Mass Foreclosures Triggered by Mortgage Fraud?
There has been a rash of foreclosures in Minnesota in several southern Twin Cities suburbs involving about 200 homes. The homes sit empty, but not because of financially distressed families or bankruptcy. The foreclosure cluster has prompted a federal investigation into an alleged mortgage fraud conspiracy.
The foreclosures of the nearly 200 homes were mainly concentrated in the New Prague and New Market suburbs. Some of the homes were rental units and the tenants were evicted. Losses of over $50 million have been estimated.
Some of the now abandoned houses have fallen into neglect or were trashed by the former owners or tenants before they left. The remaining homeowners are at a loss as to what to do about the eyesores in their neighborhoods and their now decreased property values.
The foreclosures have been traced back to homes sold by an Eagan, Minnesota builder. Parish Marketing and Development sold the now foreclosed homes to a small group of investors. It is alleged that mortgage documents for these homes were falsified in order to make the buyers look as though they qualified for mortgages on the properties when they did not.
The homes ranged in price from $300,000 to $500,000. The investors, called "straw buyers", had planned on selling them quickly for a profit, but then it happened. The housing market boom not only stopped, the market completely collapsed. The homes could not be sold and the investors were stuck with mortgages that they could not afford pay. In some cases the "straw buyers" were able to rent the homes out, but the rent rarely covered the mortgage payments so the homes fell into foreclosure.
On September 5, one loan officer from U.S. Bank pled guilty in federal court to conspiracy to commit one count of mail fraud in connection with the alleged mortgage conspiracy. Ramiz Yousef Saadeh worked at U.S. Bank up until last month. He testified that he had provided mortgage brokers with false data from 2004 until May 2007 at the direction of a homebuilder identified in court only as "Company A". The falsified information was used on the mortgage applications so that the "straw purchasers" could get mortgage loans to buy properties from the builder.
Ryan Pacyga, the attorney for Parish Marketing headed by Michael and Ardith Parish, admitted that the allegations against Saadeh involve Parish Marketing, but his clients have not been charged with any crime.
Pacyga said that the Parishes are "still working for a way for the situation to work out" and would like to see a large-scale investor agree to work with the lenders "to clean up this mess". He claims that the properties are being maintained and that the only evictions have been of those people who did not pay the rent, in contrast to what the other homeowners in the area and the previous renters have stated.
In a plea agreement filed on September 5, the government said that almost $100 million was obtained in the home loans and the homebuilders got "a substantial portion of the loan proceeds".
The plea agreement notes the fact that lenders require buyers to come up with some cash to make real estate purchases in order to demonstrate creditworthiness and satisfy underwriting requirements. Saadeh said that he provided the buyers with cashier's checks to use at closing and the checks came from the builder's accounts. He admitted that he falsified verifications of deposits for the buyers at the request of people who worked for the builders.
Saadeh's attorney says that he was a minor player and that he received about $50,000 for falsifying information for the homebuilders to facilitate the sales. He is cooperating with the federal investigation and agreed to help in the prosecution of others involved in the alleged conspiracy. He has waived indictment.