Missed chances on flipping scamsIn his letter, "City not...

SATURDAY MAILBOX

September 18, 1999

Missed chances on flipping scams

In his letter, "City not silent partner in real estate `flipping' " (Aug. 21), city Housing Commissioner Daniel P. Henson III misstates the city's record in combating flipping scams and draws conclusions that are plainly wrong.

Efforts to alert city and state officials began 18 months before Mr. Henson's recent letter.

On Feb. 22, 1998, I sent a letter to City Councilman Bernard C. Young describing the scam, accompanied by a detailed chart of 80 transactions involving a single speculator.

Recently, Mr. Young advised me that he personally delivered the materials to Mr. Henson.

On April 22, 1998, I hand-delivered an even more detailed letter and chart to the offices of the mayor and the president of the City Council. I received no response.

In May 1998, I forwarded a stack of material the size of a telephone book to the Attorney General's Division of Consumer Protection, with a letter explaining the ongoing flipping scams.

That division has the sole authority under state law to bring an action to prevent violations of the Consumer Protection Act.

The response I received was that nothing would be done because the division lacked sufficient manpower.

On Jan. 11, I personally briefed the mayor, Mr. Henson and the city solicitor about the flipping scams.

I made clear my concerns over the scams' impact on low-income neighborhoods and their spread to more stable, middle-income neighborhoods.

After the January meeting, I wrote follow-up letters to the Mayor, Mr. Henson, and the city solicitor, offering to provide additional materials and information. I received no response.

Since we had been ignored by city and state authorities, I invited the heads of major nonprofit housing and community organizations to a meeting to take matters into our own hands.

Thus the "coalition to end predatory real estate practices" that Mr. Henson mentioned in his letter was born at my conference room table in January.

Under the leadership of Ken Strong, executive director of South East Community Association, we began serious organizing and lobbying. Public awareness was raised, and the coalition expanded. Eventually, the housing department sent representatives to attend coalition meetings.

Although no one in the coalition has wasted time blaming a government agency, Mr. Henson seems overly concerned with assuring the public that his office is above criticism.

For instance, Mr. Henson's comment, "A focus of the coalition is educating housing counselors to spot and deter unscrupulous transactions" is only partially accurate.

Prior to this scam being exposed, housing counselors were noticing transactions involving low-income buyers based on unusually high prices. Reports of these irregularities were overlooked or ignored.

Mr. Henson's reference to the effect on all home sales in Baltimore City misses the point. The relevant universe of transactions is not all home sales. The scams are not run in Guilford, Homeland, Roland Park and Northwood.

Low-income, first-time homebuyers are the ones targeted.

Mr. Henson's opinion that "most of the ways greedy speculators take advantage of [the] poor and unsophisticated . . . are not illegal" is plainly wrong.

I have interviewed and examined the documents of 150 victims. Only one of these sets of documents did not present, on its face, a serious violation of law.

Mr. Henson is not a lawyer. But the illegality of these transactions should be obvious to anyone holding a high position in government.

In the past three years, the city has seen at least 2,000 flips, about half financed by high-interest "sub-prime" rate loans and half by FHA-insured loans.

Phony homeownership, through flipping scams, has increased foreclosures and vacancies.

Honest efforts at rehabilitation and homeownership are wasted when blocks are filled with scam houses certain to go vacant from foreclosure or abandonment.

In the affected neighborhoods there are virtually no homeowner-to-homeowner sales. Houses are either sold to speculators at fire-sale prices by fleeing residents or estates or are foreclosed on and disposed of by banks or HUD at even lower prices.

Resales are accomplished through scams, including inflating appraisals, falsifying credit qualifications and illegally funneling closing costs from the seller to the unsophisticated buyer.

In the areas where they practices are spreading, such as Herring Run, Hamilton and Belair-Edison, the phony appraisals and subsequent sales are causing an unjustified increase in the tax assessments of innocent neighbors.

The result is additional flight, further depression of the true market and further opportunities for the phony market to flourish.

Last year, HUD chose Baltimore as one of three cities in which to conduct a thorough examination of federally subsidized housing programs. Mr. Henson sought to block that probe, arguing that Baltimore was chosen because of its African-American mayor and housing commissioner.

This forced a delay and a revision of the selection criteria.

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