Author Topic: After 20-odd years, housing drama continues for Relative. How can this happen?  (Read 5591 times)

Goldie

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I have a relative (we'll call Relative) who is now in her 50s and lives in a very posh area of the US. She got divorced about two decades ago and stayed in the family home. She received three years of alimony and had never worked. I remember others warning her that she needed to find a job to support herself when she had to take over the house payments, but she would laugh and say she'd worry about it later, or find a rich husband. She had no plan for after the alimony.  If it were me, I'd have left that uber-expensive area, but she really loves hobnobbing with the wealthy.

Fast forward about 12 years and Relative is in the red. She'd been living off credit cards and refinancing the house to pay off credit cards. At one point she'd had $80,000 in consumer debt. All that time she'd been working odd jobs that paid minimum wage. She refused to sell her mink coat or her baby grand piano and would hit up her neighbors or her son's friends for money for food or the mortgage. Usually in the early 2000s she was about ten months behind in mortgage payments. She'd do just enough to stay one foot in front of the debt collectors and people coming to the house. But multiple times she would say she had to take out a loan against the house to live or to buy a car.

In 2004 her house was set to go up for auction by the county.  She had already been in foreclosure at least four times and always found a way to get a little bit of money to tide the bank over.  Not this time.  It was set for auction and the day before she got a visit from a mysterious stranger.  He's a Korean, she thinks, and he wants to make her a good deal.  He'll pay off the house but she'll have to pay double her mortgage payments to him.  It means she can stay in the house a little while longer, so that's a great idea.  So the Korean investor gets the title and sells the house to her son and Relative has to pay the mortgage.  And she never does. And as she's on the brink of financial disaster in 2003, it only made sense to buy a large purebred dog, and it eats eats eats all the time.  She can't afford her house payments, but she bought a dog. And was still taking vacations.

As we heard more about this Korean investor, we learned that what Relative did was actually sell the house to her son (who was about 22 years old and never had a job) through this investor. I'm not sure how this works, but now her son - who's in his 30s now - is the owner and she has supposed to have been making payments this entire time. Well she hasn't made any payments in YEARS now and her son has gotten a lawyer and a realtor to try and get her evicted.  It turns out when they made this deal to have the son buy the house from Relative in 2004, the investor found out he was in a garage band and had him fill out the paperwork saying that he is in the entertainment industry and had "unlimited earning potential."  At that point, and today, the son has never had a job earning above minimum wage.

I've been trying to understand what exactly they did with the house. The county records online show it was sold from Relative to her son in an arms' length transaction (which I don't think this was). Son now wants to get the place sold to turn a profit, but I don't think he understands how badly underwater this house is. He hasn't lived in the house since before the sale so he probably has no idea it's in bad shape. Relative has made arrangements to move into an apartment and wrote a check for the first and last month's rent and security deposit, knowing it will bounce. She also just got back from a shopping vacation, paid for by Lady Visa and Master Card. The Zillow estimated value of the house is 100k less than what she sold it to her son for in 2004; would that take it account all the liens she has against it? Can anyone make heads or tails of this mess?

Beric01

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I have a relative (we'll call Relative)

Couldn't have named her something more interesting like Jane, or Mary-Ann or Ginger? ;-)

But seriously, an incredible story. I can't believe the financial devastation they wrecked on themselves - it makes no sense whatsoever. And the divorce is little surprise since most divorces happen over money.

fantabulous

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My only response to this is "WAT".

Pooperman

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So this relative of yours lived the RE without the FI for 20 years somehow. That's pretty bad ass (but not in a good way).

Elderwood17

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That is so bizarre I can't get my head around it.  I have always been amazed at how people can string out an eviction but this one is a classic.

Goldie

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I have a relative (we'll call Relative)

Couldn't have named her something more interesting like Jane, or Mary-Ann or Ginger? ;-)

But seriously, an incredible story. I can't believe the financial devastation they wrecked on themselves - it makes no sense whatsoever. And the divorce is little surprise since most divorces happen over money.
I was being ironic with the name :-)

And oddly enough, the divorce wasn't over money at all, or at least not the traditional money problems that cause divorce. Her husband had money but she thought she could find someone richer. The nose job and breast augmentation shortly before she filed for divorce should have been a red flag she was on the prowl. And she never landed herself a billionaire.

One of the ways she would suddenly come up with money was to take a receptionist job in a doctor's office or lawyer's office and sleep with the head doctor or lawyer and then ... negotiate with him. Blackmail is such a harsh word, you know? She'd say she would tell his wife of their affair unless he coughed up $10,000 or $20,000 or whatever she needed. Now that she's post-menopausal and not how she used to look I'm positive that scheme isn't working.  It scares me that she's taken up with several elderly women in her neighborhood and runs errands for them. I'm positive it isn't out of the goodness of her heart.

Primm

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Wow.

Please tell me you are making this up. If you write the book, I'll read it. Craps all over Jackie Collins. :)

Goldie

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Wow.

Please tell me you are making this up. If you write the book, I'll read it. Craps all over Jackie Collins. :)

Ha! I'm not that creative. Isn't this INSANE? I love that you all have the same reaction I've had every time I hear something new going on with Relative. I was hoping someone here would be able to explain to me the real estate stuff that took place because I sure don't understand what happened. Or understand how credit card companies and the mortgage company or this Korean investor all let this go on for so many years.

skyrefuge

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So when the house went from Relative to the son, someone must have paid the bank who had been holding the mortgage. It sounds like the son had no money to pay off the bank loan, and Relative didn't, so that leaves "the Korean investor" as the only possibility. In other words, Korean Investor "gave" a pile of money to the son, which the son gave to his mother in exchange for the house, and the mother used to pay off her mortgage.

But Korean Investor surely didn't give the son a pile of money out of the goodness of his heart. It sounds to me he was working as a high-risk private lender, charging an insane interest rate to balance out the obvious risk that he wouldn't get paid back.

Then the mystery is: how is the son still alive even though he has made no payments to the Korean Investor? Did the Korean Investor fall off a cliff a month after he made this deal? Go swimming with concrete shoes? The only way the son could sell the house for a "profit" is if there is no loan for him to pay off.

My county keeps detailed mortgage records that track each loan taken out on a property. Does your county do this, in addition to recording the property transfers themselves? The key would be to see if/when the original mortgage held by the bank was "released", and then if a new mortgage, belonging to the son, was recorded.

ETA: Nevermind all the above, it actually sounds an awful lot like this: http://www.freddiemac.com/singlefamily/preventfraud/rescue.html
'Homeowner' = Relative
'Investor' = Korean Investor
'Straw Borrower' = Son

If true, that means Relative no longer has a place to live, son also does not own the home, and his credit is ruined because he defaulted on a bank loan (that he fraudulently applied for), and Korean Investor made off with the difference between the son's purchase price and the outstanding balance on Relative's mortgage. :-( The only odd thing is that it seems like the son thinks he still owns the house, and if he actually does, there must be another twist. Or he somehow managed to keep up payments on his loan on a house he isn't living in with a minimum wage job.
« Last Edit: August 29, 2014, 11:23:28 PM by skyrefuge »

Lian

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Wow.

Please tell me you are making this up. If you write the book, I'll read it. Craps all over Jackie Collins. :)


What I thought too - this could be a novel. I want to know how it ends.

iris lily

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Dear MMM: Please make this thread a sticky so I don't lose track of it, thank you.

So OP, go on...

Goldie

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Skyrefuge, wow I had not heard of that scheme but that's just what this situation sounds like. I figured it was fishy when the mortgage doubled. Relative is so shortsighted that that wasn't a concern to her, or she didn't ever plan on paying anyway, since she doesn't and never did have good employment.  The only thing is, which you mentioned, is that her son believes/does own the house, not the Korean investor. I know because the county recorder website shows son as the owner. I'm not in their state (too expensive for me!) so I can't see more than the synopsis on their county's website. Now, I don't know for sure that the Korean investor thing went through. Possibly son got a mortgage on his own and wrote down he had unlimited earning potential to get approved and bought it that way from Relative? The purchase price is about 100k more than its current estimate. Of course that was in pre-crash prices, but I don't know if this post area took a big hit or not in 2009. I'd love to know exactly what happened to better understand how Relative has stayed afloat for so long.

What I'd like to know is why was Korean investor never heard from again? That part puzzles me. All I know is that there's no way son paid the mortgage on a very pricey house making zero dollars or minimum wage, unless he's secretly won the lotto and was smart enough not to tell Relative. Doubtful. And he's been across the US trying to start a music career and couch surfing and sleeping on beaches for the past ten or more years. His dad, Relative's ex, is bright and is the one who hired son an attorney to get Relative out. She had until the end of June but begged for an extension and as of a few weeks ago (end of July) was still living in the house.

In this whole mess, the thing that makes me laugh is the irony that Relative, a con artist herself, may have been taken by another con artist, the Korean investor. And I haven't even touched on the other, nonfinancial messes and schemes she's been involved in! Just sticking to the real estate stuff is complicated and dramatic enough. (I lead such a boring life, having a steady job and paying my bills each month, compared to Relative.)

skyrefuge

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What I'd like to know is why was Korean investor never heard from again? That part puzzles me.

If the scam is as expected, the Korean investor got his money and ran long ago. Initially I assumed that the Korean investor was an actual investor (one with real money) who had personally provided financing in some way. But now I believe it is much more likely that it was a regular bank who provided the financing to the son, and the Korean investor was just an intermediary/scam-artist.

For this scam to be worth pulling, the home in question has to be "above water" (worth more than its outstanding mortgage balance). Since 2009 we've become conditioned to associate "foreclosure" with "under water" homes (homes that can't be sold/refinanced because the proceeds from the sale wouldn't be enough to pay off the mortgage). But foreclosure can happen to homes that are above water too. It's a lot more rare, because, if they can no longer make their mortgage payments, most people would just sell the home themselves, turning the equity into cash that they can then use to rent/buy another home, and avoid wrecking their credit. But in the case where Relative was potentially years behind on her mortgage payments (that would have to be paid upon sale of the home), had tons of other debt, and just didn't want to leave the house, selling might not have provided much benefit to her.

Since this was all happening in the early/mid-2000s, while home prices were on an incredible rise, Relative was likely able to stay afloat for so long by repeatedly doing cash-out refinances. With the value of the home continually rising (and banks handing out loans like candy), she would have been able to regularly extract that fresh equity from the home and use it as her "income" to pay for her regular expenses. This means she likely did not have *much* equity in the home by the time the Korean investor came along, but it's certainly possible that prices were rising so rapidly that an amount of equity worth scamming had appeared since the last time she had refinanced.

Using completely made-up numbers and assumptions, here is an idea of how things could have progressed:

At mid-90s divorce: home value=$500k, mortgage balance=$250k (hey, maybe husband was financially responsible!)
2000 refinance: home value=$700k, new mortgage balance=$700k, Relative has gotten $450k ($700k-$250k) in spending cash
2002 refinance: home value=$800k, new mortgage balance=$800k, Relative gets an additional $100k in spending cash
2003: home value=$900k, mortgage balance=$800k.

At this point, Korean investor sees, "hmm, last refinance was a year ago, home price has appreciated since then, so there is $100k in equity available". He obtains title to the home. The son buys the home (title) from him for $900k (by getting a $900k loan from a bank). Korean investor gives $800k to Relative to pay off her mortgage. He keeps the $100k difference and walks off into the sunset, giving not one single shit about the ruin left behind.

So that explains why the Korean was never heard from again.

But yes, that leaves the mystery of why the son never heard from the bank who gave him $900k. In the normal operation of the scam, that bank would have foreclosed on the son long ago for non-payment, and the bank would now be the one owning the property (or they would have auctioned/sold it to a new buyer). The only far-fetched possibility I can think of is that the bank "lost track" of the loan. It sounds like sometimes multiple parties, including the mortgage broker/lender are in on the scam. Maybe things were handled in such a way at the bank that the $900k went out without anyone noticing. Mortgage lending in 2003 was a complete wild-west of insanity with essentially no standards, so I suppose anything is possible. Maybe the "bank" that gave out the $900k was a real fly-by-night operation that failed shortly thereafter, and no one remained who knew how to track the outstanding loans.

Anyway, that's still all tons of crazy speculation, and it could be way off, but hopefully that at least gives some new insight by which you can explore to make further sense of things. I'd definitely be curious to hear anything else you come up with! I think I've probably heard reports of people being prosecuted for scams like this in the past, but all the language is about "mortgage fraud" and other legal terms and it just sounds like a crime where people pushed some papers around in a way that didn't follow the rules; my eyes glaze over and I move onto the next story without having any understanding of what actually happened. This is a far more human view where we see that there are actually real people behind the numbers and legalese. If not a book, it's at least a great illustrative example to lead a lengthy New York Times expose covering such scams!