For quite some time now, mortgage loan fraud has been a big problem in North Texas. In Colorado, crooks have taken it to a whole new level.
On an autumn day two years ago, Colorado issued a warrant to arrest Taiwan Lee, a state prisoner who had vanished on parole.
He hadn’t gone far. While police looked for him, he bought three houses at inflated prices in Arapahoe County with the help of lenders who put up the entire $1.9 million.
After he was caught and jailed, he managed to buy two more. Until the foreclosures commenced, Lee owned five villas in an affluent gated community while living behind prison bars 150 miles away.
The cast of characters in this foreclosure tale includes drug dealers who went straight from prison to the home-acquisition business, a developer with ties to an international Christian group, a state-licensed real estate broker who saw nothing peculiar, and an appraiser who has disappeared.
Taiwan Lee is among a group of former inmates and others accused of buying 17 homes for inflated prices and taking $2.1 million from excess loan proceeds.
His buying spree is an extreme example of something that happens every day in Colorado, the state with the worst foreclosure rate in the United States.
As an aside, “Taiwan” Lee’s brother, “Mainland” Lee, has been trying to reconcile with him for years (even using occasional threats of bodily harm), but Taiwan has remained stubbornly independent.
But, back to our story.
In the Denver metro area alone, more than 1,000 homes sold for at least 110 percent of the original asking price in the 18 months ending in June, according to research derived from real estate listings by Jon Goodman, a Boulder real estate attorney, and Alison Eibner, a vice president of Metro Brokers Realty Oasis.
The Denver Post searched foreclosure records on 739 of these homes sold between January 2005 and April 2006. Already, 55 have been foreclosed, or one of every 13 homes – an extraordinary number even in a state where one of every 408 homes is in foreclosure.
“You wouldn’t expect to see more than two to four foreclosures in a random set of 739 sales,” Goodman said. “That suggests that a puffed sale enhances the risk of foreclosure tenfold.”
A Post computer analysis of the 18 months of inflated sales found that 35 homes sold for at least $250,000 higher than the original asking price and 174 sold for at least $100,000 more.
“It clearly is a problem,” said Colorado Attorney General John Suthers. “We have been looking at house purchases over cost and money going back to the buyers.”
Suthers’ consumer protection chief, Jan Zavislan, said the office is investigating various participants in inflated sales, including buyers, sellers, appraisers, mortgage brokers, real estate agents, and title companies.
“We’re looking at potentially every participant in these transactions,” Zavislan said. “We’re just seeing way too many of these things.”
Typically, in inflated home- price schemes, a buyer asks the seller to raise the price and give back cash or other concessions at closing. The seller gets rid of the house. And a distant lender often supplies 100 percent financing or more money than the house is worth.
This kind of activity can damage a neighborhood in several ways. Inflated sales encourage neighbors to overestimate the values of their own homes and borrow too much against their equity. Assessors can be fooled and levy higher property-tax bills. And in many cases, the buyer never moves in, blighting a block with a vacant house.
Much of the remainder of the long Denver Post story focuses, legitimately, on the human interest aspects of the crimes. Neighborhoods (and unwitting participants) can be devastated by this crime, and the article shows how that occurs. It seems to me to be a typically American trait that homeowners took matters into their own hands when their neighborhoods were being trashed and became very “proactive” in bugging the authorities to do something about it. Law enforcement wasn’t exactly busting down doors and yelling “Book ’em, Danno,” but they’re getting around to it, finally.
I think that the over-the-top experience of mortgage fraud in Colorado reinforces something I pointed out in my previous post.
[A] successful mortgage fraud scheme customarily takes the cooperation of a number of corrupt or inattentive parties throughout the process. Rather than pretend the problem doesn’t exist, or that “it’s not my job,” everyone involved, including the often unwitting and uneducated consumer, has to step up, be attentive, and be willing to “do the right thing” when the situation requires it.
Career criminals and shady mortgage and real estate brokers, sellers, and appraisers (although the appraiser can’t be located) all take their well-deserved lumps. However, The Denver Post fails to identify the lenders involved, or what specifically they might have done or failed to do, that furthered the scheme (other than made the loans). I realize that a crooked mortgage broker can run a lot of bad loans through the pipeline in a hurry, but I think that aspect of the story should have been explored in more detail.
Another aspect that struck me was that mortgage fraud seems to be a crime of choice by drug users and dealers alike. Apparently, this is a trade that is being learned behind bars. The illegal profits are stuffed up someone’s nose, smoked, or cooked and injected. How long will it be until the theme song of the Colorado Mortgage Bankers Association becomes this classic?