Boomtown USA

Yuk!! I wouldn't move back to San Diego if someone paid me a gazillion dollars! Apart from the housing developments (where all the houses look alike) there's no scenery...everything is brown...even the sky is brown when L.A.'s smog drifts in. And traffic congestion is almost on a par with L.A. now. Try getting out of San Diego and heading north around 6 p.m. Eight lanes of freeway traffic merge at I-5 & 805! And 163 (formerly 395) isn't much better.

Something going on in Sonoma County (NoCal)is groups of Mexicans buying homes for cash.

That seems odd. For what it is worth, I read on the IRS website last year about various real estate scams, at least one of which involved using straw purchasers(http://www.irs.gov/newsroom/article/0,,id=118224,00.html):

Real Estate Fraud Investigations Increase

FS-2003-18, December 2003
In recent years, the booming real estate market has helped increase mortgage fraud and other phony real estate related schemes. The perpetrators of these schemes range from mortgage brokers looking to make a fast buck to drug dealers laundering their ill-gotten gains. Every year, these fraudulent schemes victimize individuals and businesses from many walks of life, including struggling low-income families lured into home loans they can’t afford, legitimate lenders saddled with over-inflated mortgages and honest real estate investors fleeced out of their investment dollars.
Through federal tax fraud investigations and money laundering charges, the Internal Revenue Service is playing a key role in the fight against real estate fraud.
The number of real estate fraud investigations initiated by IRS Criminal Investigation (CI) doubled in just two years (from 107 during the 2001 Federal Fiscal Year to 215 during FY 2003, which ended Sept. 30). Similarly, the average prison term handed out by federal judges to defendants in these schemes nearly doubled over the same period (from 24 months in FY 2001 to 46 months in FY 2003).
In addition, the IRS has more than 4,000 returns under audit involving individuals and entities associated with the real-estate business.
Some of the more common schemes seen by IRS criminal investigators include:

“Property Flipping” — A buyer pays a low price for property, then resells it quickly for a much higher price. While this may be legal, when it involves false statements to the lender, it is not.

Two Sets of Settlement Statements — One settlement statement is prepared and provided to the seller accurately reflecting the true selling price of the property. A second fraudulent statement is given to the lender showing a highly inflated purported selling price. The lender provides a loan in excess of the property value, and after the loans are settled, the proceeds are divided among the conspirators.


Fraudulent Qualifications — Real estate agents assist buyers who would not otherwise qualify by fabricating their employment history or credit record.

In these real estate fraud cases, money laundering is often the mechanism used to hide income from the government. Money laundering is the process of attempting to make money earned illegally appear to be legitimate. Many criminal tax investigations focus on money laundering because it is often inseparable from tax evasion.
As the following statistics indicate, IRS criminal investigations of real estate fraud have increased.

Statistical Information

FY 2001

FY 2002

FY 2003

Case Initiations

107

166

215

Prosecution Recommendations

69

83

117

Indictment/Information Filed

67

71

94

Convictions

85

57

81

Sentenced

103

64

65

Incarceration Rate

71.8%

82.8%

87.7%

Average Months to Serve

24

27

46

Case Summaries
The following case summaries are based on public record court documents on file in the judicial district in which the cases were prosecuted.

On April 24, 2003, in Indianapolis, Ind., Paul A. Dailey, owner of Platinum Mortgage Brokerage Firm of Indianapolis, was sentenced to 105 months in prison, followed by three years supervised release, and ordered to pay $3.7 million in restitution. Dailey pled guilty to conspiracy to commit mail fraud and money laundering. He operated Platinum Mortgage in Indianapolis from 1998 until May 2001, during which time the company brokered more than 100 fraudulent residential mortgages on properties principally in Center Township in Indianapolis. Dailey and other members of the conspiracy, 13 of whom have been convicted, recruited several real-estate appraisers and closing agents to assist in the fraudulent scheme. Basically, the properties were appraised for two to three times their true value. Straw purchasers obtained loans on the property well in excess of their true value, the members of the conspiracy shared the profits and the purchasers defaulted on the loans, leaving the properties abandoned and boarded up. After mortgage lending companies refused to lend money to the Platinum Mortgage customers, Dailey moved to Detroit and opened another mortgage brokerage company, Monumental Mortgage, and continued the scheme there. The total amount of loss attributed to the schemes is more than $8 million.


On July 3, 2003, in Indianapolis, Jeffrey Neely was sentenced to 170 months in prison, three years supervised release and ordered to pay restitution of $2,055,000. He had pled guilty to conspiracy, mail fraud and money laundering. Neely was indicted, along with six other defendants, in a mortgage-fraud and money-laundering conspiracy involving loans obtained through Investors Mortgage Group (IMG) on residential properties in Indianapolis from July 1999 to June 2002. Neely was one of the owners of IMG and was the leader and organizer of the criminal activity, who recruited closing agents, appraisers, investors and other persons to assist in the scheme. During the course of the scheme, about 75 fraudulent loans were obtained on properties. Almost all of the loans went into default, resulting in losses to the lender of about $3,000,000.


On Aug. 18, 2003, in Greenbelt, Md., Alton F. Bivins was sentenced to 57 months in prison, three years of supervised release and ordered to pay restitution of $297,188. As the loan officer for the First Capital Acceptance Corporation and Mortgage Corporation of Maryland, Bivins assisted his sister, Karen Bivins, and Donald Osorio in spending their drug proceeds to purchase real estate. As the loan officer, Alton Bivins submitted false loan applications and documentation, including false W-2's and false employment verification, to obtain the mortgage loans. The drug proceeds of Osorio and Karen Bivins were used for down payments and closing costs to complete the transactions. The properties involved were valued at over $1.1 million.


On Sept. 17, 2003, in Des Moines, Iowa, Steven Tod Davis was sentenced to 37 months in prison on bank fraud and money laundering charges. Davis was also ordered to serve five-years supervised release, fined $10,000 and ordered to pay restitution of $1,860,403.50. At his plea, Davis said he formed a company called Eastgate Development to purchase and develop a 40-acre parcel of land in Ames, Iowa. The land was to be developed into commercial lots for resale. During November and December of 1997, he raised a total of $1.2 million from 24 investors, each of whom contributed about $50,000 for the purchase of the land. Davis further admitted that in May of 1998, he obtained a $1.8 million line of credit from the First National Bank, and in June of 1999 obtained a $1.5 million line of credit from the Hardin County Savings Bank. He explained to both financial institutions that the purpose of the loans was to develop the infrastructure of the property. Davis said he used about $1.8 million of the loan money for purposes other than developing the property, including using the money for his own personal use and injecting funds into other business ventures. He also admitted that he used $300,000 of the money to make a payment on a jet aircraft loan with another financial institution.

Related Items:

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Report suspected tax fraud: 1-800-829-0433

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Those I believe are snapped up by the people with inside knowledge right away.
If these things are done publicly, I think they get at least 85% on the dollar because you can get all the money you want today for horrible RE.

Thank you, I want to share that with a few people.

I think it's a huge scam going on in Sonoma County.

What, is each room the size of a closet?Plenty of room for big bedrooms. Read it again: "1,450 square feet, four bedrooms, two baths, crown molding, a big kitchen with an island " Two 6x10 bathrooms, a 10x15 kitchen leaves room for 4 bedrooms bigger than 12x20. It doesn't say anything about a living room, a dining room, or a hallway.

Actually, the bank CAN ask her for more money. When the property is assessed for significantly more than she paid for it, the taxes will go up. Her escrow account will fall below the RESPA levels and her bank will ask her to make up the difference.

My county assesses every 4 years. We have been told to expect the assessments to increase AT LEAST 40%--and 60% will not be unheard of. We have friends who bought a townhouse for 200k with $0 down. They are absolutely strapped for cash. Their taxes will cause their payments to increase about $250 or more a month. It may break them. (Remember, when you fall below RESPA levels, you have 1 year to make up the deficit PLUS pay the needed amount to pay next years taxes.)

My husband and I knew this was coming and started saving for it so that we can pay the amount outright.

This raises the risk that any downturn in housing prices could cascade through the economy.

duh.
it's over for CA.

With no savings, and a college loan to repay, Pearson took out a mortgage for 100 percent of the price of the house.

How is this even possible??? I don't understand why banks/mortgage companies would take risks like this.

which was, I think, the point.

< wide grin >

Actually, the bank CAN ask her for more money. When the property is assessed for significantly more than she paid for it, the taxes will go up. Her escrow account will fall below the RESPA levels and her bank will ask her to make up the difference.

Sure, your taxes can increase. I'm talking about the bank asking you to pay down a part of your principal. Because the value went down 10%-20%.

I just built a new custom 3-21/2-2 custom brick 2,350 sq. ft. house with wood floors in the dining rm & study, tyle in entry, kitchen & 21/2 baths with carpet in the rest of the house. The master bath has a jacuzzi tub with separate shower. The lot is one acre. Total cost - about $190,000.
Of course this is in a far suburb of Houston.

If you don't mind the embarassment, you come out ahead when you drag down the neighborhood, compared to it dragging you down.

I watched someone boil a test tube of San Diego tap water down to half an inch of green gunk. His home used bottled water.

Over 58 yrs. here. No brown sky, lots of green,
wonderful scenery, Great view of the bay. Over 70 miles
of beaches.

If people choose to live in the burbs 50 miles from their
work, that is their choice.

Property taxes in California are fixed at the purchase price with a minor increase allowed for inflation. My home has quadrupled in value since I bought it twenty years ago, but my property taxes have only gone up 60%.

It wasn't a risk in that market.

The house next door to mine in San Leandro,CA. a one bath 1,100 sq.ft. home just sold for $500,000. ( no bull)

My wife is a native NoCal and she wants outta here. I just returned from a business trip to Pittsburgh and picked up some real estate literature. ( I have relatives in that part of the country.)

While the boom is on in CA we could sell this house and do very well if we were to move to Pittsburgh.

We are thinking about it. Because yes the middle class here in CA. is being squeezed into oblivion.

Only thing is my wife has never driven in snow and she gets cold when its 50 degrees outside. Not sure she would like putting up with winter.

I'm pretty ignorant about these things. Is it not a risk because if she can't pay the mortgage the bank will get the house and soon enough another buyer?

Guess what Joe Sixpack will have to do. Hand it back to the bank. Now multiply this scenario by ten thousand homes and you can see the potential for disaster.

I'm not sure that everyone understands who will take the hit for this "disaster." We are headed for another S&L meltdown, though commercial banks will take a bigger hit this time. But then, nobody cares about bankers, right? Except for the fact that when banks can't lend, hard times result. How quickly people forget....

"Property taxes in California are fixed at the purchase price with a minor increase allowed for inflation. My home has quadrupled in value since I bought it twenty years ago, but my property taxes have only gone up 60%."

-I love your observation. I moved to the San Francisco Bay Area to take a senior job in Finance. I have been here a couple of months and have been looking at real estate.

Last weekend, I looked at a house in Berkeley, CA. The homeowner said the house hadn't been on the market for 40 years. So the homeowner was probably paying $1,200-$1,500 a year in taxes. Let's say they bought the house in 1965 for $20,000. Now, they have it on the market for $799,000. The real estate agent says they will "accept bids" on May 25th (today), and that it will probably go for $950,000.00. At 1.5% tax rate, which Berkeley is, the tax burden alone will be nearly $14,250/yr.

You gotta understand, this place is the classic grandma's craftsman. It hasn't been worked on in years. The yard is small and overgrown, the floors sag and the walls are not plumb. It has a sweeping view of the San Francisco Bay but dozens of steps up from the street and a mass of tangled electrical wires block the view. It ain't the western white house.

So, here I am, making high $200's to low $300's in a finance job, looking at this overpriced piece of junk that has structural issues and needs 40 years of updating and thinking, "Sure, if I take this on, I will be paying $1,200 for taxes a month, $5,000 for mortgage and additional for utilities, remodeling and upkeep."

Meanwhile, the State of California is taking 10% of my pay in taxes each payday before I even see the money. Please tell me...am I supposed to look at the guy who posted the quote above and with a smile take this junk house off his hands so he can make his mint, laugh all the way to the bank and pay the taxes he hasn't paid over the past 40 years?

I can't suspend belief enough to participate in that ponzi scheme. So, the solution? My friends and I who are working in California, are taking the money out of state and buying beautiful homes back in the real world. Smart people are finding other solutions. Renting in the same area with a better view in an updated apartment currently costs the equivalent of the monthly tax payment alone. Assets are leaving the state as smart people look elsewhere for a reasonable tax shelter.

...just one guy's story.