Fraud or Stupidity?

The Theft — Atreyu

There was certainly a great deal of kool aid being consumed during the bubble. People were paying ridiculous prices for real estate only because prices were going up. Since there is no valuation metric that makes any sense in a financial mania, it is difficult to tell if the late buyers were simply stupid, or if there was something more sinister going on.

So what is mortgage fraud?

High CLTV financing, particularly the widely offered 100% financing, is the ideal tool for fraud. Fraudulent transactions require “straw buyers” willing to sacrifice their credit for a fee (or identity theft,) appraisers willing to inflate the houses value, and realtors and mortgage brokers either willing to go along with the transaction for cash or too ignorant to see the truth. In a transaction, the straw buyer purchased a house for greater than its true market value, and the excess payment was used to pay off the corrupted parties. Fraud was much easier to commit with 100% financing because the bank loaned the full amount of an inflated appraisal. It is much harder to commit fraud when the bank only loans 80% of a property’s value. Most often the seller was in on the scam and was using the transaction to get out of a bad deal, but sometimes sellers were also innocent victims. The straw buyer had no intention of repaying the loan from the start, and the property quickly went into foreclosure.

Today’s featured property has an interesting history. I will let you decide whether the last buyer was a “straw buyer” who was part of a fraudulent transaction or simply a fool. I do not know, and I have no way to tell.

65 Passage Kitchen

Asking Price: $499,000IrvineRenter

Income Requirement: $124,750

Downpayment Needed: $99,800

Monthly Equity Burn: $4,158

Purchase Price: $800,000

Purchase Date: 8/31/2006

Address: 65 Passage, Irvine, CA 92603

Beds: 3
Baths: 3
Sq. Ft.: 1,592
$/Sq. Ft.: $313
Lot Size:
Property Type: Condominium
Style: Traditional
Year Built: 2003
Stories: 3+
Floor: 1
View: Mountain, Peek-A-Boo, Has View
Area: Quail Hill
County: Orange
MLS#: R809010
Source: SoCalMLS
Status: Active
On Redfin: 49 days

Bank owned. Sold for $800,000 in 2006. Good Quail Hill location near
pool, workout room, shopping, park, and hiking areas. C-Daydream
floorplan in Casalon tract with balcony off kitchen area. Bedroom/bath
on first floor, and other two bedrooms on third floors. Spacious
kitchen with white cabinets/appliances. Living room has fireplace,
vaulted ceilings, media niche, and upgraded cherry floor and custom
paint throughout, master with vaulted ceilings, walkin and hill and
city views. Award winning schools/University H.S.

Well, at least the bank is telling the world how stupid it was in 2006 when they loaned $800,000 on this property…

To fully understand this property, and in turn the housing bubble, we need to go all the way back to the first buyer. Let’s begin.

Owner #1

The first owner bought this property from the builder for $392,000 on 12/5/2003. He used a $313,590 first mortgage, a $39,199 second mortgage, and a $39,211 downpayment. The owner refinanced a year later, but did not take out any money. A HELOC was opened on 1/19/2006 for $250,000. Do you think he took out the money? Actually it doesn’t matter because he sold the property a few months later to owner #2.

Owner #2

This is the guy who really made a bundle on the property quickly. He is the poster child for successful flipping, or perhaps something else. He purchases the property on 4/25/2006 for $660,000. He uses a $528,000 first mortgage, a $132,000 second mortgage, and a $0 downpayment. He has no money in the deal. Just 4 months later he sells it to buyer #3 for a huge profit.

Owner #3

This is our patsy/bagholder. He pays $800,000 on 8/31/2006. He uses a $640,000 first mortgage, a $160,000 second mortgage, and a $0 downpayment: 100% financing. What a surprise. I am curious how the appraiser could state this property had increased in value by $140,000 in 4 months. Does this feel right to you?

Do you think there is a relationship between owner #2 and owner #3?

Was owner #3 part of a fraud scam or just really, really stupid?

I don’t have the answers to these questions, but even with all the kool aid in the market, this one looks a bit fishy to me.

What is also remarkable about this property is the discount at auction. The bank wrote a first mortgage for $640,000, and yet they only bid $463,500 at auction, and they were the highest bidder. Even the flippers did not want to touch this toxic turd.

If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $330,940.

This property is being offered for 37.6% off its peak purchase price.

Look at the chain of ownership here. There was one owner who had less than $40,000 of his own money into the deal, and that only represents 10% of the initial purchase price. Every penny of the remaining transactions was debt. This properties resale price was inflated from $392,000 to $800,000 with air provided by lenders and asset-backed security investors. Now that the air is being removed from the credit bubble, this property has fallen from $800,000 down to $499,000 on its way to an even lower value. This is the essense of The Great Housing Bubble.

{book}

He bends and he breaks
If you give they will take away
His passion, his pain, his grace.

He exhales,
A thousand black flowers explode
into butterflies as they’re away

Rip them out, take them,
Burn coals as they crush him
Leave nothing
that resembles the soul of a man
See him numb, see him crushed
See him numb, See him crushed
Rip them out, take them
Burn coals as they crush him
Leave nothing
that resembles the soul of a man
Leave him numb. leave him crushed
Leave him numb, leave him crushed

Took the fire inside
One too many times
He’s burning over and out now,
He fails
Up against the raging tides,
No more fights
Everything you ever wanted to see,
See it in his eyes
One more time, one more time

Climb down to test the waters,
My hands feel like they’re rusting away yea, yea.
So I’ll pace around like a lamb before the slaughter
I’ll stay here as long as you let me,
Decisions been made obvious so I will return
Where I started I’ll stay there
Unfinished
I’ll wither away

The Theft — Atreyu

40 thoughts on “Fraud or Stupidity?

  1. cara

    I don’t know if it’s fraud or not, but somebody “stole” the frig and stove.

    Maybe the contrasting stainless steel appliances were that 3 month $140,000 difference. Oh, and a little staging.

    Minus this, it’s just a rat-hole.

    (I actually kind of like the layout of the kitchen with the extra cabinet area on the side and a balcony for an outdoor table. Seems practical for the area)

    1. SnowKat

      “I don’t know if it’s fraud or not, but somebody “stole” the frig and stove.”

      I know of someone who had a nasty divorce who’s in which her husband came back after she moved out of the house and stole ALL of the fixtures and appliances. CLASSY!

      …no, I’m not kidding 😆

    1. Forbear

      The one thing I’ve always disliked about Irvine is the large number of “pretentious posers”, a.k.a. “pp heads”.

  2. Texas Triffid Ranch

    I think what we should be asking is whether or not the bank, or at least the underwriter who oversaw this loan, was in on it, too. I’m sorry, but $.8 million for a condo? $150k I might be able to understand, it being in Irvine and all, but either someone was collecting a percentage of the sale price to get it to go through, or someone at the bank really needs to stop freebasing Preparation H.

    1. tlc8386

      The mortgage broker was paid in commission based %–so the higher the price of the property—the higher amount of money he made—

  3. LC

    Forget the past. Half a million for a 1500 sq ft condo in Irvine? Bwahahahaha.

    I think those condos have a vomitorium near the baths.

  4. lunatic fringe

    If this was indeed a case of mortgage fraud, how many levels does it go? Does it stop at just a simple straw buyer situation or did the lender also make a bad loan knowing they would sell off the loan to investors? And did the investors buy the loan knowing they’d be made whole by the US taxpayer in the event of a default?

    Hard to say but I do know as a taxpayer it really chaps my butt that I will be paying for messes such as this.

    1. nefron

      Agree, 100%. Funny how the collective public has already forgotten about that $700 billion gift to the financial services industry. There they were, just teetering on the brink of the apocalypse one day, nary a peep out of them a month later.

      I feel like Paulsen did his buddies on Wall Street a huge favor, herded up our congressional ‘leaders’ like a bunch of cows for the slaughter to get them their money, and now we can’t even get out of them how they’re spending our money. But, try to get a loan, at roughly 1/30 the value of the bailout for the bankers (who don’t produce a thing that we can sell for hard cash), for our auto industry, on which 2 million jobs depend, and our ‘leaders’ can’t figure out whether that’s a necessity or not. There’s all of this talk about cleaning up the audo industry, let them go bankrupt, blah blah blah, and I haven’t heard word one about all of the fraud perpetrated by the financial industries. What is wrong with this country?

  5. buster

    About three miles down Sand Canyon there are some older condos in the low $200,000 at 1,050 sf. That would put it at just above $200/sf.

    And these clowns what HOW MUCH? Half a million. Yeah, let me cash out my 401(k) for the $100,000 down payment — oops, no money left there either.

    The sellers at some point need to realize that the property needs to be priced so an entry-level buyer, with 20% down, can afford it with a little struggle. At half a million, these people are dreaming.

  6. Jwinston2

    I have seen many places in the Quail Hill area. My question to everyone that has been there as well is do you really believe this place is even worth the 500k?

    I ask this because most of these condos in this area are three stories and have wide stairs, drastically reducing the actual usable square footage. Plus they are in very close proximity to many neighbors, due to the three stories, effectively making the feeling more Irvine Company apartment living than anything else. Lastly this area has a pretty decent association fee plus Mello-Roos. I just do not understand how anyone seeing these places could justify 500K, does anyone else agree?

    1. ockurt

      I agree. Quail Hill has some nice things going for it but for the most part it’s cramped, over-priced, and far from the IBC.

      They won’t get $500k for this place.

    2. .

      I don’t like the codos in Quail Hill, but this one seems a little nicer than some of the other cramped ones in the area. I remember climbing the stairs at one open house there and it sounded like it was a 40-year-old own because the floors creaked so loud. It seemed to be very poorly constructed.

    3. Jim Jones

      Agree.

      I’ve been through this area and the impression I get is that these are just nice apartments. Ignoring all the traditional value calulations (price per square foot, ect) I personally wouldn’t feel comfortable paying more that 300k for something like this. Of course units like these may never drop to this level. If I am going to make a huge financial committment for a home purchase its going to be for an SFR and not an apt. I was amazed by the huge financial burdens people were willing to assume in order to purchase apartments.

  7. tazman

    Hey, can did the realtard even look at this place before listing? The listing states it is a 1 story condo, yet stairs are clearly visible. Talk about fraud!

    Also, why do realtards put up 15 photos of amenities, etc. and not one of the bathrooms, bedrooms and closets?

  8. Dano

    What exactly is “custom” about the paint in this place? Does “custom paint” mean there is at least one color other than white?

    Dano

  9. Soylent Green Is People

    Fraud. Cannot be anything else. Why? First of all it’s not just the buyer here that is at fault. There had to be a seller willing to price the home that high, a REALTARD who agreed to take the listing, a Broker REALTARD who OK’d the transaction through their office, and Appraiser who listed the home on the appraisal as a PUD (likely) allowing higher comp PUD homes in the area to add “value”, along with a Mortgage Loan officer who managed to trick not just one but two lenders into believing this property was worth that kind of coin. Imagine the income needed to qualify for this? Using average rates of 6.0% in 2006 you can imagine the cutting and pasting it took to structure this deal.

    The parties involved were crafty, not stupid.

    1. Major Schadenfreude

      I wish I had a lot of spare time and brass balls. If I did, I would start a web site called THE PILLORY where I would copy and paste IR’s posts AND reveal the names of all the players.

      “Upset about your 401k dissolving and the 700B going to banks? Step right up to The Pillory and see part of the reason why we are where we are today!”

  10. ockurt

    Regarding that Westpark property that was profiled yesterday…

    My r/e agent said the bank received a 50% down offer over asking.

    The kool-aid is still flowing.

    1. Forbear

      Sounds like the agent is full of $hit!!!!! Why would anyone offer more for a property in a declining market if they were putting 50% down?

      1. ockurt

        Who knows…I can’t believe it either.

        I said let’s wait and see what happens. Sometimes it’s just puffery, sometimes the deals just fall through.

  11. Quail Hill Renter

    I’ve rented in Quail Ridge for half a year now and gone to some open houses around here. The place is cramped like Woodbury but with a markup for being in Quail Hill even though the house looks exactly the same as Woodbury. The area is nice if you like jogging up steep hills and trails, but who has time to do that. Ha!

  12. Chipper

    FRAUD!

    Your suspicions are correct IR that this is total fraud.

    This is all from public records and can be easily verified.

    Buyer No. 2 is Marco Hamza Tredicini (a.k.a. Said Hamza Yasser). He declared bankruptcy in Santa Ana courts on 10/16/2002. Yet on 3/23/2006, he buys this house for $660,000, all on credit.
    He was involved in an outfit called Dana Capital that apparently shut down in 2007 under the force of multiple lawsuits, consumer complaints, and government action. (just google Dana Capital)

    4 months later he “sold” the house to buyer no. 3.

    Buyer No. 3 is Farah Alihassan — who then changed her name to Farah Hamza. Does “Hamza” ring a bell? Perhaps he (buyer no. 2) sold it to his wife-to-be (buyer no. 3) knowing full well that she’ll then declare bankruptcy. (she indeed declared bankruptcy in 04/15/2008)

    Looks like buyer no. 2 used his girlfriend/wife-to-be as his straw buyer to rip off the bank/taxpayers of a quick $160,000 in 4 months.

      1. Chipper

        No kidding.

        I just searched public records (property + bankruptcy) and a little google-ing.

        People spend more time in jail for shoplifting at the dollar store.

    1. ockurt

      I think there was an article in the OC Register a few weeks back about these folks.

      If it’s the same people I’m thinking of, they also did the same thing with a bunch of properties in Santa Ana.

      1. Mixy

        That was different family, but the same M.O.

        Isn’t it worth it for the integrity of the mortgage industry to go after some of the more obvious fraud cases, like this one? Why would anyone invest in the shares of a lender when they don’t protect shareholders’ money?

        1. IR2

          Bcuz the banks will just get paid back by the US taxpayers. Why waste time in court when you can just hold out your hand and get welfare.

    2. The quick and the stupid

      In the coming generations, Irvine will be known as the mortgage fraud capital of the world.

      1. lowrydr310

        Aside from the fraud going on with all the homes being sold in Irvine, think of all the mortgage companies that are (or were) based in Irvine that share some of the blame for causing this mess.

  13. zubs

    Can someone alert the FBI? write their congress men? round up the posse? How do we know if the perps are getting their due?

  14. tlc8386

    Everyone was in on this fraud scheme–
    Raise the price of all the homes everyone collects-
    city gets higher taxes
    hoa gets more money
    surrounding homes go up in value–higher prices
    future higher selling prices
    mortgage brokers collected high commissions

    bankers sold off the loans 30 times their value

    and we tax payers who rent will pay for years to come–

    And best part no reduction in melloroos , city or state taxes but Arnold wants to raise —lol

    Irvine is the biggest scam of them all–

  15. toy screening

    I don’t know if it’s fraud or not, but somebody stole the frig and stove.But I actually kind of like the layout of the kitchen with the extra cabinet area on the side and a balcony for an outdoor table.
    toy screening

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