Realty Scams Are Picking Up in Southern California
By Jeff Collins
The Orange County Register, Calif.
RISMEDIA, Jan. 20 – (KRT) – Investors thought they were getting a $400,000 home for $7,500. In the end, prosecutors say, they got nothing.
Most of the victims believed the deal was legitimate because they learned about it through church -- from the brother of a recently deceased pastor.
Ninety-one people signed up to buy homes being built in Vista. Twenty-one others invested, promised 20 percent annual returns.
No homes were built, however, and the pastor's brother and four associates -- including a Fullerton man -- were indicted with conspiring to steal more than $1 million.
The case is one of several real estate scams to surface in Southern California in recent months, prosecutors and regulators say.
While land swindles make up just a fraction of all fraud cases, they're a steady staple in the local flimflam repertoire.
Signs of an uptick in such frauds are showing up in Orange County, Assistant District Attorney Elizabeth Henderson said. An even greater number may be going unreported because the housing market is so good.
"When people are making money, they are able to look the other way (when they're cheated) and not report it," said Henderson, chief of the Orange County District Attorney's economic crimes unit. She estimates that real estate fraud accounts for about 10 percent of her unit's caseload.
In San Diego County, property scams are less than 4 percent of the caseload, said Deputy District Attorney Stephen Robinson, chief of that county's economic crimes division.
"However, if you look at the dollar loss and the complexity, they're some of our biggest cases," he said.
Complaints of real estate fraud increased in San Diego County from about 85 in 1997 to more than 200 in 2003. But Robinson said it's difficult to tell if that's due to more fraud or a growing awareness of the real estate fraud unit created in the mid-1990s.
Officials cited a wide array of scams:
--Ponzi schemes: A constant supply of investors are duped into backing land developments that never materialize.
--Identity theft: Forged deeds are used in fraudulent sales or to secure loans that rip off the lender and leave the legitimate property owner with a clouded title.
--Preying on equity: Homeowners are induced to borrow against their growing real estate profits to buy phony investments.
--Flipping ploys: A buyer quickly resells a property to a straw buyer at an inflated price, then takes out a loan for an exaggerated amount that's never repaid.
--Embezzlement: Friends and relatives of elderly homeowners abuse powers of attorney to transfer a title to themselves or plunder a home's equity.
--Mortgage elimination plans: Victims pay upfront fees to operators promising to help them wipe out their mortgages without repaying their debt. Program sellers then disappear.
The FBI's assistant director for criminal investigations in September called California a hot spot for mortgage fraud perpetrated by industry insiders against lending institutions. Such fraud, "has the potential to be an epidemic," said FBI Assistant Director Chris Swecker.
In the Vista case, a group called First Latino LLC allegedly told buyers they could purchase a future home with a $7,500 down payment that would cover construction and six months of loan payments, said Deputy District Attorney Robert Madruga, head of the San Diego County real estate fraud unit.
About six months after the buyer moved in, according to the plan, the home would be refinanced for about $400,000, covering all building costs and producing a tidy profit for the homeowner to reinvest with First Latino.
Madruga said First Latino's president, Rolando Montez, peddled the plan mainly to poor Hispanics through churches in Vista, Barstow and Lancaster.
Five First Latino operators -- including Terry Samples, 45, of Fullerton -- pleaded not guilty last month to five counts of conspiracy to commit fraud, theft and forgery.
Eight investors and real estate professionals -- including former Huntington Beach Mayor Pam Julien Houchen -- are indicted on 74 counts of fraud in connection with the illegal conversion of 47 apartments to condominiums in 14 Huntington Beach buildings.
State regulators order Sunshine Real Estate Development Inc. of Los Angeles to stop recruiting investors, saying it earned $3 million by duping Californians to back land developments in Texas, Virginia and South Carolina. The Securities and Exchange Commission also alleges that firms associated with Sunshine raised an additional $6 million from investors in other states. Investors had been promised returns of 12 percent a year, but regulators alleged that no land was bought.
State regulators order Tropical Village Inc. of Orlando, Fla., to stop California sales of shares in senior triplexes in Florida, Georgia and Texas that were to provide returns of 29 to 35 percent. The firm was not qualified to sell such investments in the state, regulators said.
TIPS FOR INVESTORS
--Question outrageously fantastic promises of extraordinary returns in short periods.
--Be cautious of investments offered by strangers making unsolicited contact by phone calls or unannounced visits.
--Shy away from high-pressure sales techniques.
--Ask for written information about the investment and avoid investments with little or no written information about the company or its performance.
--Verify all claims. Seek competent help from a banker, lawyer, accountant or real estate agent.
--Deal with established businesses with known reputations.
Source: California Department of Corporations Land-scheme sampler.
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