Fraud fight in housing stepped up

City organizations, government agencies target profiteering

`It's really obnoxious'

Federal officials are investigating Delaware salesman

August 03, 1999|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

With mortgage foreclosures rising and lenders growing cautious about financing home sales in Baltimore, a coalition of community groups and government agencies is beginning an effort to stem profiteering on Baltimore real estate as federal investigators press a probe.

Postal inspectors and the U.S. attorney's office are investigating a Wilmington, Del., man who has sold about 100 houses in Baltimore in recent years at substantial profits, along with settlement companies, appraisers and others who worked with him.

Stephen Schenning, first assistant U.S. attorney for Maryland, said he could neither confirm nor deny the existence of an investigation.

But, he added, the practice of "flipping" is familiar. "It's really obnoxious and has far-reaching consequences beyond the poor inner-city person who gets hoodwinked."

The Sun reported Sunday that shabby Baltimore houses, mostly in poor neighborhoods, are being bought at rock-bottom prices by people who sell them quickly to unsuspecting buyers for two to 10 times the purchase price.

Community groups believe the practice is rampant in Baltimore.

In its report, The Sun reviewed more than 400 transactions in which houses were sold soon after being bought -- sometimes on the same day -- for prices that had increased as much as tenfold. The average markup on each deal was $35,000.

In many cases, first-time homebuyers making $20,000 or less ended up in foreclosure and bankruptcy.

"For many of these families, the American dream of home ownership turns into a nightmare," said Ken Strong, executive director of the Southeast Community Organization, which has put together a coalition of community groups and government agencies to fight the practice.

Strong said the group, the Coalition to End Predatory Real Estate Practices, is taking several approaches to the problem, seeking to give victims legal assistance; to step up counseling efforts to warn prospective homebuyers away from such deals; and to try to find legislative solutions to the problem.

The city Department of Housing and Community Development is part of the coalition.

Baltimore Housing Commissioner Daniel P. Henson III said the city is trying to ensure that its programs to assist first-time homebuyers do not put money into any of these deals.

But Henson wondered how much could be done.

The housing chief said that people who falsify documents and appraisals in real estate transactions are breaking the law. But, he added, "beyond that, unfortunately, I'm not so sure that these are illegal practices -- clearly predatory but not illegal."

Henson said the "primary principle of real estate is to buy low and sell high," and on its face, it's not illegal to buy a house for $15,000, do $5,000 worth of work on it and sell it for $65,000.

Questionable steps

The Sun article described how Ingrid Simon, a $7-an-hour security guard, bought a decaying Forest Park house for $65,000 in May 1998 from River Mortgage Inc., five weeks after the company paid $15,000 for the property.

The story described a series of questionable steps by Chuck Famous, the president of River Mortgage Inc., that were taken to make Simon's deal go through.

With the help of an Abell Foundation grant, the St. Ambrose Housing Aid Center is beginning a citywide investigation to expose the extent of the problem.

In a letter to Abell, Vincent P. Quayle, who runs the housing center, said that the areas where the schemes are occurring are African-American neighborhoods and traditionally white communities that are undergoing integration.

Rising foreclosures

This occurs against a background of rising city foreclosures, which were up nearly 28 percent last year and are headed for a 20 percent rise this year.

Lenders are growing increasingly wary about financing real estate purchases in Baltimore, said Jim Croft, executive director of the Mortgage Asset Research Institute Inc. in Reston, Va. The institute monitors mortgage fraud.

This makes it difficult for low-wage buyers with shaky credit to get mortgages, said Croft, and imperils the Schmoke administration's goal of increasing the homeownership rate from 55 percent to 60 percent by next year.

Mayoral candidates

"We want people to buy houses in Baltimore City, but we don't want them to wind up two years down the road foreclosed on and disillusioned," said Carl Stokes, a Democratic candidate for mayor. He advocated a publicity campaign aimed at warning prospective buyers and exposing the sellers who are profiting from these deals.

Martin O'Malley, a Stokes rival for the Democratic mayoral nomination, said, "The role of the next mayor is to make sure that state authorities get on this and investigate this consumer fraud because it really hurts the city and the investment climate."

Frank Mann, spokesman for Attorney General J. Joseph Curran Jr., said, "We're looking into it from a consumer protection standpoint." He declined to say whether Curran has started an investigation.

Federal probe

The federal investigation began last year after a Baltimorean named Yvonne Peaks sued Robert L. Beeman of Wilmington, Del., and two dozen other defendants. Peaks bought a house from Beeman for $83,000 just weeks after he had paid $15,000 for it and did minor cosmetic repairs. Dozens of other plaintiffs have joined the suit.

One of the defendants in that suit is G. Samson Ugorgi, who did the appraisal on the Peaks house. Maryland regulators have charged Ugorgi -- who is scheduled for a hearing Friday -- with producing "misleading appraisals" in several transactions, said Susan Cherry, an assistant attorney general.

Without an appraisal that says a house is worth what the buyer proposes to pay, lenders will not provide first mortgages.

Schenning, the federal prosecutor, said one of the linchpins is the appraiser.

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