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The American Dream

Daverena White was college educated and should have known better.  In fact she did know better, but went ahead anyway, buying a $698,000 house with no money down and high interest first and second mortgages.  This happened in 2006.  In 2005, her income tax records showed $15,000 taxable income.  Yet, she was able to get a "don't ask, don't tell" liars' mortgage, with the help of her mortgage loan officer.  The loan officer prepared papers showed the buyer's income as $163,320 per year and a savings account with $14,026.  The savings account was real; the day before closing, the owner's husband had deposited a check for $7,000.  Records show that one minute later a deposit of $6,000 cash was made.

The owner was the mortgage loan officer who apparently handled the financing.  The owner's husband was a real estate broker.  There is no mention in a Washington Post article by Donna St. George (here), that any other loan officers or real estate people participated in the sale.   With the sale price of $698,000, they received $203,000 more than they paid less than 23 months earlier.

The sellers were very helpful to the buyer.  The Post article enumerates just how much they helped:

*  $34,900 rebate because no realtor commissions were paid.  After closing costs were deducted, $15,000 was paid to Ms. White.

*  $11,200 rebate to cover the first two mortgage payments.

*  And, of course, the $13,000 deposited to Ms. White's savings account.

There is no telling how much of the $19,900 in "closing costs" may have accrued to the sellers as mortgage loan officer and licensed real estate broker.

So, the sellers put up $59,100 against their $203,000 profit; they netted $143,900 in less than two years.  Of course, they may have made a little more from the "closing costs", but there is no way of knowing based on what has been published.

There have been other stories published about people who bought way above their means to pay.  However, this story shows a most unusual degree of buyer manipulation by the seller.  Of course, Ms. White bears responsibility for very poor judgment, but that judgment was certainly aided and abetted to an extreme degree by the sellers, as reading the complete article in the Post will reveal.

One has to ask:  Where are the boundaries between simple greed, unethical behavior and outright fraud?

I personally know of a case where a house was purchased in 2006 for $395,000 and improved to the extent of about $50,000.  The owner was a mortgage broker.  In 2007 there was an "offer" made for the property at $719,000.  The appraiser for the "buyer" contacted builders in the subdivision in an attempt to establish comps for the sale.  No one associated with the subdivision ever saw the "buyer".  The "deal" never closed, presumably because the "buyer" could not qualify for the mortgage.  Three months later the owner moved out and six months later the house was in foreclosure.  County real estate  records reveal that the foreclosure amount was $575,000.  This is 80% of $719,000.  Is this just a coincidence?  Could someone simply have milked $130,000 out of the property and walked?

One has to ask:  Where are the boundaries between simple greed, unethical behavior and outright fraud?

Another case I read about a year or more ago (sorry for not remembering the source), involved a developer/builder of a bungalow - garden cottage project.  He was building units at a cost, including land, of about $65,000 to $70,000.  Retrospective appraisal indicated a probable market value at the time of sale (2006) in the $80,000 to $90,000 range.  The first five units were sold to family members (and possibly friends) of the builder for a recorded $120,000.  The rest of the units were subsequently sold to the general public and financed, based on the comps, at $110,000 to $120,000.  My recollection of what I read was that the initial five units were all resold within a few months at the same price as recorded for the original sale.  Perhaps they were never occupied.  One might ask if the original "buyers" ever did any more than just sign papers for the purchase and resale.  We don't know, but we can wonder.

One has to ask:  Where are the boundaries between simple greed, unethical behavior and outright fraud?

There is the well publicized story of the New York Times reporter (self written story) about how he went into a real estate purchase and mortgage that he should clearly have known was untenable.  That situation arouses a lot of resentment because of that person's irresponsibility, but is one of the real estate bubble horror stories that would not include the question about outright fraud.

It is true that the real estate bubble was pumped by corporations, but the stories of individual malfeasance are also numerous.  The many faces of the perpetrators of this disaster will continue to be disclosed.  You may meet some of those faces walking down the street.  If you recognize one of them, ask the question:  Where are the boundaries between simple greed, unethical behavior and outright fraud?