Flipping schemes down 82%, study says

Maryland senators credit crackdown on speculators, educating city buyers

October 09, 2003|By Heather Dewar | Heather Dewar,SUN STAFF

A new study concludes that the epidemic of property flipping that troubled Baltimore for years has been brought under control, with the number of properties bought and quickly resold down by 82 percent between 2000 and this year.

Maryland's two senators credited the decline to a campaign to teach city buyers to beware of fraudulent real estate deals and on a federal crackdown on illegal speculators. Seventy people have been convicted on charges related to property flipping in Baltimore, and there are more indictments to come, said Sen. Barbara A. Mikulski.

"Baltimore has driven the scammers and the schemers and the scum right out of the city and right into jail," Mikulski said at a news conference held yesterday to announce the study, conducted by the Community Law Center.

A wave of property flipping swept Baltimore in the late 1990s. Many of the deals targeted low-income buyers. Typically, speculators bought dilapidated homes, made cosmetic repairs and quickly sold them at inflated prices.

Buyers took on mortgages for more than the homes were worth, and often ended up in foreclosure and bankruptcy. The boarded-up homes in turn contributed to neighborhood blight.

The study found that in 1999 and 2000, near the height of the flipping boom, the number of houses bought and then resold on the same day averaged 52 a month. Between January and May this year, that number fell to nine properties a month, the study reported.

The number of houses that were bought and resold within six months at a much higher price fell from 1,808 a month at the epidemic's peak to 90 a month early this year, the law center found.

"Every statistic represents a victim that has suffered real losses," said Diane Cipollone, research and policy director for the Community Law Center.

Several speakers warned that local real estate speculators are developing new schemes.

"As soon as you drive them out of one practice, they move on to another one," said Mikulski's colleague, Sen. Paul S. Sarbanes. "They're constantly probing for the weak spots."

Cipollone said experts are seeing "evidence of other predatory practices targeted at low-income home buyers."

Among those, she said, are mortgage service companies that hold back buyers' payments and then intimidate them into paying late fees they do not owe, and rent-to-own deals that leave would-be buyers stuck with all of the typical costs homeowners face but little or no equity in their homes.

Mikulski said thousands of families are stuck with inflated payments on their overvalued homes.

The U.S. Department of Housing and Urban Development, which insured many of the fraudulent loans, has joined private foundations, nonprofit groups and lenders to finance the Baltimore Homeowner's Emergency Loan Program. The initiative allows victims of flipping to buy back their foreclosed homes at market value.

Doristine Jones, a single mother who runs a day care center at home, paid $100,000 in November 1999 for a three-bedroom Waverly townhouse with a leaky roof, bad wiring and faulty furnace. The house was later appraised at $65,000, and Jones was able to lower her mortgage payments from $952 a month, not including taxes and insurance, to about $400.

"They even cleaned up my credit," Jones said at the news conference. "Man, that was beautiful."

Attorney Kathleen Skullney of the St. Ambrose Housing Aid Center, which represented Jones, said many victims don't know that help is available.

Based on "the number of foreclosures in the city," she said, "there are many, many people we haven't reached yet."

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