.2MM price.

We bought from builder in 03 for $493K then sold in Dec. 06 for $815K. My
buyers never moved in but did remove expensive window coverings, outside
landscaping fountain and custom-made iron entrance gate then did the
kick-back sale scheme for $1.2MM. Their buyer never moved in either.

The house is now in foreclosure but was recently listed (while in
foreclosure) for $534K. It is now set to go to auction. What I wonder is, do
the banks who hold the mortgages know the last buyer received the kick-back?
Are they going after the money and prosecuting? This happened all over our
community. The buyers would never even move in to the properties. Theyve
been sitting empty for a year and a half with no landscaping and other
maintenance being done on these upscale, gated golf community homes. Much
of the sky-high valuations in the Phoenix and Scottsdale areas were an
illusion as this scheme was rampant.

What angers me most is that innocent buyers in the neighborhood would have
been shown these phony sales as comparables by their Realtor and may have
overpaid for a home in a legitimate sale but have now lost a great deal of
value as these comps werent real. I would imagine it took place in
California and Nevada as well.

Fascinating note -- and frustrating, too. Ive seen no evidence that
prosecutors are going after this kind of fraud in any meaningful, systematic
way.

http://latimesblogs.latimes.com/laland/2008/05/wondering-about.html