Share
Two Charlotte area developers are defendants in a lawsuit over what some say could be one of the largest mortgage fraud cases in state history.
Over 130 Virginia residents – including dozens of teachers and administrators from one school system – have sued. A Charlotte lawyer is planning to file suit on behalf of 45 others, including some from North Carolina.
“A lot of people have been really damaged by this scam,” said lawyer John O'Connor of Charlotte. “This is a dark cloud that's hanging over the lives of quite a few people.”
Lawyers say a group of companies led by a Virginia investment company and including a Charlotte area developer, its marketing wing and several banks hoodwinked defendants into paying prices that had been artificially swollen by fraudulent appraisals. Some of the inflated appraisals, they claim, were built upon multiple fake sales of the same lot.
“It was kind of a real estate version of the Madoff scandal,” said lawyer Jill Pisner of McLean, Va.
The subdivisions were developed by R.A. North Development of Matthews and include Cannonsgate in Carteret County, where former Gov. Mike Easley got a controversial deal on a waterfront lot.
R.A. North was owned by Randy Allen; marketing for the developments was done by Southeastern Waterfront Marketing, a Waxhaw company owned by Allen's brother, Gary. Easley appointed Randy Allen to the N.C. Wildlife Commission.
The other project is Summerhouse On Everett Bay in Onslow County.
Easley is not a party to the suit.
The buyers are seeking over $100 million in damages, and most also claim the right to walk away from the deals, according to the lawsuits. Lenders are not only defendants in the case, but have been forced to foreclose on dozens of lots. Some – including Bank of America – could be left holding tens of millions of dollars in bad loans.
Many of the lots were sold to the final buyers at prices over twice the market value, according to the lawsuits, which were filed in federal court in Virginia. Some cost over $500,000.
Multiple sales
Records from the Carteret County Register of Deeds office show Total Realty Management bought and sold some of the Cannonsgate lots several times, with the appraised value rising rapidly. The lawsuit says TRM was selling the lots to buyers it had recruited to pump up the price, then buying the land back. Eventually it sold the lots for sometimes more than double the price that lots around them were selling for on the open market.
Deeds indicate that in some cases TRM traded a given lot back and forth with people who had the same names as TRM company officers. Records in both counties show TRM was involved in transactions on about 230 lots at the two N.C. subdivisions, about 200 of them at Summerhouse.
The attorney who court papers say represents Total Realty Management, Martin Yeager in Arlington, Va., hung up before it could be explained why a reporter was calling. He didn't answer an e-mail.
Court records show TRM has been forced into bankrupcty and one of its officers also filed for bankrupty protection.
Neither Randy nor Gary Allen returned calls, but the attorney for Southeastern Waterfront Marketing e-mailed a statement. “My client should not have been included in this suit and strongly denies any allegation of wrongdoing,” William Dolan wrote. “We will defend the case vigorously and fully expect to prevail in every respect.”
Lots beyond buyers' means
About 40 of Pisner's clients are teachers or school administrators in Fairfax County, she said, and some of the buyers with other attorneys are, too.
Despite relatively modest salaries, they bought lots that in some cases cost over $400,000. In some transactions this was possible because TRM falsified their loan applications without telling them, making it appear to lenders that they were making more money, according to the suit.
They were willing to buy lots far beyond their means because TRM said they wouldn't have to pay anything. TRM would make the 10 percent down payment and all mortgage payments for up to two years. With prices rising so quickly, TRM said, they could sell for a big profit before ever making a payment.
“They were told that all they needed was good credit,” Pisner said.
The lawsuits say the developer and Southeastern knew about the scheme, and that Southeastern had sent one of its officers to TRM marketing seminars to help sell lots.
Appraisers are supposed to determine the true value of real estate so lenders know how much to lend. A key tool is the value of similar nearby property. With nearly identical lots – in some cases next door – selling for half as much, the scheme couldn't have worked without appraisers who knew they were assigning inflated values, the lawsuits contend. In most cases, lots changed hands twice the same day, jumping in price as they were sold to the final buyer.
An appraiser based in Sneads Ferry, on the coast just outside of Camp Lejeune, lost his license in March after he was accused of inflating lot values at Summerhouse, and another is under investigation for appraisals there, said Philip Humphries, director of the N.C. Appraisal Board.
A summary of the appraisal board investigation of the appraiser who lost his license doesn't name TRM, but describes a scheme involving an investment company, vastly inflated appraisals and buyers from another state.
“It appears that there were two price points, with out-of-state buyers paying up to twice what others were paying for comparable lots,” according to the summary.
That appraiser told investigators “he was aware of the two-tiered pricing scheme, but he felt that buyers wanting to pay as much money as they were offering for the lots must have had a reason to do so,” according to the summary. “He did not feel it was his responsibility to reveal to his client that there were additional sales occurring at the same time for up to one half the prices of the sales he chose (to compare), or that the majority of sales he selected had transferred twice in one day with prices doubling from investment purchase to individual buyers. It appears that the sales he chose were not exposed to the market.”
Some appraisers refused to get involved with the deals.
R.A. North sold TRM the lots at what appears to have been the prices they offered everyone else. Tony McLamb of Wilmington said he appraised some of the lots when they first changed hands at proper market rates, but refused to get involved with later transactions when it became clear the prices TRM and Bank of America loan officials wanted him to support were wildly inflated.
“I looked at the price and I called the bank back and I said, ‘Look, do you want me to continue this, because I can't justify this price,'” McLamb said.
The loan officer argued, then told him to stop the job, and sent another appraiser, he said. The bank then quit using him for TRM transactions.
McLamb thinks none of the TRM buyers was actually interested in building a vacation home because none even visited Summerhouse.
“If you were going to pay $300,000 or $400,000 or $500,00 for something, don't you think you'd want to come and see it?” he said.
‘You feel taken'
One buyer, Susan Warren, a nurse who lives in Ashburn, Va., said she and her husband, who is in sales, are tormented by their bad decision. With four children and other bills, they can't afford payments on their lot. According to Onslow County records, they paid TRM $389,000 for their lot on the same day that TRM bought it from R.A. North for $180,000.
They now figure it may not be worth $70,000.
They got hooked in by a friend who was involved with TRM, she said, and planned to flip it for a profit rather than build a vacation home.
“You think about it and think about it, and you feel stupid and you feel taken,” she said. “It's not like we were out to get rich quick, but it was maybe going to help with college for the kids.”
Four people who bought lots in the subdivisions have filed complaints with the consumer protection division of Attorney General Roy Cooper's office, and anyone else who thinks they were treated illegally should contact that office, too, said Noelle Talley, a spokeswoman for the state Department of Justice.
Talley declined to talk about specific probes, but said her office had seen an increase in fraud cases as the economy worsened, and mortgage fraud is one of the biggest problems.
Fallout from the burst real estate bubble and the recession have caused a huge jump in the number of mortgage fraud cases. The FBI opened 734 in fiscal 2008, up from 295 in 2003.
FBI special agent Michael Young, a mortgage fraud expert in the Charlotte office, said he's working on several cases involving up to 200 lots.
Consumers, he said, should be wary of any deal offering a guaranteed profit or extraordinary rates of return. Another red flag is an offer of money back in the form of down payments or mortgage payments not clearly listed on the disclosure form for the lender to see.
Staff writer Jim Morrill, J. Andrew Curliss of the (Raleigh) News & Observer and news researcher Lamara Williams contributed
