Posted on 10/09/2005 6:34:13 AM PDT by Excuse_My_Bellicosity
Angela Brown of Euclid, a single mother living with little income in a government-subsidized apartment, bought five houses in one day, qualifying for hundreds of thousands of dollars in loans that she has no way of paying off.
David Crosby of Cleveland, a night-shift postal worker, bought six houses - four in one day - through an identical loan deal that plunged him into a sea of debt.
Brown and Crosby were each looking for investment income in 2004: She needed to pay college tuition; he wanted to go into retirement with a healthy nest egg.
So when Daryle Rutherford of J. Rutherford & Associates, an investment property manager, offered each of them ownership of rental properties with easy terms and little or no down payments, they signed the papers.
Now Crosby and Brown are in financial ruin, the FBI is looking at them, and their 11 Cleveland houses are empty and in foreclosure, adding yet more blight to one of the poorest cities in the nation.
Brown and Crosby are either victims of their own stupidity or dupes in a type of housing con game that city leaders see as a growing cancer, destroying Cleveland neighborhoods.
Rutherford, who could not be reached for comment, worked the deals through the fast and loose world of sub-prime mortgage lending, which extends credit to high-risk borrowers at fees and interest rates typically higher than conventional loans. Sub-prime loans, common in low-income neighborhoods, can require little financial information from home buyers.
Brown and Crosby became landlords without knowing what their properties looked like or where they were located. They soon discovered that their so-called income properties were dilapidated money pits, some of them in the poorest sections of Cleveland.
Now Brown, 30, is strapped with $355,000 in notes on a scattering of junk houses, hardly worth half of what she owes on them.
Crosby, 48, is stuck with $483,000 in notes on a collection of urban eyesores, including condemned crack houses. Both face jail time for housing code violations.
One of the houses in Brown's collection was priced at $79,000 but had sold just a year earlier for $27,000, records show. Crosby paid $86,000 for one house that is boarded up and stripped of its plumbing.
A report by Cleveland's Housing Court says Crosby's houses were priced about three times higher than what they were worth.
"I sit down and cry sometimes," Crosby said in an interview last month.
The FBI began investigating the deals about two months ago. The federal agency does not acknowledge investigations, though Crosby and others involved in the deals, including a title company and an appraiser, said agents are asking questions and taking documents.
Brown and Crosby say they didn't realize what they were doing when they signed the mortgage papers. Crosby said he thought he was getting into a business venture with Rutherford's company, which, he believed at the time, would manage and maintain the properties for a cut of the rent money.
Crosby said he has been had. "I feel like kickin' someone's butt," he said.
Brown said she got caught up in "a whirlwind," but she declined to discuss it further.
Over the past few years, city leaders have seen an alarming rise of speculators working risky deals that profit themselves, bankers and brokers, but plunder equity from neighborhoods.
The name of the game is predatory lending, and its goal is quantity, not quality. Predatory mortgage brokers and middlemen quickly close deal after deal, turning sale after sale, sometimes on the same property, always at a profit. They make money on fees charged from lenders.
Predatory lending can be legal, but it can create a culture for fraud and reckless deals such as no-money-down mortgages and so-called "liar's loans," which require no proof of income. Predatory lending is one of the reasons for a recent rash of foreclosures throughout the state, making Ohio the nation's leader in both total foreclosures and sub-prime foreclosures.
In Cleveland and its inner-ring suburbs, predatory lending is frustrating city officials trying to preserve property values. An empty, boarded-up house can quickly run down values of nearby properties, spreading blight like toppling dominoes.
"It's a plague on our city," said Councilman Mike Polensek. "And it's spreading to Cleveland Heights, Euclid and other inner-ring suburbs."
Officials lay part of the blame on a growing presence in the Cleveland area of an aggressive sub-prime mortgage industry, which can be a help to home seekers with bad credit but, left unregulated, can breed fast-buck mavericks working shady deals.
"These guys have a license to steal," said Polensek. "They ought to be wearing masks."
Councilman Tony Brancatelli described them as "mortgage brokers dealing out of the backs of station wagons."
Councilman Jay Westbrook called them "hyenas, cleaning the bones" of struggling neighborhoods.
Municipal Housing Court Judge Ray Pianka said, "I don't know if any of us know how big this is. But I think it's really a crisis here. And until the mortgage companies look who they're lending to, it's not going to go away."
Paper trails for the Brown and Crosby deals are sketchy, as much of the settlement information, such as appraisals and middlemen profits, is not public record. Brown refused to disclose her settlement papers. Crosby did not have all his paperwork.
Attempts to reach Rutherford, who according to records recently lived in Pepper Pike, were unsuccessful. Phone numbers for his business, residence and cell phone are disconnected.
Dan Spahr, president of Greater Cleveland Appraisals Inc., a Fairview Park company that appraised Crosby's properties, said he has been trying to track down Rutherford for a year but can't locate him. "He owes me a grand," he said.
Citing privacy laws, Spahr declined to show the appraisals to The Plain Dealer, though he acknowledged that he gave them to the FBI when an agent asked for them about two months ago.
The broker on the Brown and Crosby deals was iNet Mortgage of Fairlawn. Chad Cook of iNet said he "vaguely" knew Rutherford.
Crosby, however, said Cook and Rutherford took him to the Cheesecake Factory at the Legacy Village shopping center in Lyndhurst when the deals closed. Cook said, "That's not correct."
When The Plain Dealer told Cook that Brown was unemployed when she signed the closing papers on the five properties, he said, "That's not what she told us."
Asked whether he asked her for proof, he said, "Normally, the lender does verification of employment."
The lender for all of Brown's properties and four of Crosby's was California-based Argent Mortgage Co. Argent spokesman Chris Orlando said the company would not comment on particular cases, but added, "We do require borrowers to certify their incomes."
Argent is a subsidiary of ACC Capital Holdings, the nation's largest sub-prime lender.
ACC and its companies, which include Ameriquest Mortgage Co., have been targets of lawsuits and investigations nationwide by consumer groups and government regulators alleging fraud and questionable lending practices.
Last month, Argent was forced by the state of Georgia to sign a consent order, pledging it will "cease and desist" violating state mortgage laws.
Orlando said the company is cooperating with Georgia's Department of Banking and Finance.
In a written statement, he said, "The FBI calls mortgage fraud a 'pervasive and growing' problem. Argent Mortgage is diligent in identifying and preventing fraud because it is bad for communities and lenders alike."
To reach this Plain Dealer reporter:
momalley@plaind.com, 216-999-4893
I think that there are a number of things that lead to this sort of debacle.
First off, you've got GREED. Someone who believes that they can "get rich, quick."
Secondly, you've got an awful lot of people out there who really believe that they're poor because they've lost out on "life's lottery," while the rich are simply lucky, and winners in "life's lotters." They don't believe that wealth is formed by hard work and savings: That it's something you either inherit, is given to you, or you steal from "the poor."
These people tend to be gullible, because they WANT to believe that they can "get rich quick" with no work, since that's how they tend to view "the rich."
Mark
I know, how could you buy a place without even looking at it?!?! Were these "buyers" on crack?
If a deal sounds "TOO GOOD TO BE TRUE", it probably (98.5% probability) isn't true.
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
A few years ago, I refinanced my home with Ameriquest to lower the payment. Because of illness, and having a "not so perfect" credit rating, my local bank would not do it. Ameriquest offered a good rate, and gave us the loan. Little did we know, they charged us almost $5,000 in finance fees! After one year with them, we were able to refinance with a local bank for a fee of $300.
These "predatory lenders" do not care if you pay them back or not. They make their money up front in fees.
I'll compromise. Innocent morons.
Only Trump types buy real estate sight unseen, and you can bet a herd of agents, lawyers and accountants have done the fine tooth comb number on those deals.
The old saw applies: if it sounds too good to be true, it probably will bite you!
Don't like telemarketers? Let's have the feds spend millions and millions of tax dollars and create a whole new beauracracy for a do not call list. God forbid that people would just hang up, or use any of the technology created to block/allow calls.
Can't get insurance because you live in a flood zone? That's OK, the gov'mint will give it to you and even rebuild and give it to you again and again and again.
Want cheaper health care? Don't worry, it doesn't matter if you are rich, middle class or poor, the gov'mint will give it to you. So, why would there be any idea that one must be 'ware of anything?
And these are the people who scream that the banking system and real estate markets are so corrupt. Where do you even start with people like this?
-"I sit down and cry sometimes," Crosby said in an interview last month.-
Here's my call: Idiot. Complete and utter idiot. The cons can only take advantage of you if you're a moron to begin with. People like this amaze me with their utter lack of knowledge of the world around them.
Sorry, I don't know. Not into auto racing. I dealt with Ameriquest, not Advent. It does not surprise me, that they are involved in law suits.
Somebody get me a violin.
I don't doubt it. They'll get their money in fees and possibly in bankruptcy court. It sounds like free money but they've got it figured out, otherwise they wouldn't be doing it.
I think they both were dumb but knew they didn't qualify for a loan so they were also involved with fraud.
I vote for option #2--morons extrordinare. Reading the article, I got the impression that these "investors" never bothered to look at the properties they purchased; if that doesn't qualify for "stuck on stupid," nothing does. Also, if you're living in Section 8 housing, it's probably not a wise idea to acquire debt (equal to 20 times your annual income) in questionable real estate investments. P.T. Barnum was right. A sucker is born every minute.....
Some people in my area actually lost money in that ridiculous e-mail scam from some "heir" in Nigeria.
I was floored that people actually fell for THAT stupid scheme. It's ignorance and greed.
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