Authorities to investigate sales by Md. housing department

October 29, 2002|By Greg Garland | Greg Garland,SUN STAFF

Legislative auditors have asked state and federal authorities to investigate "a significant number of questionable property sales transactions" by Maryland's housing department.

The highly critical, 34-page audit focuses on the sale of houses the state acquired after owners defaulted on government-backed mortgage loans. The report found that "numerous properties were sold at significant discounts from the assessed value."

In one case, a house the state sold for $5,000 was resold the same day for $57,500. It wasn't clear whether the difference was because the state sold the house at a substantial discount, the report said, or because the property was "flipped" - meaning it was resold at an inflated price with assistance from fraudulent appraisers and others.

"Our audit disclosed a significant number of questionable property sales transactions as well as management oversight deficiencies," wrote Legislative Auditor Bruce A. Myers. "In view of the questionable transactions identified, we referred these matters to the state's Office of the Attorney General and the U.S. Attorney's Office."

Myers said yesterday that such a referral is "not an everyday occurrence." The U.S. attorney's office was included because of its experience investigating housing fraud, he said.

A spokesman for the FBI's Baltimore office, noting Justice Department policy, would not say whether federal authorities are investigating the state agency's handling of property sales.

Carolyn H. Henneman, who leads the state attorney general's criminal investigations section, also would not say whether her office has launched a criminal investigation.

The state housing department sold 786 properties between January 1999 and March this year, with proceeds totaling $32 million, according to the report. Auditors examined transactions for 269 properties, each of which the state sold for $25,000 or less, and found that, on average, the selling price was 60 percent less than the assessed value.

They also found that many of the properties were quickly resold at big markups. Twenty houses that the state sold for an average price of $20,345 were resold the same day for an average price of $52,138.

Edward J. McDonough, a spokesman for the state Department of Housing and Community Development, generally attributed the problems to property flipping in Baltimore.

He said the agency has enacted a policy to monitor what happens to a house within a year of the state's selling it. If any evidence of illegal flipping transactions surfaces, that will be reported to law enforcement authorities, he said.

McDonough said that auditors used faulty methodology by focusing on houses valued at $25,000 or less. "Because these are foreclosed properties, the interiors often tend to be in very bad shape," McDonough said. As a result, such properties often are worth less than their assessed value, he said.

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