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America's Foreclosure Epidemic

 

$5 Million in Mortgages On $49,000 A Year
by Robert Franco  | Reprinted with permission

May-21-08

Poor Ms. Webster owns three homes worth over $5 million and she only makes $49,000 annually.  She never lived in any of the homes and she can't afford to pay the mortgages.  She has received at least one foreclosure notice and is now suing Eric Duke, the man who orchestrated the deals and lives in one of the multi-million dollar homes.  Worse yet, one of the homes sold on land contract for over $2.5 million and she never saw a dime! 

Webster's saga began when she mentioned to Duke, who is also her tax preparer, that she was losing her job and had $70,000 in debt.  Duke suggested a solution - going into business with him.  He convinced her that with her good credit she could buy multi-million dollar homes that he would quickly sell and payoff her debt.  She now finds herself holding title to over $5 million in real estate, owing on mortgages she cannot afford to pay, and Duke has stopped returning her phone calls.

How could anyone with $49,000 in annual income, and about to lose her job, possibly get $5 million in mortgages?  Well... the financing was handled by Amanda Miller at Columbia Financial Group, who claims through her attorney that Webster is to blame for her situation.  Webster's law suit alleges that Duke and Miller knew the truth about Webster's financial condition, yet on the loan applications, filled out by Duke, Webster's income was listed as $49,000 per month, not annually.  It also listed $1.9 million in stock that she doesn't own and shows her as a consultant for another company that she doesn't work for. 

Though Webster admits that she signed all of the closing documents to buy the homes, and take out the mortgages, she claims that Duke and Miller have collected the sales fees and rents on the homes.  Despite pleas for Duke to payoff the mortgages, he has not done so.  Her exceptional credit rating has been destroyed and she is left unable to borrow any money. 

To add insult to injury - Duke, through his company Rivendale Property Management Group, sold one of the homes for over $2.5 million on land contract, pocketing a nice profit and leaving Webster holding the bag wondering how Duke can sell a home that she still legally owns.  That is an interesting situation, and fortunately, the Cincinnati Enquirer did a nice job of covering the story and provided a the settlement statement.

ReMax Realtor Simon Moksin, who earned a $60,000 commission on the deal, claims that he didn't see anything crooked about it.  "We got an attorney who represented the title company," said Moksin.

   Mortgage APRs from 3.62%

John P. Brandt, owner of River Valley Title Agency, said that is not true.  He acted only as a signatory witness for the closing, not as a representative of his title insurance company.  The buyer never requested a title examination and although Duke told the buyer that Brandt searched the title, he did not.  The settlement statement shows the settlement agent as River Valley Title Agency, Inc. and Brandt signed as the settlement agent for River Valley.  Brandt charged only $150 for document preparation. 

Although there was no title insurance involved - and no mortgage - one has to question the wisdom of conducting a $2.5 million cash closing without doing any investigation at all.  The settlement statement includes tax prorations of more than $23,000.  Could Brandt have obtained the tax information without realizing that property was not vested in the Rivendale Property Management Group, shown on the settlement statement as the seller?  Certainly that should have at least raised an eyebrow.

Actually, there are several things on the settlement statement that I cannot quite figure out.  Lines 213 and 513, Adjustments For Items Unpaid By Seller, show a credit to the buyer from the seller in the amount of $271,500 but there is no description of what this is for.  Is it merely a gift?  Also, quite odd, there is an Additional Credit for RE Commissions of $60,000 to the buyer on line 216.  The seller paid the $60,000 commission on line 703 - so why is the buyer getting this credit and where did it come from?

After everything was said and done, the buyer brought in $10,609.90 and the seller (who, of course, didn't even own this property) pocketed $10,459.  That is not a bad deal - I don't think I have ever seen anyone buy a $2.5 million dollar home for less than one-half of one percent down! And, the amount due on the land contract is $362,000 less than the purchase price.  Seems like a little hocus pocus took place in the creation of this settlement statement.  But, it was a witness-only, cash closing... Brandt had no idea what was going on here, right? 

What the heck was Brandt thinking?  How could he have been oblivious to the scam?  The actual owner wasn't present and was not a party to the land contract.  His motivation doesn't seem to be greed - he only charged $150!  There doesn't seem to be much that would have been lost walking away from this deal.  Was this Realtor, perhaps, a large source of business for River Valley?  Although there was no title insurance issued in connection with this closing, I hope First American, shown on the settlement statement as River Valley's underwriter, will conduct an investigation.

Ironically, this home is only a few doors down from where Duke lives, in another multi-million dollar home owned by Webster.  Let's not forget about poor Ms. Webster.  Though she should have had the sense to avoid getting involved with Duke, desperate people do desperate things.  She was losing her job and needed a way out of her debt.  She believed that Duke could really flip these properties quickly, I'm sure.  Still, she should have known that this was fraud!  She certainly knew that her application contained false information and that she could never afford to make the mortgage payments.  Choosing to close on the purchases was a huge mistake!  in filing the suit against Duke she has probably provided all the evidence that will be needed to land herself in jail... but what else could she do at this point?  Hopefully, she will have plenty of company in the big house.

About the Author

Robert A. Franco has been in the title industry for nearly 15 years in the state of Ohio. The owner of VersaTitle, a full service abstracting and title company, and the founder and president of Source of Title, a Web site devoted to providing media and marketing services to the title industry, Franco has dedicated much of his professional career to furthering the role and significance of title examiners in the title insurance industry.  You can read more from Robert's blog or write him at rfranco@sourceoftitle.com .

 

 

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