Houston, We Have a Problem

by Alex Stenback on February 15, 2007

Wash_front_el_2
Editors Note:  The following content is an adaptation of an email exchange and a series of subsequent conversations we’ve had with Michael Roess of iMetroproperty.com, who did the digging and data collection on what’s to follow.  In no way should this posting be construed as a complete picture of what may or may not have happened at 607 Washington lofts – this is just what we know and/or can surmise thus far.
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Mortgage and real estate fraud have been all over the news lately, and one thing we’ve heard some chatter about in talking to other real estate and mortgage professionals is this:

A condo or townhome project that has been beset by slow, struggling or non-existent sales, all of a sudden sells out.  No more units available.  Curious, no?  Then, within a few months, units at this same project start showing up in the Hennepin County list of Sherriff’s foreclosure sales (curiouser still.)  Ad to this the fact that many developers are being or have been approached by "investor" groups seeking to purchase blocks of units at a discount, and the whole thing just gets curiouser and curiouser. 

This weirdness inspired a little digging into one particular project in
Downtown Minneapolis where we had heard exactly the above was happening
- 607 Washington Lofts.  On the other side of the link below, we’ve shared what we found down this particular rabbit hole.

The great thing about the internet and the electronic age of real estate is that there is a wealth of public information available, and most of it is online.  This means that for the curious or investigative minded, you can learn what a property was originally offered for (list price, in Agent jargon,) what it actually sold for (a matter of public record – a certficate of real estate value is issued) and then, if the property is in foreclosure, the exact amount of the mortgages and other liens left unpaid (final bid amount of the Sherrifs sale, in many/most cases).  And if you are really curious, you can even find the name of the borrower who defaulted, and lender left holding the bag.

This information, once one pieces it together, tells a (potentially, allegedly) very disturbing tale in the case of 607 Washington lofts.  607 Washington was a project that had some rumored (and real) problems: Major delays, slow sales, cost overruns, etc.  Then, one day, like Kaiser Soze, they were gone – poof! All units sold out, project finished.  This seemed a little strange to us – struggling projects don’t simply turn on a dime and sell out very often, especially in a soft market, and these units sold at huge markups – in some cases more than double the original list price.

Fast forward to today.  Nine of the thirty units in the building are in foreclosure (thats 30% of the project, for you math nuts.) Here’s a table, taken from the Hennepin county website and the MLS (foreclosures, tax info) which shows the units in foreclosure, the list price, sale price, and foreclosed amount.  Click for big.

Washington_lofts_spread

Now, lets break this down with a little deductive reasoning, shall we?  These properties languished on the market, in some cases expiring off the MLS and being re-listed several times.  Then, after being rejected by the market at one price, suddenly sold at a huge markup.  Why would this be? (hint: it ain’t granite countertops and Sub-Z’s)  Now look at the last column – which again represents the loans on the property that remain unpaid.  (You know what else is curious?  The same names tend to pop up more than once in the foreclosure listings, and in the MLS, and elsewhere.)

This looks a lot like this type of real estate/mortgage fraud doesn’t it?  A typical scam (and what we think might have happened at 607 Washington) works like this:  Inflate the value with a fraudulent appraisal, take out a loan for more than the property is worth based on that value, then distubute those funds to the scams participants while concealing the fraud from the lender by preparing multiple sets of closing documents.  The scam artists never make a payment and walk with hundreds of thousands, if not millions, and the lender is left with a loan for more than a property is actually worth.

Is this actually what went down at 607 Washington?  Who knows, but we expect to learn more about this when it winds up on the Minnesota DOJ Economic Crimes Press Page.  Of course, we could be wrong.
Related Links & Sources:
· Anatomy of a Real Estate Fraud [Startribune]
· Description of Many Types of Mortgage Fraud [fbi.gov]

{ 7 comments… read them below or add one }

Jim Shoe February 16, 2007 at 10:28 am

Seems like someone could write a rather simple computer program to pull that would identify which properties need investigation.

Michael Roess February 16, 2007 at 3:51 pm

This is interesting Jill Lehn is still listed on http://www.LaFavreHomeSellers.com under “The Team”. Do you think they might have been involved in some of this?
Here is her Bio:
Live and enjoy. That is the way I look at everything. -From my career to my family. I have been in the mortgage industry ever since being done with college. I ended up in it by default but have stayed because I love it. I started behind the scenes processing and the quickly became a loan officer. When I decided to move to the Twin Cities I went into the title industry and have been enjoying that ever since. My past title company experiences have helped me realize the great things a title company can be and what I expect from a mortgage closer. KINDNESS, KNOWLEDGE AND COORPERATION.

My favorite hobby is my family. My husband is my best friend and I love being a mother to my little girl. She is full of spunk and curiosity- definitely keeps me on my toes.

Let’s meet soon and have a mortgage closing that will WOW you!

misc March 12, 2007 at 4:41 pm

Unit 207 is listed at Edina Realty for 299,000.

Adam March 20, 2007 at 7:58 pm

I rented at 607 loft for a year and can not get in touch with the property owner to get my damage deposit back – if anybody has any advice i would appreciate it.

Lorie J Call May 17, 2007 at 10:45 am

Excellent research and writing. I’d be interested in knowing the following:

- for whom MERS is holding title, and
- how many of these mortgages were SISA, option-ARM, subprime, or some combination of the three.

And in reference to a question raised in a previous fraud article, Circle 8 is reserved for deliberate perpetrators of fraud.

Editor May 17, 2007 at 1:50 pm

Great comment. I would LOVE to have that information, as well as a copy of the original loan file. Would also be great if we could get a look at the HUD, and then the paper trail to see how the funds were actually disbursed.

That is the part of the story that we can’t get without a subpeona, unfortunately.

Kathryn May 25, 2007 at 2:09 pm

Adam, who was your landlord?

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