Ingrid Simon, a $7-an-hour security guard from the Mondawmin neighborhood, had grown tired of paying rent all her life. It was time, she thought, to find a real home for herself and her teen-age daughter.
Lured by a newspaper ad, she called on Chuck Famous, a silver-haired one-time Florida mortgage broker who offered to sell her a dream home for just $500 down. He'd even throw in some cash for renovations.
So last year, Simon, 37, paid $65,000 for an aging fixer-upper in Forest Park. What Simon didn't know was that Famous had bought the same house just five weeks earlier for $15,000.
Welcome to homeownership, Baltimore-style.
Using phony paperwork and deceptive sales pitches, Famous and an array of quick-buck artists are exploiting some of the city's most fragile neighborhoods and gullible citizens. Posing as legitimate real estate investors, they have purchased hundreds of ramshackle houses over the past three years and resold them -- sometimes within hours -- to unsuspecting buyers.
Like Simon, the buyers all pay too much. The inflated prices and high debt often result in foreclosure, abandonment or bankruptcy. Disheartened buyers are left with scarred credit, and their neighborhoods get more boarded-up houses.
"Chuck Famous did me," says Simon.
In a review of more than 400 property transactions, The Sun found that these first-time homeowners and aspiring landlords paid prices that had increased as much as tenfold overnight in a practice known as "flipping."
And the sellers in those 400 transactions averaged a markup of nearly $35,000 on each deal, a total of $14 million.
Flipping itself isn't illegal. Nor is selling a house to a low-income, unsophisticated first-time buyer unfamiliar with the complexities of real estate.
But flipping can cross the line when documents are falsified to lure a lender or buyer into investing more money in a house than it is worth. It would be similarly illicit for a buyer and seller to work together to defraud a lender of money that neither has any intention of repaying.
William Matthews, managing director of Mortgage Asset Research Institute Inc. of Reston, Va., tracks real estate transactions nationwide and says illegal flipping is common in some sections of the country.
Baltimore is a "hot spot for mortgage fraud," he says.
How it's done
The flippers scour the market for bargain-basement houses that they buy from fleeing Baltimoreans, from slumlords trying to unload properties they have milked for years and from federal and state agencies with inventories of houses they have acquired in foreclosures.
As the flippers search for houses, they also troll for buyers, using advertisements and word of mouth, and sometimes paying previous buyers for leads.
Operating through a mortgage broker who is often part of the scheme, they connect the buyer with a lender, usually an out-of-state firm that specializes in high-interest loans to borrowers with poor credit.
The broker and seller prepare a package of documents that often includes false documents designed to make the deal look legitimate and the buyer creditworthy. Those records often inflate the buyers' down payment, income and assets.
Then a phony appraisal inflates the value of the property and a sham second mortgage claims the seller is financing 20 to 30 percent of the deal. A legitimate real estate appraisal is an expert's estimate of the value of the house, based on a visual inspection and a review of the sales of similar nearby houses. Lenders require an appraisal to be sure that the house is worth the price that is being paid.
In many cases examined by The Sun, the sellers who gave second mortgages, or loans, seldom tried to collect monthly payments and often absolved the buyer of the debt within months of selling the house.
Occasionally, the seller makes cosmetic repairs before settlement. Sometimes, repairs are promised but not done.
Many buyers are single mothers earning less than $20,000 a year who end up with a decaying house, monthly payments beyond their means and the belated discovery that property taxes and insurance aren't included in the price. Others are naive investors hoping to strike it rich as landlords.
The route to ruin
"If I could go back and change everything, I would," says Lutricia Levine, who was a 23-year-old mother of two making $18,000 a year when she bought a Belair-Edison house for $65,000 -- on the same day H&L Enterprises Inc. paid $42,000 for it.
A year later, Levine filed for bankruptcy as her mortgage company was preparing to go to court to foreclose on the house.
Local housing experts ominously warn that The Sun's sample of more than 400 transactions might be greatly understated. Some put the total number of inflated sales in the thousands.
There are other signs of a far wider problem:
One lawyer, Andre Weitzman, has sued a couple of sellers on behalf of more than 100 buyers who were not part of The Sun's sample.