From Peter Y. Hong:
http://www.latimes.com/business/la-fi-mortgage-fraud-2009aug11,0,7969080.story
From 2000 to 2003, the group pumped up home appraisals and arranged straw purchases of houses in Beverly Hills, Bel-Air and other neighborhoods. After obtaining seven-figure mortgages on many of the properties, the agents and co-conspirators defaulted on the loans, taking millions with them and leaving the banks with houses worth far less than their inflated purchase prices.
Authorities alleged the fraud ring secured $142 million in bogus loans from Lehman Bros. Bank and another lender. The group bought relatively inexpensive houses in high-priced areas, then used trumped-up appraisals to take out mortgages worth far more than the properties — sometimes nearly double the prices the ring paid for the properties.
A Bel-Air house the group acquired for $735,000, for instance, was resold to a straw buyer for $2.37 million with a $1.42-million mortgage.
The ring performed 81 such transactions, authorities said.
Babajian and Grasso allegedly made millions of dollars through the deals, prosecutors said, and Grasso got his own Beverly Hills home with no money down. Rizk received hundreds of thousands of dollars in inflated appraisal fees, prosecutors said.
Susan Yu, another of Babajian’s attorneys, said the evidence showed that Babajian was out of the office recruiting agents or working on other home sales deals during the period in which the fraud allegedly occurred.
“He was a target because of his name,” Yu said.
Babajian has represented Barbra Streisand, Bruce Willis, Warren Beatty, Lee Iacocca and many others in home sales deals, Mesereau said.
Grasso faces maximum sentences totaling 515 years. Rizk’s sentences could total 425 years. Sentencing is scheduled for Jan. 29.
While looking for a photo, I found this interview of several high-end L.A. realtors, people who sell “nine-figures”:
http://www.hauteliving.com/fl/julyaugust-ratner/jade-mills-jeff-hyland-chris-cortazzo-john-mgmonigle/
If this were a movie, Babajian would have already left the country with the money while his minions Grasso and Rizk rot in jail — at least until the State decides to release them in order to alleviate prison overcrowding, citing their crimes as being non-violent in nature.
Thank you Jim for giving this issue more visibility. Mortgage fraud is rampant in SoCal and the cops/feds are to STUPID to figure out whats going on.
(That’s right I called the cops/feds stupid. What are you going to do prove me wrong by arresting people who participated in it? People that rob a bank with a gun get 30 years to life. But when you rob a bank with a pen nothing happens.)
The banksters at Goldman Sachs make these guys look like a joke.
Shadash, don’t be in such a hurry to buy. Those crooks are doing you a favor. It’s business as usual – unfortunately.
Take this case and multiply it about a million or two times and we might be somewhere in the ball park of the dimensions of this epic, criminal Ponzi scheme.
Fraud cases are usually difficult to prosecute. But the fraud that took place over the last 8 years or so, and is still going on to a lesser extent (excluding Goldman Sachs), was so “out there” in the open, that I imagine there is an awful lot of low hanging fruit around the country, waiting for gung ho prosecutors.
But….where are the prosecutions? Where? Politics? You bet. Are we screwed? You bet.
If you don’t put criminals in jail, or out of business, they will continue to act in criminal ways. In fact, they’ll get better at it.
We can’t begin to climb out of this mess until those responsible for it are put out of business or in jail.
As this real estate fiasco unfolded, I’m sure the realtors who were out here trying to do the “right thing” said more than once, “what the f**k is going on?”
Ok… I’m confused. From the article:
A Bel-Air house the group acquired for $735,000, for instance, was resold to a straw buyer for $2.37 million with a $1.42-million mortgage.
If they sold it for 2.37M, but only had the straw buyers mortgage 1.42M – where did the balance of the sale come from? That’s $950k – which is more than the original purchase price. Any way I look at the math – this couldn’t have been the type of straw buyer I’ve seen – where they sign the docs, but don’t really get the property or make the payments. Someone brought cash to the table on the $2.37M sale.
I’m not disputing that the houses were inflated and the banksters lost money due to fraud. I’m just having trouble understanding how the cited deal pencils out with a sales price that is so much higher than the mortgage price.
If they sold it for 2.37M, but only had the straw buyers mortgage 1.42M – where did the balance of the sale come from?
They transfer the $950K down payment from one friend to the other, so it’s not like there is a net loss of money.
All it takes is some working capital to do it, but if you’re defrauding the bank out of millions, I’m sure you can come up with some short term cash to the tune of $950K. This boosts the other house prices in the area as well, making them easier to sell at the fraudulent prices.
Well in this case the $950K down payment came out of the $1.42M loan. You just need to have $950K on cash for a few weeks, and reap a 50% return when the deal closes.
The real estate industry is in desperate need of regulation.
Amazing they never went after Borzellino or Janae. Janae even got a leadership position.
“Grasso got his own Beverly Hills home with no money down.”
~~~~~~~~~~~~~~~~~~~~ Just like late-night get-rich-quick-buying-real-estate-with-no-money infomercials.
When this first came down, many of us who knew of Babajian were totally shocked. He was an outstanding and highly successful real estate agent with a sterling reputation among his colleagues and clients – besides being a great person and great to work with. Very sad.
Is this fishy??? Be alert for this: Homeowner’s who have mortgages ORIGINATED by Downey Savings & Loan: USBANKCORP acquired all the existing loans/assets of Downey S & L and are sending threatening letters to these homeowners (condo and single family) DEMANDING that the borrowers obtain and provide flood insurance in the original amount of their loan. This is very expensive insurance. The letters state that if the borrower does not comply, USBANKCORP will establish an Impound Account for the premium due and subtract that amount from the monthly mortgage payment (which could make the borrower deficient and considered in default). USBANKCORP claims that this insurance is now required because FEMA has re-mapped all of the U.S. and redesignated new areas as being in a flood zone, and all must comply. Do any of you mortgage gurus or insurance attorneys out there know about this???
The fake downpayments only existed on fake paperwork submitted to the lender – complicit escrow holder and complicit mortgage broker falsified documents indicating receipt of down payment. This fraud technique has cost the banks $$ billions.
Slightly OT… why does the cartoon/graphic of the man making off with the money bags look like Bill Clinton? Come on Jim, is there anything we can’t blame on him – lol!