HANK PHILLIPPI RYAN:
Did you see the movie THE BIG SHORT? It was brilliant, and terrifying,
and fascinating. But if I described what it was about, nefarious and illegal
practices in the derivatives market, you
might wonder how that could be such a compelling movie. (Plus, isn’t that
problem over?) (Probably not.)
ROGUE’S GALLERY
Players in the Housing
Bust
By Lisa Black
My new book, Perish, opens with a
crime scene both lavish and gruesome. In a luxurious mansion on the outskirts
of Cleveland, a woman’s body lies gutted in a pool of blood on the marble
floor—Joanna Moorehouse, founder of Sterling Financial. Its offices seethe with
potential suspects, every employee hellbent on making a killing. When another
officer uncovers disturbing evidence in a series of unrelated murders, the
investigation takes a surprising detour. But how did the beautiful Joanna
accumulate such wealth in only a few short years? And why am I, someone whose
eyes would glaze over if you mentioned the word ‘business’ come to write such a
book?
Well, because on several lists over
the years, Cleveland, Ohio and Cape Coral, Florida, led the country in
foreclosures. They are also the only two places I have ever lived. I assure you
this is purely coincidental…but it did prompt a sudden interest in shady
mortgages.
If you’re a
relatively honest person and/or not versed in white collar crime, you may
wonder how someone made money by buying a house and then abandoning it. Short
answer: you can’t. Not unless you have some help.
The scheme
generally requires three people:
1.
A
buyer, who can produce documents showing fictitiously inflated income and bank
accounts. In fact, an entire fake identity would be helpful.
2.
An
appraiser, who can inflate the value of the house out of proportion so that a
large bank loan seems reasonable. Sometimes an innocent but cooperative seller
can be talked into inflating the price after the buyer convinces them they need
the extra loan money to improve the property. If the seller isn’t quite so
naïve, the buyer can simply alter the settlement statement before they send it
to the bank.
3.
It
helps to have a conspiratorial or at least cooperative title company that won’t
ask too many questions or wonder why this same buyer or holding company has
been purchasing so many properties.
4.
It
also helps to have a mortgage broker on board who can funnel all these
fraudulent documents without appearing to profit from any of them, other than
normal fees. In reality, they’re a partner and taking a cut.
The shady buyer contracts with a
seller, gets a loan from the bank for far, far more than is needed to purchase
the home, pays off the seller and splits the rest of the loan money among the
co-conspirators. They stop making loan payments and walk away, either declaring
bankruptcy or simply disappearing. And that’s how you make money by buying houses
you don’t want.
Of course, eventually the bank
notices that they’re getting stuck with a bunch of foreclosed properties when
at the same time they often were dealing with their own fallout from playing
too fast and too loose for too long. Or an honest employee or loan officer or
title company or seller figures out that one or two documents aren’t adding up.
Pull one thread, and things start to unravel, which is why many of these
fraudsters are only now getting out of jail.
To be clear, frauds like these didn’t
cause the housing crisis ten years
ago—that was caused largely by skyrocketing property values and indiscriminate
lending—but they exacerbated an already difficult situation.
In Cape Coral one of our police
officers, the son of our well-liked chief, went to jail for just such a
conspiracy. The total funds involved totaled over four million dollars.
In Cleveland, a mortgage fraud task
force led to hundreds of indictments:
Uri Gofman bought more than 450
homes, pretended that improvements had been made, refinanced based on the new
inflated value and resold the homes to people who were not qualified. He was
one who had a mortgage broker and a title company on the payroll. He left jail
in early 2017. His broker is still inside.
Kimberly Wilson was a broker who found the
straw buyers herself and worked with her husband and an appraiser to inflate
the values for loans. She made a deal to testify against the appraiser, Lavon
Ruderson, to get 18 months while Ruderson got five years.
Stephen Holman, a loan officer,
worked with his brother to sell properties with no down payment and other
assorted shadiness. He got twelve years.
Thomas France,
once one of Ohio’s most successful, threw that away on a series of frauds as
outlined above which netted him a 10 year prison sentence. For using the same
technique, Fred Loewinger, Clarissa Foster, and Corritha Wells each served 6
years.
Blaine Murphy
used fake names to buy 96 homes, pretending to fix them up before selling them
to other buyers for a profit. It was like flipping, but without the flipping
part, and the fake names kept irate buyers and banks from coming after him—at
least for a while. He got two years.
Anthony Jerdine
and Susan Alt, separately, went for scheme quality over quantity. He bought a
home for $700K, faked an appraisal and resold it the same day for two million.
Jerdine got eight years in the federal pen. Susan Alt served six years.
What do you
think?
HANK: And don't you get those things in the mail that look like checks? Wonder how many people cash those? Have you ever wondered about real estate schemes--or had any in your life?
Lisa Black
has spent over twenty years in forensic science, first at the coroner’s office
in Cleveland Ohio and now as a certified latent print examiner and CSI at a
Florida police dept. Her books have been translated into six languages, one
reached the NYT Bestseller’s list and one has been optioned for film and a
possible TV series.
@LisaBlackAuthor
