Back in 2006-2007 when you could borrow 100% of the purchase price up to $1.5 million with only a 700+ FICO score, there was a team of scammers working the Carlsbad area. They hosted seminars where they offered to help unsuspecting marks get a piece of the booming-real-estate pie.
John was the lead guy, and Jenae was the broker who arranged for them to purchase Carlsbad homes at prices inflated by $100,000 over the list price. Then they promised to rent out the homes, and when sold in a few years, everyone would split profits. The extra $100,000 was laundered into their own accounts, and they told the buyers that the money would be used for property management.
Jenae claimed she was duped too, and that no one bothered to verify that they could rent out the homes for enough to cover the payments.
I filed a 20+ page report with the FBI office in Carlsbad that detailed the whole account, and four years later, it looks like it may have helped. Here are some of the details:
A Carlsbad-based real estate consultant was sentenced to five years in prison for a multimillion dollar mortgage fraud scheme involving properties in Georgia, Florida and California, according to the U.S. Attorney’s office.
John J. Borzellino was also ordered by U.S. District Court Judge Janis Sammartino to pay $4.1 million in restitution, federal prosecutors said on Friday.
Borzellino, 53, arranged to purchase homes by offering more than the seller’s asking price with the understanding that the money above the asking price would be funneled to an account under his control, according to court documents.
Prosecutors said Borzellino disguised the funds diverted to him by falsely claiming them as “commission” or “consulting fees” to be paid by the sellers at closing, according to prosecutors. He also assumed several false identities to disguise his role in the transactions. He defrauded lenders into making more than $8 million in mortgage loans to purchase properties in the name of his wife and others, prosecutors said.
Borzellino also admitted that he failed to declare almost $1 million in income to the Internal Revenue Service, prosecutors said.
It was 18 years ago today that I started writing this blog.
It was a Saturday morning. I set up a free account at squarespace to get it started, and it was solely because I expected every other realtor to do a blog too. Funny how that turned out!
Donna said, “Yeah well fine, just don’t spend too much time on it.”
I’ve been a part-time blogger ever since!
It was in August, 2005 when our escrow officer called me to say the buyer of one of our listings was objecting to signing the loan documents. Their realtor/lender beat me over there, and I heard her telling the buyer, “No worries, we will refinance”. It was one of many things that were happening then that led me to start the blog (the home got foreclosed 22 months later).
This is my first blog post, and it still resonates somewhat today:
Housing blogs were becoming popular and I commented regularly elsewhere. It caused more people to discover what I was doing – and to slam me just because I was a realtor, even though I was being pretty gloomy. By 2009, I had picked up quite an audience, and enough attention that the LATimes picked up on the blog, which led to this piece by ABC News Nightline:
The ABC TV spot ran in April, 2009, which coincidentally was the trough of the San Diego Case-Shiller Index. The audience here exploded, and at the same time the bank-owned listings being sent to us increased substantially. We sold 72 homes in 2009, our all-time high!
All kinds of crazy things have happened.
For example, we monitored the Jenae scandal in Bressi Ranch and La Costa Valley where she and co-conspirators were doing seminars and selling homes to unsuspecting suckers who financed their purchases 100%. Jenae promised to rent them out but they were adding $100,000 to each purchase price that was kicked back to her partner John as a tenant-acquisition slush fund. He finally went to jail but Jenae claimed she was duped too and she is still selling homes around the county today.
My life was threatened a couple of times, I’ve evicted dozens of people, I’ve been in a movie, and on CNBC TV (twice), plus I’ve been on ReasonTV, and in Grant’s Interest Rate Observer (on October 3, 2008 for those who have access). I’ve been on industry panels, I’ve been an expert witness in court, I made a citizen’s arrest of squatters, and I’ve met with the FBI to turn in scamming realtors…..among other things!
I’ve had 12,101 blog posts here with 68,179 comments and 3,000+ Youtubes with 2,341,000+ views, plus 14,200+ tweets. It has been one heck of a ride – let’s keep it going!
Thanks to readers everywhere, and a special acknowledgement of those who have utilized our real estate services over the years. It is why I do this blog, and I appreciate your support!
When we followed Jenae and her scammers during the last foreclosure crisis, they had convinced amateur investors in Bressi Ranch to borrow most or all of the sales price – Countrywide was willing to finance 100% to virtually anyone in 2007 – and then rent out the homes until they go up in value.
We thought it was far-fetched because the monthly payment was well above the market rents, but they were bumping the purchase prices to include up to $100,000 kickbacks from the sellers for a slush fund to cover the negative cash flow (but went into the scammers’ pockets instead). They paid $1,100,000 to $1,300,000 for houses like this one, but as prices started to weaken, they all bailed out.
If they would have just hung in there until now, the idea would have worked!
We saw this happen in Bressi Ranch when Jenae and Company went on their 100% financing spree. Her victims weren’t deadbeats – instead, they had good credit scores and other assets, and they were just duped into the get-rich-quick scheme. When it didn’t pan out, they dumped everything.
The grim tale of America’s “subprime mortgage crisis” delivers one of those stinging moral slaps that Americans seem to favor in their histories. Poor people were reckless and stupid, banks got greedy. Layer in some Wall Street dark arts, and there you have it: a global financial crisis.
Dark arts notwithstanding, that’s not what really happened, though.
Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.
Analyzing a huge dataset of anonymous credit scores from Equifax, a credit reporting bureau, the economists—Stefania Albanesi of the University of Pittsburgh, the University of Geneva’s Giacomo De Giorgi, and Jaromir Nosal of Boston College—found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distribution—and that these borrowers accounted for a disproportionate share of defaults.
As for those with low credit scores—the “subprime” borrowers who supposedly caused the crisis—their borrowing stayed virtually constant throughout the boom. And while it’s true that these types of borrowers usually default at relatively higher rates, they didn’tafter the 2007 housing collapse. The lowest quartile in the credit score distribution accounted for 70% of foreclosures during the boom years, falling to just 35% during the crisis.
So why were relatively wealthier folks borrowing so much?
Recall that back then the mantra was that housing prices would keep rising forever. Since owning a home is one of the best ways to build wealth in America, most of those with sterling credit already did. Low rates encouraged some of them to parlay their credit pedigree and growing existing home value into mortgages for additional homes. Some of these were long-term purchases (e.g. vacation homes, homes held for rental income). But as a Federal Reserve Bank of New York report from 2011 reveals (pdf, p.26), an increasing share bought with the aim to “flip” the home a few months or years later for a tidy profit.
Hat tip to AL for sending in more on the story in Escondido.
The tenant of this house has been arrested for having created a bomb factory in his residence, and now the sheriff has decided to burn the house down. The owner of the house paid $479,000 in 2005, and refinanced it since, with loan balances around $500,000, so this will be the bank’s problem now.
But check this out – Jenae’s flipper client just bought the house next door for $221,000 at a trustee sale, and is trying to flip it for mid-$300,000s. You’ll see her sign in the video:
If you are Jan Terry, owner of this house at 2872 Vista Acedera in La Costa Valley and Jenae’s co-conspirator, you pull out all the stops.
First it was to try their lease-option program, hoping to find a renter willing to cover her roughly $9,000/month obligation. But no takers.
Then she tried the typical short sale strategy, starting with a list price of $1,100,000, which was slightly under her purchase price of $1.25 million, which she financed 100% in April, 2007. She eventually lowered it down to $890,000, but then cancelled the listing.
Now she has reverted to the last resort. We think she must have sent in a short-sale offer to the bank to postpone the trustee sale, which was scheduled for July 17th.
In the meantime, she has rented the house to 14 surly individuals who come and go at all hours, night and day!
The HOA says they can’t do anything. Carlsbad P.D. says they might tow this car that they park around the corner, but that’s about all they can do.
The neighborhood has already suffered from this inflated sale, which contributed to others paying too much – now the impending foreclosure of a house that is surely in disrepair will help tank values further. Thanks Jenae!!!
We have discussed the suspiciously high sales in Bressi Ranch last year, and the alleged inflating of prices/kickbacks for property management that ensued.
We know what happened then – what is the lasting impact?
Here is a summary of the Bressi Ranch high-end sales history:
2566 Discovery, Carlsbad
4 br/3.5 ba 3,480 sf
SP = $944,000 6/05
SP = $1,350,0003/07
DOM = 0
100% fin.
First strike – This was her first in Bressi Ranch, one that, according to how she put it in the system, she represented both buyer and seller, and “sold prior to MLS input”. There had been a couple of sales in 2005 & 2006 of former model homes in the $1.2 to $1.35 range, but the market had began its decent by March 2007. This sale was a 43% increase in sales price between 2005 and 2007, and started the string of sales that fed on one another. You can see on the sign that she tried to arrange for a lease-option, which was the basis for the program. The idea was to find new buyers to lease option, in this case for $11,000 per month.
YB: 2005, HOA = $205, MR = $219
2023 update: After selling for $1,350,000 (financed 100%), it sold for $800,000 at the end of 2008. It has since sold for $1,245,000 in 2017.
Second strike – The seller/agent of this house had been trying to get $1,199,000 to $1,229,000 between 9/06 and 2/07. He cancelled the listing and put it back on March 1, 2007 at $1,225,000, and stated in the remarks, “no offers below $1,200,000”. A couple of weeks later he RAISES the price to the range $1.25 to $1.35 million, and marks it pending. Later he let it expire, but tax rolls show it closed for $1,350,000, with $1.3 million in financing. Jenae’s company is now the listing broker, and she told me that she sold it, though it isn’t marked in the MLS.
YB: 2005 HOA = $205, MR = $219
2023 update: Jenae’s brokerage sold this house as a short-sale for $875,000 a year after selling it to their buyers for $1,350,000 who financed $1,300,000. The $875,000 buyers still own it in 2023.
These two sales perpetuate the illusion that homes in Bressi Ranch are worth more than $1.3 million, at least for the ensuing few months. What happened afterwards?
6253 Alverton sells for $1,210,000 for 4,608 sf – looks like a legit sale but seller/agent had struggled, the DOM was 245 days and he was trying to rent it too. Buyers and their newer agent probably relied on the two sales above for comfort.
Third strike – The same newer agent (not associated with Jenae) listed this house for $1,199,000, and it closes for $101,000 higher. The out-of-town buyer/agent, and unfortunately a victim of the scheme, buys it thinking that the rents will cover the $10,000 per month payment, including taxes. He has since dis-associated himself from the agency who got him into this mess, and is trying to rent it now for $4,500 per month, hoping to hold on for a couple more years.
YB: 2005 HOA = $193, MR = $203
2023 update. The 100%-financed buyer who paid $1,300,000 was foreclosed in 2009. The house was sold two months later for $776,000. It then sold for $2,700,000 cash a year ago!
Alverton could have started the natural decent again, but Huntington propped up the market for one more sale:
This is the collateral damage – innocent people come along and think these three strikes are legitimate values – but they aren’t. Not only that, many others have probably refinanced, using appraisals based on the three strikes.
The highest sale since is $825,000 for 3,092 sf, on 9/20/07.
Worse yet, now other sellers are trying to get out, based on the illusion of values being in the $1.2 to $1.3 range. Along comes Jenae to rescue one of her victims – she has listed Lismore (the second strike) for sale, trying to get her client some relief through a short sale – in the remarks it says ‘submit all offers’. It’s the first burnt-red circle below, plus the foreclosure listed two days ago (second circle) squishes down the chances of anyone getting $1.3 million anytime soon.
These are the active high-end listings in Bressi Ranch:
No charges have been filed against any of the perpetrators, though I have had more than one conversation with the FBI.
Consider the trail of destruction left behind – it’s not just the banks of the three strikes that are going to take the hit. These sellers are going to be sorely disappointed once they realize what happened.
