Friday, July 2, 2010

Mary Lee Reinking guilty plea

Mary Lee Reinking has plead guilty to wire fraud for her actions as loan officer for Robert Herdrich and Darryl Hanneken. Ms. Reinking worked for Crow Valley Mortgage in Bettendorf, Iowa. You remember Messrs. Herdrich and Hanneken.

According to the Plea Agreement, Mr. Herdrich worked at the hair salon at Younkers making about $1,500 per month. Ms. Reinking prepared a mortgage application which showed Mr. Herdrich owned his own salon and made $20,000 per month, which of course was signed by Mr. Herdrich. Ms. Reinking took someone else's financial documents who owned his own salon and made $20,000 per month and pasted Mr. Herdrich's name over the salon owner's name. She then sent these documents to the lender claiming this was Mr. Herdrich's monthly income so he could qualify for the loan. She also sent Verification of Deposit forms with the forged signatures bank officials to the lender. Ms. Reinking was also aware of the kickback scheme involved in these transactions, but did not make any effort to notify the lender of the fraud. In fact, she agrees that that she had reason to believe that the lender would not be advised of the kickback agreement.

The Plea Agreement says that Mr. Hanneken told Ms. Reinking that the loan would involve "creative financing" and that Crow Valley would need to do what was necessary in order to "make the numbers work" so Herdrich and Hanneken qualified for the loan. The correct answer would have been, "No thank you gentlemen, that is illegal and actions such as those you suggest will result in devastation to our national economy." Apparently Ms. Reinking's answer was, "Okey dokey."

She has not yet been sentenced.

Ok, this was just funny

I heard a commercial for an asbestos/mesothelioma law firm. The overly sincere client was trying to tell me how great this firm is. She said, "They were more than just attorneys. They were human beings." So, apparently, most attorneys with whom she is acquainted are not human beings. I wish I could say I disagreed, but still, to actually say it out loud....

Thursday, June 10, 2010

Odd part three

In the continuing saga of Ronald Wheeler...

I decided to found out how much was lost by the lender (or more accurately, the American Taxpayer) on this foreclosure. The lender sold the property for $455,000. Remember, the first mortage was for $796,000, and the second mortgage to the seller was for $193,716.20, and the third mortgage a couple of months later was for $484,000.

The good/strange/interesting/ironic news is that the individual who sold the house to Mr. Wheeler is the one who bought it from the bank for $455,000. He then got a mortgage for $475,000, which does not appear to contain an owner-occupied requirement.

Odd part two

Update to the Well, this is odd story. Ronald Wheeler, Clarke County Attorney, sent a letter to the Osceola Sentinel-Tribune explaining his side of the story. Boiled down, he says he was duped, that he trusted Mr. Glessman, the individual for whom he acted as a strawman, and that he was inexperienced in real estate investing.

Mr. Wheeler and his wife (also an attorney) purchased property in Ankeny for $995,000 in June 2006. They mortgaged the property to Mid American Home Services for $796,000. Mid American immediately assigned the mortgage to Wells Fargo. Mr. Wheeler and wife also gave a mortage to the seller for $193,716.20. For those of you following along at home, this means they only put roughly five grand into a million dollar transaction.

But wait, there's more! In August 2006, Mr. Wheeler et uxor gave another mortgage to Citibank for $484,000. So, now they owe nearly $1.5 million dollars on something they paid less than $1 million for two months ago. So that is a half million bucks lining someone's pockets inside of two months. And that is without the messiness of having to sell the place at a profit. Not bad work if you can get it.

Now on the one hand, Mr. Wheeler presents this as if it was a real estate investment. But from all indications of the documents available at the court house, this was a loan for owner-occupied property. In fact, the following is copied from the actual mortgage signed by these two attorneys. See if you find it confusing.

"Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy. . . ."

He is an attorney. The documents presented at closing, while voluminous, are not terribly complicated. In an owner-occupied property transaction, there are generally at least two documents which state very clearly that you intend to occupy the property as your residence. If it was FHA, there will be several more.

Mr. Wheeler also claims that Mr. Glessman appeared to be a "legitimate and very successful real estate investor." If he was legitimate and very successful, why was he unable to get his own legitimate finanacing?

He also seems surprised that when Mr. Glessman failed to make the payments, he was the one ultimately responsible. At least that is how I take the use of the word "I" in quotes, in the following sentence. "I then learned, to my horror, that the value of the property was far less than what he had told me, and far less than the amount for which "I" had financed it." Yes, "you" financed it. That is what it means when you sign promissory notes for $1.5 million. Pretty sure I remember that being discussed in first year law school contracts courses. And what did you think? You bought the property for less than $1 million, and two months later it is worth half again as much?

Why did the lender care whether or not Mr. Wheeler intended live in this property? Investors generally pay a higher interest rate and are required to have a larger down payment than people who are going to live in a property. The logic is that if things get tight, you are more likely to bail on property you own only as an investment than your home. And if it was an FHA loan, there is a certain amount of government subsidization, since the government guarantees the loan. There are also several documents which tell you that defrauding a lender is not a good idea, and the penalties can be steep. That may have been mentioned in first year criminal law class.

But, apparently Mr. Glessman told him it was cool....

Friday, May 21, 2010

Well, this is odd.

The Clarke County, Iowa County Attorney was indicted for mortgage fraud on May 19, 2010. Ronald Wheeler is alleged to have acted as a "strawperson" in transactions involving Russell Blessman, who was also indicted. Clarke County is south of Des Moines, about halfway between Des Moines and the Missouri border.

The indictment alleges that Mr. Wheeler falsely claimed that he intended to reside in a house in Ankeny and obtained a $796,000 mortgage for the property, when in fact Mr. Blessman was going to reside there. He later obtained a $484,000 second mortgage for the same property, again claiming he lived in the property. Lenders give more favorable terms when the loan is for your residence as opposed to rental or investment property. And as discussed here, lying to lenders is illegal. The indictment further claims that Mr. Blessman paid Mr. Wheeler $29,000 for getting the mortgage for him. Apparently Mr. Blessman owned a company which bought and repaired properties.

Ok, now is where it gets odd. The indictment states that Mr. Wheeler claimed on his mortgage application that he made $360,000 per year and had $500,000 in his checking account in 2006. In 2008 he filed bankruptcy claiming $79,000 income and $1.2 million in debt from the above discussed property. Hmm...

And odder. Mr. Blessman is apparently already in federal prison. He was arrested in Utah for fleeing Iowa child abuse charges involving an eight year old girl. Uhhh....

And then odder still. According to the Des Moines Register, "Blessman was arrested in a Heber City motel after authorities found pornography and weapons in a room that had been visited frequently by children." Why in the world is there a Heber City motel room which was visited frequently by children, and nobody said anything until this guy was arrested? I don't even know what to say to that, except if you happen to see a motel room which is visited frequently by children, CALL THE POLICE. Seriously.

That was pretty odd, but then, the oddness continues. Again, according to the Des Moines Register, "A Utah official said in October 2007 that the 6-foot, 350-pound Blessman had been living in that state since June and had stayed, for a time, in a cave." So, he went from a million dollar plus house to a cave. In Utah. A. Cave. In. Utah.

Mr. Wheeler advised that he will be writing a letter to his local paper to explain his side of this odd story. Looking forward to that.

Tuesday, May 4, 2010

Mary Pat Harper Guilty Plea

Mary Pat Harper, an Iowa real estate agent, pleaded guilty to four counts of wire fraud. Ms. Harper acted as real estate agent for Robert Herdrich and Darryl Hanneken, who sometimes do business as Sand Castle Properties, LLC.

These folks would find a property they wanted to buy, and offer more than the seller was asking, usually much more. They would prepare what is often known as a "dual contract." The main part of the contract would show the inflated price. They would attach an addendum which showed the "real" price and the obligation for the seller to kick back the difference. What generally happens is, this addendum mysteriously disappears before it gets to the end lender. Here is an example of how it works:
Seller wants $70K for the house.
RH DH offer $140K.
MH prepares a purchase agreement which shows a $140K purchase price, and a separate piece of paper which clarifies that the purchase price is actually $70K, and the seller will give the extra $70K to RH and DH at closing. No matter how you slice it, the value of the house is $70K.
The lender only sees a purchase agreement of $140K.
Add in a "flexible" appraiser to value the property at $140K, and the lender has no idea they have loaned $140K for something worth $70K.
In some cases it appears that RH and DH did not make any payments at all.
The lender forecloses and gets even less than the $70K the place was worth in the first place, due to deterioration of the property.
Guess who gets to make up the difference?

Now you know why getting a loan has become so much more difficult. Thank folks like Darryl and Robert and Mary Pat, people who assisted them, and others like them across the country.

According to an article in the Quad City Times, Ms. Harper's attorney said that "the amount of money she received was somewhat minimal." What that has to do with anything, I cannot fathom. Say she was part of a group that robbed a bank, and while $200,000 was taken, she only got $20 of it. Does that make her less culpable? I would also think that "minimal" must be a relative term. According to RH and DH's indictment, there were 27 properties involved. Assuming $125K average purchase price, and assuming she got only half the commission (i.e., she was not a dual agent), we are still talking well over $100K. Maybe $100K+ is minimal to Ms. Harper's attorney, but it seems like a tidy pile of cash to me. And he is missing the point of what their actions did to neighborhoods in our community, and how much their actions are going to cost taxpayers when we bail out these toxic assets.

Ms. Harper is scheduled to be sentenced on August 27, and the two gentlemen will get their sentence on June 4. They face up to twenty years in prison. On second thought, maybe the amount of money received was minimal.

Friday, April 30, 2010

Rental scam

The craigslist rental scam has apparently hit the Quad Cities. A house is listed as available for rent on craigslist. The owner is out of town/out of the country. The owner wants you to send the money, and then he or she will send you keys. Apparently, some people have even received keys. Unfortunately, the keys did not fit the house. Because the owner is out of town/country, the potentials scammees, er, tenants cannot inspect the property.

Most people who live out of the country are going to have someone locally who will manage the property, so the fact that you need to send money to South Africa to get keys is a huge red flag. If there is no one in town to manage the property, who has been cutting the grass, who shoveled the sidewalks, who raked the leaves, who stopped by to make sure the pipes did not freeze this winter? Also, who in their right mind is going to rent a house they have not seen? Obviously, anyone who was serious about renting their house to someone would have arrangements in place to let potential tenants in the house to inspect it. Why would a reputable landlord want to rent to someone who was so desperate they would rent a house without seeing it? Another red flag: if the price is too good to be true, it probably is not true.

If you are still adamant that you want to rent this place, some suggestions. One way you might be able to flush out a scammer: Rather than send money to South Africa and hope you get keys back, you could suggest using a local escrow agent, such as an attorney. Tell the owner that you would deposit the money with the attorney and the owner should send the keys to the attorney. When the attorney has both the money from you and the keys from the owner, and you have had an opportunity to inspect the property, the keys would be delivered to you and the money forwarded to the owner. My guess is that if you suggest this, it will be the last you will hear from the "owner." If the individual is reputable, he or she should have no problem with an arrangement like this, since you are both protected.

Depending on where the property was located, there might be very detailed satellite and ground level photographs available at which can help you. Take a look at what is available, and try asking dumb questions of the "owner" to see if they verify what is on the maps and photos. For example, if the house does not have a pool, ask the if there is a pool, expressing how important it is that you have a pool. If there is a street level view (click on the little gold man at the top of the scale tool), you will even be able to tell what color the house is, how many trees, etc. Ask the owner and see if he or she knows some of these details. Any owner will know the color of their own house. Ask how many houses in the neighborhood, how close to the interstate, closest grocery store--things an owner would know and a scammer would not.

There are a couple things you can do check ownership, however this will only be useful if the scammer was not smart enough to find out the actual owner's name. You can check the following websites:

Some of the scammers are using houses which are for sale, which would be another red flag. Most (but not all) people selling their houses are not interested in renting them. You may be able to look up the property on to see if it is listed. There should be information to contact the listing agent who would know if the owner was trying to rent the property.

Be careful, even when following these suggestions. Scammers are very good at explaining things away.

Monday, April 5, 2010

Poltergeist Drywall?

Air conditioners failing-several times a year. Outlets that no longer work. Television sets failing. Plumbing leaks in the walls. Stereos failing. All of your electrical wiring and your silverware turns black. Odd "fire and brimstone" smells in your home. A poltergoost!? Could be, Neil. Or it could be your drywall has hydrogen sulfide (a/k/a hydrosulfuric acid) in it. Perhaps hundreds of thousands of homes in numerous states may need to have all of the drywall, electrical components and wiring, gas service piping, fire suppression sprinkler systems, smoke alarms and carbon monoxide alarms replaced. Not to mention all of your electronics and silver.

There are also people losing their homes to genius lenders because of this. Logically, when you have to gut your walls, electrical, gas service, and plumbing, you might need to crash somewhere else for a few weeks, no? Amazing, in a recession, many people cannot afford to pay the mortgage, pay for repairs, AND pay for another place to live while the work is done. Some lenders are already proceeding with foreclosure against these properties, even though the owners have tried to make arrangements with those lenders for some forebearance while repairs are made. Talk about toxic assets.

The only good news I could find in this story, and it ain't much, is that there are currently no reports of this drywall being sold in Illinois or Iowa.

Tuesday, March 9, 2010

Another local indictment

According to the Grand Jury Indictment filed January 20, 2010, Susan Lynn Maroon defrauded Guaranty Bank. Ms. Maroon was a mortgage broker who was the owner of Maroon Mortgage in Eldridge, Iowa. Guaranty Bank required that Ms. Maroon's borrowers had $500 in the bank to qualify for the loan. Apparently these particular borrowers did not have enough money in the bank to qualify. The indictment says that over a period of five days, she gave the borrowers a total of $1,250 to put in their account, and then, after Guaranty verified that the borrowers had the money in their bank, Ms. Maroon had the borrowers withdraw the money and return it to her. Of course, logic would tell us that since these folks did not even have $500 of their own money in their bank account prior to closing, they might default on the loan. They did. The indictment claims that Guaranty lost more than $88,000 after the borrowers defaulted.

What can be the justification here? That she was trying to help these folks out by allowing them to purchase a home? They lost their home and their credit is trashed. Sure, the borrowers have responsibility here, but they would not have been able to get in this position without the complicity of Ms. Maroon as alleged in the indictment. If you really want to help someone in such a situation, tell them to come back when they were in a position to legitimately qualify for the loan, maybe even give them suggestions on how they could get there.

According to PACER, the trial is set for April 5, 2010.

Update: The trial has been continued to May 3, 2010.

Update 2: The trial has been continued to August 2, 2010.

Monday, March 8, 2010

A Scam Directed at Veterans

A client recently received a letter from Department of Veterans Assistance. Sounds suspiciously like Department of Veterans Affairs, no? It is not a government agency, which you can plainly see by reading the 5 point type buried at the bottom of the page. But they have a fancy military looking shield for a logo, their document is entitled IRRRL-1030 Benefit Allotment Form 792-B Eligibility Notification Reinvestment Initiative, and shows a very government looking "Case #." And when they answer the telephone, the automated attendant says, "Welcome to the Mortgage Division." Even though they are "not a part of any government agency, they are sure trying to, um, imply?, otherwise.

The letter advises that the Department of Housing Assistance (not the Department of Housing and Urban Development. No, no, not even close!) "in accordance with the 2009 Economic Stimulus Act must inform Federally Insured homeowners that FHA or VA insured mortgages must reflect the rate modifications passed by this office" Um, what? It goes on in excruciating faux-government-speak to tell you that you MUST call or horrible things will happen, and you are foolish if you do not call because you might get to skip TWO MONTHS of payments. That can happen with any refinance. You just pay the interest at closing. Notice, they do NOT say you get to skip two months of interest. The letter is signed by the Director of Veterans Assistance, Cynthia Moore. What a lofty title, Cynthia.

Maybe they have a nice interest rate and reasonable fees for our veterans. But the underhanded way they try to get them to call leads me to believe that may not be the case. In case you were not counting, we have three different names for this outfit. I almost forgot to mention that even though their address is a PO Box in Washington, DC (are there few government agencies in that town?), the letter was apparently mailed from California.