Judge urges civil fines in flipping case

Opinion says 3 men broke consumer law

January 07, 2002|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

A real estate speculator and a mortgage lender who financed many of his property flips engaged in "misrepresentation and other deceitful practices" that "exploited a vulnerable group, first-time homebuyers with low incomes and questionable credit histories," a state administrative law judge has ruled.

Administrative Law Judge Sondra L. Spencer recommended that Lee M. Shpritz, the real estate man; three of his corporations; American Skycorp Inc., the lending company; American Sky- corp's president, Lee P. Woody III; and a real estate appraiser, John M. Morgan Jr., be ordered to "cease and desist" from violations of the state Consumer Protection Act and pay unspecified financial penalties.

Spencer concluded that they had used falsified documents and misleading information to obtain mortgages for buyers who could not afford the homes, most of which had been recently bought for a fraction of the resale price.

Spencer's 133-page opinion went late last month to William Leibovici, chief of the state attorney general's Consumer Protection Division. Leibovici will decide whether to adopt or change Spencer's recommendations after parties in the case have a chance to argue against them. His ruling could be appealed to a state Circuit Court.

The civil charges of violating the state Consumer Protection Act were filed in December 2000 after a yearlong investigation by Leibovici's staff. At the time, Attorney General J. Joseph Curran Jr. referred to the respondents as members of a "flipping ring."

Spencer held 18 days of hearings in August and September.

Public records show that Shpritz, operating through several corporations, has flipped dozens of houses in the Baltimore area in recent years. He would buy a house and, after doing repairs that the state termed "cosmetic," sell it within months for a much higher price than he paid.

American Skycorp, which financed some of Shpritz's deals, was founded in 1997 by Woody. It granted about 3,000 mortgages in three years, quickly becoming one of the nation's top issuers of loans insured by the Federal Housing Administration, an agency of the U.S. Department of Housing and Urban Development. Skycorp sold the loans to other companies soon after issuing them.

The company went out of business in late 2000 after HUD barred it from issuing FHA-backed loans for five years after finding that the company had violated the agency's guidelines and used falsified documents to issue mortgages. About the same time, the state revoked the company's operating licenses.

In November 2000, as part of a criminal investigation, federal agents raided Skycorp headquarters, Woody's Worthington Valley home and a company where the firm's records were stored, seizing hundreds of documents.

Woody, who now lives in Florida, and Shpritz declined to comment on Spencer's ruling. Woody did not attend the hearings and was not represented. Shpritz attended the hearings and represented himself.

Spencer's opinion said Shpritz also worked as a loan officer for Skycorp for six months in 1998.

When the state's Consumer Protection Division filed the charges in December 2000, it alleged that Shpritz sold houses for prices that "substantially" exceeded their fair market values. It charged that two appraisers, Morgan and Michael Almony, provided inflated appraisals to support those prices.

In a key part of her ruling, Spencer concluded that the state failed to prove that element of its case.

She wrote that appraisals are subjective and that there was "no objective measurement" for her to determine whether the appraisals by Morgan and Almony were accurate - or inflated, as an expert witness for the state testified.

Spencer found that Almony, who appraised two of the houses involved in the hearings, and his company did not violate the law.

However, Spencer faulted Morgan on another aspect of his appraisals. She said Morgan, who appraised 32 of the 49 houses in the case, violated the law by failing to report the sales history of 23 houses, a step that would have disclosed that the property was being flipped. She recommended a "cease and desist" order and financial penalties for Morgan.

Shpritz operated out of his real estate company in the 800 block of N. Calvert St. He advertised in the Afro-American and on cable television and distributed coupons that offered a $1,000 price reduction on some houses. In fact, Spencer wrote, prices were not reduced for buyers who tendered coupons.

Shpritz also offered other inducements, Spencer said, including payment of buyers' delinquent bills to improve their credit and secretly providing thousands of dollars to help with the purchase, money that was represented in documents as a gift from a relative or a church.

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