Another One: Otsego Gets the Frauds

by Alex Stenback on February 14, 2008

You have not made it as a distant suburb until a mortgage fraud ring gets busted:

An alleged mortgage fraud case involving perhaps as many as 130 homes — mainly in one Otsego development — with mortgages totaling more than $40 million.

It’s always the same sales pitch:

The two firms ran newspaper ads promising $25,000 to $30,000 to investors with no up-front costs as long as their credit score was above 680…All investors had to do was apply to buy multiple properties.

The firm promises to cover all the messy details, like finding rent-to-own tenants, managing the properties, and selling them to the renters in two years, at which point the profits would be split.

Of course, none of that happens.  The firm pockets the cash.  The investors wind up with multiple mortgages in foreclosure, shredded credit, and their name in the paper.  The renters are on the street trying to start over.  The lenders are out millions on the fraudulent loans.  The neigborhood gets pocked with foreclosures and values tank. 

When it is all said and done, the alleged perpetrators might get four years.  The impacted people and neighborhood will be lucky to recover in as much time.
Victims of Investment in Otsego [Strib]

{ 5 comments… read them below or add one }

Nate February 15, 2008 at 1:37 pm

100 here, another hundred there, eventually these start to add up to a significant percentage of the sales from previous years.

Put another way. Roll into one of these suburbs and sell 100+ homes at inflated fraudulant prices. This pushes the purported “value” of everyones homes up. The neighborhood take advantage of their new found “wealth” by refinancing. As prices fall, due to massive foreclosures on fraudulant sales and other general weakness in housing, that leaves even more people without equity and prone to foreclosure.

You’d think the banks might want to spend a bit more time trying to prevent fraud?

Johnny Northside February 15, 2008 at 3:25 pm

This same scandal is the subject of an excellent cover story in this week’s issue of “City Pages.” I told the webmaster, Alex, and forwarded a link.

Johnny Northside February 15, 2008 at 3:25 pm

This same scandal is the subject of an excellent cover story in this week’s issue of “City Pages.” I told the webmaster, Alex, and forwarded a link.

Bruce February 17, 2008 at 10:23 am

The missing link to all of the recent articles is, who is the builder that continued to build these homes, who and what title company closed multiple owner occupied units the same day, what appraisel company pushed the price of 200k homes to 275k. If you pull up mls records for this developement you find very few homes were ever on the mls and you need to pull up the information on the county web-site, with most of these home’s closing at the same price 275k. I have seen homes in and around this neighborhood that closed as high as 1.375 million and the real value is less than half, and they are all connected through, the same realty company, title and builder located in St. Micheal, Minnesota. These were not out of town builders that did this to the area, it was a large local builder, developer, realtor, and tilte company that did this. If you drive into the Preserve today, they are still digging basements and building homes for straw buyers today. This is just the tip of the iceburg, we have this all over Wright and Sherburne county. The inflated values of homes that this has created will make it very hard to convince the local tax assessor what is the true tax value in this current market.

Alex/Editor February 18, 2008 at 11:52 am

Bruce is correct here in that both articles sort of skip over the fact that scams like those described are impossible to pull off without two key elements:

1. Significantly, grossly inflated values
2. Proceeds of the loan disbursed in a manner that is not consistent with the lenders requirements (passing through “management fees” of 40-50K to the interested parties, for instance.)

For that you need an appraiser and a title company that will play ball.

This problem will get way worse – right now it is only a lack of manpower that stops more of these cases from turning up. The Feds, the cops, the county attorney’s are at or beyond their capacity to handle these cases.

Leave a Comment


Previous post:

Next post: