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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.

2 comments:

Laura said...

i just received an office of 1.5 million where at closing I am to receive 1.250 million. The buyer wrote a check to us for $250,000 which we are to sign over at closing. The attorney and manager of the company buying our office says it is legal. My attorney said that it looks illegal. Now the buyer, manager attorney is getting very nasty with my lawyer. The buyer states the contract stands, as is, or no deal. They claim that the "insurance company lender" wants it that way.
What do you think?

Thomas O. Moens said...

I certainly do not disagree with your attorney. While commercial transactions are not governed by all of the same rules and regulations as most residential mortgage transactions, fraud is still fraud. My guess is there will be a document which will is supposed to show all the money going into and out of the transaction, and that document will require you to sign an acknowledgment that it is accurate. If this document does not show every penny, someone is not being told the whole story. What are they hiding and why? What do you think the odds are that the buyers can produce something in writing from the "insurance company lender" that they want you to return a quarter million dollars to the buyer under the table? I would certainly suggest that you follow the advice of your attorney.