This house in Florida was sold into what may have been a mortgage-fraud ring.
Recently we learned from a group of reporters at the Sarasota Herald-Tribune that one of the mortgages in Toxie, our toxic asset, was part of a real-estate scheme being investigated by the FBI. It's a scheme that allegedly involves $200 million in fraudulent loans.
So we traveled to Florida to find out how the scheme worked. The reporters there told us it all centered around a man named Craig Adams, who was flipping houses back and forth among a circle of friends and business associates. The people in the circle would buy homes for higher and higher prices, taking out larger and larger loans from the bank and then divide that money amongst themselves.
The first person whose home was sold into that circle was Dr. Fred Bloom, who watched the price on his former home rise rapidly for 10 years, before he finally learned the truth.
David Kestenbaum explains a "flop" fraud scheme:
A "flip" fraud scheme works when housing prices are rising. A "flop" fraud scheme works when housing prices are dropping. Here's a typical scenario:
Say Chana has a house that is underwater, meaning she owes $800,000 but the market value (if she had to sell it) is only $500,000. David (the fraudulent flopster) approaches her with the following scheme. He proposes arranging a "short sale" of the property. A short sale is where the owner of the home finds a buyer to purchase the house for less than it is worth, and the bank – happy to have this all resolved - agrees to absorb the losses and forgive the loan. But here's the catch: David and Chana arrange to have the house sold to their friend Jacob for less than it would actually sell for if you stuck a sign out front. So let's say they sell it to Jacob for $300,000. They then lie to the bank and say this was the best offer they could get, when really they never had another other offers because the house wasn't actually on the open market.
After the short sale is complete, Jacob turns around and puts the house, which he got for super cheap price of $300,000, up for sale. A real buyer offers a more realistic price say, $500,000, and Jacob has netted $200,000, which he shares with David and Chana. Assuming the FBI doesn't come by asking questions, everyone makes out, except of course, the bank.
For more on the fraud scheme in Florida, read our earlier post.
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