“13” Unlucky For Real Estate Professionals

The number 13 seemed to be a bad one for real estate agents in two prominent cities this week.  In both Tucson, AZ, and New York City, NY, 13 people were involved in some sort of legal action that could shake the industry in some fashion.

In Tucson, a consumer fraud lawsuit was filed by Arizona Attorney General Terry Goddard stating that these particular real estate professionals were luring unqualified consumers to buy an estimated 130 homes as rental properties.  These weren’t for the people to live in, but to use as investment properties that would be managed by the corporations.  The investors were enticed by promises of worry-free investment returns, had to pay little or no down payments, were told they’d receive investment income from eventual renters, and that they didn’t have to do anything except collect the money that would be streaming in.

What these investors didn’t know, because many just signed the documents, is that the terms of the loan included high interest and adjustable rates, pre-payment penalties, yield-spread premiums and balloon payments.  Most of the people weren’t even qualified to get the loans, but the corporations were able to somehow get the money anyway.  Then, when the investors couldn’t keep up with the payments, the houses would be foreclosed upon and become the property of these companies.

Goddard is suing them under the state's Consumer Fraud Act, hoping to get a penalty of $10,000 for each violation.  He also mentioned that more defendants could be added to the lawsuit, but declined to respond to the question of whether any of the defendants could be charged criminally.

The story is different in New York, where the 13 people were criminally indicted for larceny and fraud charges, the most serious of which, enterprise corruption, could result in 25-year sentences.  Manhattan district attorney Robert M. Morgenthau said it was a multi-million dollar mortgage fraud scheme that victimized lenders and low-income homeowners.  The people indicted

included lawyers, real estate agents, appraisers and bank workers, and were accused of participating in 19 sham real estate transactions.  Prosecutors said the fraud occurred over a four-year period ending in April in Cypress Hills and East New York in Brooklyn, Washington Heights in Manhattan and in Westchester County and on Long Island.

What happened here was, based on a scheme hatched by a company that was created only to run the scam, AFG Financial Group, they would look for people who were having problems keeping up with mortgage payments and offer to buy their homes from them.  If the homeowners agreed, the company would then look for buyers, but inflate the worth of the home to the lenders.  Then, at the closings, the lawyers would pocket the difference and walk away, while the new homeowners would find that they’d signed papers for payments out of their range, and then had problems finding the people who’d negotiated for them in the first place and would be stuck with mortgages they couldn’t pay.  The company also got loans from banks for homes that didn’t exist; that’s scary on many fronts.

Just when you thought you’d heard it all, especially with all the other problems the real estate market has been suffering, these two stories will help highlight why realtors are looked at with a critical eye by the general public.