The Secrets to the Scheme

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.)

 Full disclosure: That’s a little bit like what the wonderful Lisa Black’s agent worried about when Lisa described her new book. When her agent read it—whoa. She changed her mind.

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.

      

   When I sent this book to my agent, she worried that it might seem dated. She asked if predatory lending was really such a problem any more—reforms were supposed to have closed loopholes and opportunities for such shenanigans. But I see commercials for quick and easy mortgages, I get phone calls all the time offering business loans that I never asked for, and I worry. We learned a lesson, but did we learn it well enough?

         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?

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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. 

www.lisa-black.com

@LisaBlackAuthor