The Commission’s Audits and Investigations Division investigated a series of transactions involving unlicensed corporations that purchased properties or offered to purchase properties at a price at or just below market value and then immediately resold these properties to investors for a profit of anywhere from $30,000.00 to $55,000.00 per property.
Appraisers were paid to artificially inflate the values of the properties in order to support the higher purchase price. Closing attorneys paid the profit to the unlicensed corporations, showing the payments on the closing statements as either false assignment fees or false payoffs of second mortgages.
The corporations promised the investors that they would place tenants in the properties after closing and use the tenants’ rent to cover the investors’ mortgage payments. The tenants were promised that a portion of their rent would be used as a down payment and they would be qualified to purchase the property after one year of renting. The tenants could not qualify, rents were not reserved for down payments, mortgage payments were not made in a timely manner or at all, and in many cases tenants were never even placed in the properties. Most of these properties went into foreclosure, stigmatizing neighborhoods and ruining the credit of the investors.
The Commission revoked the licenses of the real estate agents involved and authorized its attorneys to seek injunctive relief against the unlicensed persons and firms involved. The Appraisal Board revoked the licenses of the appraisers, and the North Carolina State Bar disbarred closing attorneys who knowingly designated payoffs as false second mortgages or assignment fees.The United States Attorney’s Office, Western District of North Carolina, obtained indictments against key players in the loan frauds, including real estate agents, attorneys, and appraisers, and obtained plea agreements for all those indicted. Sentencing is pending. Loan fraud is a federal crime, punishable by up to 30 years in prison and $1 million in fines.
This article came from the February 2005-Vol35-3 edition of the bulletin.