Major figure in flipping scam is 51st convicted

Perry Hall real estate firm was base for costly fraud scarring neighborhoods

April 25, 2003|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

William Otto Schmidbauer, one of the prominent figures in an epidemic of Baltimore property flipping that has cost lenders and the government tens of millions of dollars, scarred neighborhoods and financially ruined hundreds of victimized buyers, pleaded guilty yesterday in federal court to conspiracy.

Schmidbauer became the 51st defendant to be convicted in U.S. District Court in Baltimore in a multicase investigation that began five years ago. Another 16 people have been convicted in federal court in Greenbelt.

Twenty-two defendants are awaiting trial and others are under investigation and face the possibility of indictment.

Flipping in the city began in earnest in the mid-1990s and peaked about three years ago. Close observers of the phenomenon say it has been slowed by federal prosecutions, publicity and the efforts of government and nonprofit organizations to warn prospective buyers of the perils and pitfalls of buying a house.

But, government officials and housing experts say, the sophistication of flipping practitioners has made it harder to detect.

Schmidbauer, 64, admitted that he used his Perry Hall real estate company in a property flipping scheme that cost the government about $2.5 million. When he was indicted two years ago, prosecutors said Schmidbauer's gross profit on the deals had been $1.4 million.

U.S. District Judge William M. Nickerson set sentencing for Sept. 5. Schmidbauer could get a maximum prison term of five years, although it will probably be less under federal sentencing guidelines. He also faces the possibility of a heavy fine and restitution order.

In his plea deal, Schmidbauer agreed to forfeit $690,000 in gross profits from deals that defrauded lenders insured by the Federal Deposit Insurance Corporation.

Operating through his real estate company, Schmidbauer bought low-cost properties, mostly in Baltimore, and resold them at much higher prices, often to straw buyers.

He obtained mortgages for his buyers that were usually insured by the Federal Housing Administration, an arm of the U.S. Department of Housing and Urban Development.

HUD ended up owning many of the houses when it paid off lenders who had foreclosed on defaulting buyers. Schmidbauer sometimes moved tenants into the houses and collected rents, even as his straw buyers were defaulting.

Many foreclosures

In pleading guilty to conspiracy to make false statements, Schmidbauer admitted that between 1990 and 2000 he had prepared and used false documents, including driver's licenses, pay stubs and W-2s, to get FHA-backed mortgages on at least 58 properties.

Forty-eight of those houses have gone into foreclosure, costing FHA approximately $2.5 million, said the plea letter signed by Schmidbauer, his lawyers and prosecutor P. Michael Cunningham, an assistant United States Attorney.

One of Schmidbauer's straw buyers, Mary Anne Shirvani Kintop, signed 15 mortgages, worth a total of $1 million, using at least 8 variations of her name. She signed two mortgages in the name of her daughter, then 7.

Kintop pleaded guilty in June 2001, saying Schmidbauer had provided her with false identities and paid her $500 to $700 each time she signed a fraudulent mortgage.

The federal investigation of Schmidbauer was prompted by an article in The Sun in spring 2000.

Seventeen other people have been charged in the Schmidbauer case and 15 have pleaded guilty. The remaining two defendants have agreed to guilty pleas, according to prosecutors.

Tracking resales

Ken Strong, a city housing official who has closely tracked flipping, believes its pace has slowed.

Four years ago, he said, in an average month 45 houses were bought and resold the same day for more than their assessed value in deals considered illegal. Last year, the average was 10 a month "and most of these do not have the earmarks of illegality," he said.

However, Strong acknowledges that the extent of the problem today may be masked by techniques that flippers have developed to keep the true nature of their transactions off the public record.

Alluring pitch

Joseph L. Evans, an assistant U.S. Attorney who coordinates the federal prosecutions, says flipping has gone through some transformations.

It began as a scheme that victimized first-time homebuyers, usually low-income single African-American mothers, using them as the means to defraud mortgage companies.

The flippers bought cheap houses in poor condition, did some cosmetic repairs and resold them for several times their value.

Within a few years, the flippers figured out how to make more money by selling groups of houses to the same buyers.

The pitch was alluring: Put no money into the deal, get cash back at settlement - sometimes as much as $5,000 per house - and collect rents that exceed the mortgage payments.

It was hard to resist.

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