flipping fraud in florida

MIAMI-DADE: Bought for$155,000 in July 2005 and soldthe same day for $300,000.Less than five months later, theloan went into default.

HILLSBOROUGH: Bought for$120,000 in October 2007, thensold again less than threemonths later for $200,000. Ayear later, the loan went intodefault.

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STAFF GRAPHIC / JENNIFER F. A. BORRESENSOURCES: Property appraisers’ offices, 57 of 67 counties, Analysis by the Herald-Tribune

Florida’s suspicious property flipsAs the real estate market boomed in Florida,

suspicious property flips followed suit. The number of suspicious flips peaked

in June 2005, when overall sales volume also reached its high mark.

MANATEE: Bought for$146,000 in November 2001and sold the same day for$328,000.

By MICHAEL BRAGA, CHRIS DAVIS and MATTHEW DOIG, Staff Writers

raudulent property flipping ran rampant during this decade’s housing boom, with $10 bil-lion in suspicious deals in Florida alone, a Herald-Tribune investigation has found.

The deals — many of them inflated sales among friends, family and business associates— drove up property values and tax bills during the boom, fed bank bailouts and failures af-ter the boom, and fueled the foreclosure wave that has gutted property values.

Unscrupulous property flippers would buy houses or condos, then drive up the price ina few days or weeks by selling it to someone they knew. Buyers used the inflated price to get bankloans for more than the property was worth, leaving money for flippers to split as profit.

Despite their role in one of Florida’s largest white-collar crime sprees, the vast majority of unscrupu-lousrealestate flipperswillneverbeprosecuted.MostFlorida law enforcementagencies havedone lit-tle to investigate property flip fraud. The FBI has been left to chase far more cases than it can handle.

But evidence of illegal deals is available in the public records filed when a property changes hands.The Herald-Tribune spent a year gathering and reviewing nearly 19 million Florida real estate

transactions for red flags that can help identify flipping fraud. Using public records, including landdeeds and mortgage filings, it found that:

■ Since 2000, more than 50,000 Florida properties flipped under circumstances that fraud investi-gators identify as suspicious — where homes, vacant land or commercial properties were boughtand resold in 90 days or less and increased in value by at least 30 percent. Even during the hottestdays of the housing boom, average home prices increased at half that rate. More than a dozen fraudexperts interviewed by the Herald-Tribune said such large price increases within 90 days are an indi-cator of fraud.

■ In June 2005, when flipping hit its peak, more than 2 percent ofall Florida real estate sales fit the criteria for potential fraud.

■ Many of the questionable flip deals were orchestrated by realestate professionals. A close review of several thousand flips inSarasota and Manatee counties showed that 40 percent of theflippers were industry insiders — real estate agents, mortgagebrokers and attorneys.

■ Lenders facilitated fraud by approving mort-gages on suspicious transactions. In deal after

‘FLIP THATHOUSE’ FRAUDCOST BILLIONS

F

In law to thwart drug seekers, a critical hole?15-DAY WINDOW: Critics fearmeasure gives too muchtime to go ‘doctor shopping’

FLORIDASTATE’S CREDIT SOLIDFlorida seems to be weatheringthe recession better than moststates, but some foresee a day offinancial reckoning. 1B

By ZAC ANDERSONand JOHN [email protected]

Billy Courtright got prescrip-tions for 250 addictive painkillers

from doctors in Venice andNorth Port within a

matter of days last month. Hiswife, Linda, got dozens more.

Her teenage son, Nick Block, in-gested some of those pills beforehe died of a drug overdose in aNorth Port motel room, accordingto federal investigators. When po-licefound hisbody, hismotherwaslying on a bed, unconscious froman overdose, in the same room.

A new state law is supposed toprevent such “doctor shopping”for prescription pain pills, which

have become the state’s leadingdrug killer, but the law has a bigloophole: Pharmacists have 15days to enter prescriptions into anew electronic database.

Billy Courtright, Block’s stepfa-ther, reportedly obtained two pre-scriptions from different doctors14 days apart, leading some ex-perts to cite the case as evidencethat legislative compromises crip-pled the law.

Other states require much fast-

er reporting to prevent peoplefrom visiting multiple doctors forprescriptions.

“This is a very important caseof a child that might have beensaved,” said Dr. Rafael Miguel, apain expert with the University ofSouth Florida who lobbied for thenew law but opposed the 15-daywindow.

When the new database comesonline next year, doctors are sup-

See DRUGS on 13A

A HERALD-TRIBUNE INVESTIGATION: IT IS ONE OF THE LARGEST WHITE-COLLAR CRIME SPREESIN FLORIDA HISTORY — $10 BILLION IN SUSPICIOUS PROPERTY FLIPS THAT HELPED TURN THE

REAL ESTATE BOOM INTO THE WORST FINANCIAL CRISIS SINCE THE GREAT DEPRESSION.

SARASOTA: One unit sold for$300,000 in January 2007 andflipped the same day for$742,000. Buyer defaultedwithin two years.

■ Hot spots for suspiciousproperty flips. 8A■ How the Herald-Tribuneidentified suspicious flips.9A■ Flipping schemes: a fieldguide. 9A■ How flipping fraud hurtshomeowners. 9A

ONLINE: Startingtomorrow, a who’s

who guide to flipping inSarasota and Manateecounties. Plus aninteractive map providingdetails on each of the50,000 suspicious Floridaflips. Heraldtribune.com/flipping.

TOMORROW: More than30 groups of flippersoperated in Sarasota andManatee counties.

TUESDAY: One Sarasotareal estate agentorchestrated $100 millionin questionable deals.

WEDNESDAY: Lawenforcement ignoredflipping fraud as it washappening — and may notpunish it now.

THURSDAY: Who madeflipping fraud possible?Bankers.

NEXT SUNDAY: How toprevent mortgage fraud.

See FRAUD on 8A

PINELLAS: Bought for$80,000 in April 2007 and soldthree months later for$235,000. The loan went intodefault 15 months later.

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SUSPICIOUS FLIPS

MANATEE: Bought for $1.25million in December 2004 andflipped the next day for $1.65million. Buyer defaulted withinthree years’ time.

MIAMI-DADE: Bought for$315,000 in September 2005;sold for $479,000 two monthslater. Sold again for $552,000in March 2006. Buyer defaulteda year later.

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deal, loan officers either failed tomake the most basic checks to flagrisky loans or ignored what theyfound. In some cases, the Herald-Tribune found, bank employeesknew deals were suspect but ap-proved mortgages anyway.

■ Lenders continued to financeflips even after the boom, whenproperty values were decliningand price increases should haveraised suspicion. Across Florida,more than 10,000 flips involvingsignificant price increases oc-curred from 2006 to 2008 — afterthe market peaked in the secondhalf of 2005. In 2007 alone, nearly$1 billion in suspicious flip dealstook place.

The actual amount of fraudu-lent land deals in Florida is likelymore than $10 billion, accordingto several fraud experts, who be-lieve the newspaper’s findings areunderstated.

While some of the 50,000 dealsidentified by the Herald-Tribunemay be legitimate, many morefraudulent deals were not count-ed because they involved smallerprice increases or took place overlonger periods, said Bill Black, aUniversity of Missouri economicsprofessor and bank fraud expertwho helped the WorldBank devel-op anti-corruption initiatives.

“It isn’t even close to the bareminimum,” Black said. “You havebeen so conservative in your tech-nique. Just in the world of flippingfraud, it’s many times that num-ber.”

Quick property flips accompa-nied by price increases have longbeen used as an indicator of fraud.

In 2003, the U.S. Department ofHousing and Urban Developmentannounced that the federal gov-ernment would no longer insuremortgages on properties resold in90 days or less — regardless of theincrease in value. A report issuedby HUD stated that the sales werelikely to involve mortgage fraudand therefore too risky to insure.

At least as far back as 1999, theFBI began using computerizedland records to create a nationaldatabase of suspicious flips simi-lar to the one created by the Her-ald-Tribune for Florida.

FBI officials would not providedetails about their database, butmortgage fraud experts familiarwiththeprojectsaid ithelps identi-fy patterns of flipping with largeprice increases over short periods.

Despite the unusual price in-creases that accompanied theirsales, many of the flippers identi-fied by the Herald-Tribune saidthey did nothing wrong. They de-scribed themselves as victims of areal estate downturn and saidtheir actions had not hurt anyone.

But their manufactured salesdistorted real estate prices anddrove upproperty tax bills. The in-flated sales led some home-owners to borrow more and moremoney against their own homesbecause skyrocketing sales priceshad made their houses appear tobeworthmore. And when the bub-ble popped, the flippers’ bad loanssaddled banks with propertiesworth far less than what wasowed, threatening the stability ofthe entire banking system.

UNHEALTHY SPECULATIONFlipping has long been a part of

the real estate business.Smart investors find bargain

properties, fix them up or simplywait a few months and resell at aprofit.

But during the past decade,changes in the way mortgageswere funded virtually eliminatedthe incentive banks had to screenpeople applying for loans.

Mortgages were transformedinto a commodity that could besliced up, then bought and sold onWall Street. Banks that oncewrote mortgages carefully, know-ing they could lose money, foundthey could pocket fees for initiat-ing the loan and then sell it, mak-ing someone else the loser if theloan was not repaid.

Strict screening was replacedbyan entirely different banking te-net — volume.

As a result, bank executives ig-nored warnings from employeeswhose job was to weed out ques-tionable loan applications, said JillDeLormier, executive vice presi-dent of Diligence Solutions, a Flor-ida consulting firm specializing inbank fraud protection.

“I can’t count the times I heard,‘Just close it, we already have itcommitted for sale,’ ” DeLormiersaid. “Volume is all that counted.”

The relaxation of lending stan-dards combined with historicallylow interest rates to superheat thehousing market.

And flipping was transformedinto a national pastime, with Flori-da becoming one of the key play-grounds.

From 2000 through 2008, thou-sands of Florida properties dou-bled in value in a single day, theHerald-Tribune’s statewide analy-

sis found. In some new subdivi-sions, investors from cold-weath-er regions snatched up entirestreets of new homes. Many wereback on the market the same day,waiting for the next speculator tocome along.

The number of suspicious flipsbegan a steady climb in early 2004and had tripled by the time salespeaked in summer 2005.

In June that year — a month be-fore “Flip This House” premieredon television — the state averaged80 suspicious flips a day. Thatmonth alone, real estate flipperspocketed $242 million more thanthey originally paid for their prop-erties, a transfer of wealth nearlyequal to every flip completed in2000.

The speculation drove every as-pect of Florida’s economy. Lend-ers and real estate companiesmade millions in fees and commis-sions. Contractors had more workthan they could handle. Govern-ments, collecting record property

taxes, hired new employees andawarded raises to everyone frompolice officers to code compli-ance officers.

The volume of real estate salesprovided perfect cover for fakesales and manipulated propertyvalues.

“It became easy to do any typeof mortgage fraud,” said ScottFriedman, a special agent with theFlorida Department of Law En-forcement. “Even people whonev-er thought they’d do that type ofthing found themselves caught upin it.”

FROM FLIPS TO FRAUDAt its heart, illegal flipping is a

mechanism to artificially drive upthe value of properties. It be-comes mortgage fraud whenthose artificial values are used tojustify bank loans.

During the past decade, flippershoned schemes that allowed themto secretly inflate the value ofhomes. Often everyone involved

was a willing participant, leavingfew victims to complain to author-ities.

Sarasota real estate investorNeal Mohammad Husani is one ofFlorida’s most notorious propertyflippers.

From 2004 through 2006, Hu-sani bought seven pieces of landin the Sarasota area for $42.5 mil-lion. In each case he increased theprice by millions, then flippedthem on the same day to his then-partner, Michael Tringali.

According to federal prosecu-tors, who indicted Husani andTringali last July on charges ofmortgage fraud and money laun-dering, Tringali never actuallypaid for the properties.

Instead, the men faked the saleto qualify for loans that coveredHusani’s original purchase priceand left $40 million to split as prof-it.

Not long after his deals, whichare among those captured by theHerald-Tribune database, Husani

left the country. Mortgage pay-ments on the loans stopped, leav-ing banks with more than $70 mil-lion in defaults on property wortha fraction of that amount.

Husani’s flips remain amongthe most egregious to spill out ofFlorida’s real estate bubble.

But similar approaches wereused by thousands of real estateplayers going back as far as themid-1990s.

In the Herald-Tribune’s reviewof flips statewide and in Sarasotaand Manatee counties, the news-paper found that some investorsbrought their own twist to flip-ping.

One group inSarasota held on toproperties for several years, trad-ing among the same buyers onlywhen someone in the circle need-ed cash through a mortgage loan.

Another flipper pulled togetherinvestors to repeatedly tradeprop-erties back and forth so he couldcollect real estate agent and mort-

FRAUD from 1A

See FRAUD on 9A

HERALD-TRIBUNE INVESTIGATION: FLIPPING FRAUD

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ABOUT THE DATA: The Herald-Tribune defined suspicious flips as properties that sold at least twice in 90 days and increased in value at least 30 percent. The data used for this analysis included nearly 19 million sales from 57 of Florida’s 67 counties. Some county property appraisers could only supply a partial list of sales. For the purpose of this analysis, the Herald-Tribune discarded extremely high and extremely low sales in an effort to remove property transfers that did not reflect the actual value of a property. To generate the maps showing flipping density, the Herald-Tribune used the Surfer software application created by Golden Software.

Rate of flipsOn a county-by-county basis, the Herald-Tribune calculated the rate of flips to total property transactions. Counties that experienced the most intense flipping saw as many as 15 flips per 1,000 sales from 2000 through 2008.

*The way the St. Johns County Property Appraiser provided data may have excluded a significant number of sales and flips.

Flips in clustersWhile dramatic price increases and quick sales occurred almost everywhere in Florida, the Herald-Tribune analysis found that flipping hot spots emerged. The analysis looked for areas where flipping occurred more often and in closer proximity than would be expected under normal circumstances. Clustering was driven in part by new construc-tion. Speculators — including legitimate flippers — found these new subdivisions and condo towers attractive places to invest. But some clustering also occurred because of fraudulent activity that concentrated in one subdivision or condo community. Concentrating in one place allowed fraudulent flippers to more easily inflate the value of real estate.

PANAMA CITYAdjusted for population, Florida’s most intense flipping hotspot was not Miami, but Bay County, where the vast majority of the population lives in and around Panama City. The intensity of flipping near Panama City was nearly double the next closest community. Flipping was driven in part by new condo towers, including Laketown Wharf and Shores of Panama. Despite the many speculators who put down deposits before construction, today both buildings sit nearly empty.

MIAMIDuring the boom, dozens of new condo towers went up in Miami. Real estate investors would buy units and flip them for a profit long before a condo tower had been built. In raw numbers, Miami-Dade County had more flips from 2000 through 2008 than any other Florida county. But adjust for population and Miami’s flipping looks small compared with other Florida communities.

TREASURE COASTThe real estate boom was kind to St. Lucie County. Cheap, empty land lured developers, and the new houses on the market were an enticing target for flippers. Property values shot up, and the population of its biggest city — Port St. Lucie — nearly doubled. But the bust brought it all to an end.Faced with an economic crisis and one of the worst foreclosure rates in the nation, St. Lucie County commis-sioners declared a state of emergency in April, a move that freed more than $25 million held in reserves.

SOUTHWEST FLORIDAFew places in the nation experi-enced a construction boom to rival what happened in places like Lehigh Acres outside Fort Myers and North Port in southern Sarasota County. During the past decade, the number of houses doubled as developers rushed to build what speculators wanted to buy — new homes in relatively low-cost neighborhoods. Today, the communities that flew highest during the boom are hurting the most. The metropolitan area covering Fort Myers, Cape Coral and Lehigh Acres had the highest foreclosure rate in the nation at the end of 2008.

SOURCES: Herald-Tribune analysis of Florida property appraisers’ sales data, U.S. Census Bureau

These areas show communities where flips occurred in unusually high concentration compared to the rest of the state.

Data not available

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Flips per 1,000 transactions

Property flips occurred in nearly every city across Florida. But an analysis by Herald-Tribune reporter Paige St. John, based on the the newspaper’s review of 19 million Florida property sales this decade, shows suspicious property flips were most prevalent in high-growth areas near the coast and along the Interstate 4 corridor. The flipping started in urban centers and radiated into the suburbs and surrounding communities. When the market peaked in 2005, only the most remote neighborhoods in Florida had not experienced property flipping.

In sheer numbers, Florida’s largest cities experienced the most flipping. (See small map below.) But adjust for population, and a different picture emerges. (See large map below.) South Florida and the Tampa Bay area nearly disappear from the map. They are replaced by smaller communities where speculation — and flipping — was most intense: Panama City, Port St. Lucie, the Fort Myers area and southern Sarasota County.

These areas show the regions of Florida in which community-level pockets of flipping were unusually prevalent.

Hot spots for suspicious property flips

Total flips

Flips by population

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STAFF GRAPHIC / JENNIFER F. A. BORRESEN

At the height of the real estate boom, the number of flips increased sharply. By June 2005, flips made up more than 2 percent of all sales in the state.

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When the real estate market began to cool, the amount of money made on flips — the price increase between the first and second sale — actually increased. This may be because many investors began manufacturing sales to associates when they were unable to sell properties legitimately during the downturn.

Florida property sales peaked in June 2005

During the boom, more sales were flips Flips get bigger as market cools

‘Flip That House’ fraud cost Florida billions

8A Sunday, July 19, 2009 www.heraldtribune.com

MANATEE: One unit sold for $557,000 in December2005 and resold the same day for $725,000.

SARASOTA: Bought for $814,000 in January 2001and resold the same day for $1.1 million.

SARASOTA: Bought for $324,000 in February 2007,then sold two months later for $585,000. Loan wentinto default in December 2007.

HILLSBOROUGH: Bought in July 2006 for $87,000and sold less than two months later for $151,000.

SARASOTA: Bought for $10.4 million in January2006 and sold the same day for $24.6 million. A yearlater, the bank was forced to sell for $10.7 million.

The f lip scheme: a field guideBy CHRIS [email protected]

Traditional real estate flippers buy houses,make improvements and resell at a profit. But ahost of schemes exist to artificially drive up pric-es or convince lenders to make oversized loans.

Some of the most common flip schemes:

THE STRAIGHT FLIPAninvestor buys a parcel and flips the proper-

ty to an associate for a much higher price. Nomoney changes hands. Instead, the buyer gets aloan based on the inflated price, and buyer andseller split the bank’s money. If they cannot sellto an outside buyer, they eventually walk awayfrom the mortgage.

THE DAISY CHAINA group of investors buy a number of proper-

ties in the same general area. Group membersflipamongthemselvesforhigherandhigherpric-es, but avoid selling any one property multipletimes between the same people. The deals ap-pear to drive up the value of all properties in thearea. Members then sell at the inflated prices tooutsiders or get loans for the inflated amounts.

THE INVESTMENT SCHEMEA property flipper buys a house and flips it

for a profit to an investment “partner.” Thedeed and the loan are put in the new buyer’sname, but the new buyer signs a contract grant-ing the original flipper a stake in any future sale.In exchange, the flipper promises to pay themortgage — usually by finding renters — untilthe two can sell the house at a profit.

The flipper may do this over and over, allow-ing him to use other people’s credit to buy morehouses than he could afford on his own. If thereal estate market gets stronger, the house canbe flipped to an outside buyer for even moreprofit. But if things go sour, the flipper walksaway, leaving his investors to deal with the fi-nancial losses and foreclosures.

THE BUILDER BAILOUTSome builders who borrowed money to devel-

op homes were unable to sell when the marketturned. Under pressure to repay loans, thesebuilders sold the properties to themselves ortheir associates at prices no one else would pay.The sales helped them get loans that repaid theoriginal cost to build the homes. Eventually, the

builderslandinforeclosureonpersonalmortgag-es.

Real estate investors used similar schemes tobailout themselvesor theirclients. Whennoonewould buy their properties, they inflated the val-ue, arranged a flip to an associate and borrowedenough to pay the monthly mortgage for a yearor two.

THE ASSIGNMENTMost of the time, a seller must file a deed with

the clerk of court and pay real estate taxes ontransactions.Butthere isaloophole.Abuyer isal-lowed to “assign” the property to someone else.

The legitimate use of assignment is to buyproperty on behalf of a third party. But it canalso be used to manufacture flips and avoid pay-ing taxes.

Before closing, the buyer assigns the proper-ty to a company, a relative or an associate for ahigher price. This allows the sale price to be in-flated without clueing in a seller, who is not partof the scheme.

Because only the higher sale price is record-ed, it can be used to borrow more than the prop-erty actually cost.

How flipping fraud hurts homeowners


Even if you watched Florida’sreal estate boom from the side-lines, the speculation and flippingover the past eight years have af-fected you. Here’s how:

PROPERTY VALUESWhen property flips at inflated

prices, those deals artificially driveup the market value of homes formiles around.

The inflated sales help establisha baseline of what property in acommunity is worth. Flippersknow if they can sell one propertyfor an inflated amount, that salecan be used to justify additional in-flated property transactions. Be-fore approving loans, banks per-form appraisals that compare thesales value of the property beingpurchased with similar properties.

The same process occurs whenrefinancing or applying for a home-equity loan. Based on inflated salesin your community, a bank may al-low you to borrow too much andleave you owing more than youcould hope to recoup when selling.

PROPERTY TAXESElected property appraisers set

the taxable value on your house bylooking at sales of properties simi-lar to yours. Properties that aresold between relatives are usuallynot considered because they arenot “arm’s-length transactions”and therefore may not reflect thetrue value.

But property appraisers oftenare unaware when flips occur be-tween business partners or associ-ated parties who do not share the

same last name.The Herald-Tribune found that

suspicious flips have been used tohelp set taxable value, leading tohigher tax bills.

FORECLOSURESA Herald-Tribune analysis of

suspicious flips in Manatee and Sa-rasota counties suggests thatflipped properties are more likelyto end up in foreclosure.

Experts say that the local trendlikely occurred across Florida, sothat areas of high speculation wereleft with high levels of foreclosure.

More foreclosures in a givencommunity means more down-ward pressure on real estate pric-es; the end result is that home val-ues drop.

In addition, studies show a link

between an increase in vacanthomes and an increase in crime.

FEDERAL BAILOUTWhen a property’s value is artifi-

cially inflated, a bank may be stuckwith an overvalued asset if thehomeowner defaults on the loan.

Thecrush of foreclosures follow-ing the real estate boom left bankssaddled with properties worth farless than the mortgages. Banksfaced such big losses that they didnot have enough capital to coverthem and had to stop making loansof all kinds. America’s banking sys-tem nearly shut down in October.

As a result, the federal govern-ment spent billions in taxpayermoney to recapitalize banks andrescue other financial institutions.

— Chris Davis

How Herald-Tribune identified$10 billion in suspicious f lips

Michael Bragahas been areporter at theHerald-Tribunesince 2001, and

has covered real estate since2004. He is also an assistantbusiness editor.

Matthew Doighas been a reporterat the Herald-Tribune since 2001and has been on

the newspaper’s investigativeteam since 2004.

Chris Davisis investigationseditor at theHerald-Tribune,where he has

worked as a reporter or editorsince 1997.

gage broker fees on eachsale.

At least one other flippersold property as part of aninvestment partnership. Hewould buy a home, recruitinvestors through real es-tate seminars, then promiseto pay the monthly mort-gage if the investors wouldpurchase the property intheir name. The goal was tosell the house again andshare the profit. But whenthe real estate marketturned, the original flippersimply walked away.

AIDED BY BANKSBanks were in a unique

position to recognize andstop questionable propertyflips. But like millions ofproperty investors duringthe boom, many lenders be-lieved real estate valueswould continue to rise.

Even when sales began toslow in the second half of2005,banks continued to ap-prove loans on question-able flips between relatedparties.

In fact, the Herald-Tri-bune’s analysis shows, theinflated values for suspi-cious flips becameevenlarg-er as the real estate marketgot worse.

In2005, themediandiffer-ence between what a flip-per paid for a house andwhat he sold it for was$65,000. A year later, afterthe real estate market hadbegun a noticeable decline,that amount increased tomore than $73,000. And by2007, the spread betweenthe original purchase priceand the flip was still morethan $70,000.

This intensification oc-curred, in part, becausebanks allowed strugglingbuilders and real estate in-vestors to bail themselvesout by taking out larger andlarger bank loans againsttheir properties.

That is what happened toShlomo Manor, a real estateagent in Hollywood, Fla.,who for years worked withIsraeli nationals wanting toinvest in Florida real estate.

Manorwas one of the flip-pers identified by the Her-ald-Tribune. His dealswould not be fraudulent ifhe disclosed to banks his re-lationship to those sellinghim property. But they dohelp illustrate lax lendingpractices by banks.

In 2004, deeds show,Manor and his investorsstarted buying new homesand vacant buildings in St.Lucie and Lee counties. Themarket was so hot that Man-or easily flipped the proper-ties to willing buyers, Man-or said during a telephoneinterview from Israel.

But he said buyers disap-peared in late 2005. He andhis clients were left holding10 unsold houses and doz-ens of vacant lots.

Hoping the marketwould turn and in need of ashort-term fix, Manor saidheandseveral investors par-ticipated in a number ofsales to each other. Mort-gage records show thosesales allowed Manor andhis associates to get $1.38million in fresh bank loans.

He said he also had hiswife buy one of the proper-ties because of pressurefrom an investor who wasnot happy that the housewould not sell.

Manoreventually default-ed on six loans totaling $1.65million. He defended theflips, saying they were nec-essary to protect his clients.

“Whenyou bring in inves-tors, you can’t throw themin the garbage,” Manor said.“If you are not loyal to yourcustomers, you will losethem.”

TOMORROW: More than 30groups of flippers operated inSarasota and Manatee.

FRAUD from 8A

SARASOTA: Sold five times in four years, with thevalue increasing from $600,000 to almost $2 millionin 2004. After default, sold for $910,000 at auction.

By MICHAEL BRAGA,CHRIS DAVIS and MATTHEW DOIGStaff Writers

It is impossible to determine ex-actly how much housing fraud oc-curred during the recent real estateboom.

But the Herald-Tribune usedcommonly accepted indicators offraud to sort through 19 millionsales and highlight those that raiseclear red flags for one type: illegalproperty flipping.

The newspaper looked for prop-erties that sold at least twice inthree months and increased inprice by 30 percent or more. Evenduring the real estate boom’s hot-test days, average home prices in-creased at only half that rate.

More than a dozen real estateand fraud experts interviewed bythe Herald-Tribune said such priceincreases alone are enough tomake the flips highly suspicious.

Across Florida, the newspaperfound 50,000 property deals involv-ing $10 billion in sales that met thecriteria for likely fraud.

Each of the experts, which in-cluded Florida mortgage fraud in-vestigators, nationally recognizedacademics and bank fraud-preven-tion consultants, said the Herald-Tribune’s methodology wassound. Most said $10 billion was areasonable estimate and at leastthree said the figure underestimat-ed flipping fraud.

Bill Black, an internationallyknown bank fraud expert whohelped the World Bank developanti-corruption initiatives, said the

amount of flipping fraud in Floridawas far more than $10 billion.

“Just in the world of flippingfraud, it’s many times that num-ber,” said Black, who is also an eco-nomics and law professor at theUniversity of Missouri.

The Herald-Tribune’s pool ofsuspicious flips contains legitimatereal estate sales. But thousands ofother fraudulent deals were notcaptured because they involvedsmaller price increases or oc-curred over a longer time, Blackand several other experts said.

In addition, before calculatingthe amount of questionable deals,the Herald-Tribune discardedproperty flips that were less likelyto be fraud. For example, largeprice increases can appear to haveoccurred on the same day becauseof the way deeds are recorded fornewly built homes and condos.The first sale may actually have oc-curred before the house was builtand the second sale many monthslater when the home was com-plete.

To eliminate such sales, thenewspaper excluded more than5,000 same-day flips worth about$3 billion. That process left outnearly2,500 flips that didnot neces-sarily occur on the same day, butappeared to be same-day transac-tions because of the way data wasprovided by some county propertyappraisers.

Miami-Dade, Pinellas and sever-al smaller counties could only pro-vide the month and year of theirtransactions, meaning any sales

that occurred in the same monthappeared to have occurred on thesame day. Those sales — includingmore than 1,400 in Miami-Dadealone — were therefore not count-ed in the fraud estimate.

The newspaper also excludedproperties that sold for less than$10,000 or increased in price morethan 300 percent to remove ex-treme price changes that mighthave other explanations.

“While it’s impossible to quanti-fy precisely, Miami-Dade andFlori-da have been at the top of the indi-ces for years,” said Ann Fulmer,vice president of business relationsat Interthinx, one of the nation’sleading providers of mortgagefraud prevention tools for lenders.“Under the facts you outline, $10billion is probably a conservativeestimate.”

In addition to consulting with ex-perts, the Herald-Tribune testedits data by more closely examiningseveral thousand deals.

The newspaper reviewed morethan 3,000 property flips in Saraso-ta and Manatee counties for addi-tional signs of mortgage fraud.Those signs include foreclosuressoon after sale and large price in-creases on sales between friends,family members and business asso-ciates. The newspaper also lookedfor patterns of repeated flipping byreal estate investors.

After reviewing thousands ofpages of deeds, mortgage filingsand other public records, the Her-ald-Tribune identified more than$500 million worth of deals that dis-

play multiple signs of fraud in Sara-sota and Manatee counties alone.

Sarasota and Manatee accountfor 5 percent of the 50,000 suspi-cious Florida deals. That suggeststhere may have been $15 billion infraudulent deals statewide.

Finally, the Herald-Tribuneused the standard statistical prac-tice of using a smaller random sam-ple to draw conclusions about alarger pool. The newspaper ran-domly selected 100 flips fromacross the state and closely re-viewed the deals and the parties in-volved for the most obvious indica-tors of fraud.

Chris McCarty, director of theSurvey Research Center at the Uni-versity of Florida, said the randomsample method used by the Herald-Tribune is a valid way to draw con-clusions about the larger pool.

Mortgage fraud investigators re-viewed each of the deals at theHerald-Tribune’s request. In mostcases, the investigators said therewas not enough information avail-able to determine if the case in-volved fraud. However, at least 12percent of the deals displayedsuch obvious indicators that the in-vestigators flagged them as likelyfraud.

When applied to the entire poolof flips, that means just the most ob-vious cases of fraud amount tomore than $1.6 billion in propertydeals. Experts say the actualamount of fraud is undoubtedlymore because many flippers areable to avoid leaving behind obvi-ous clues.

THE REPORTERS

www.heraldtribune.com Sunday, July 19, 2009 9A



ll across Sarasota and Manatee counties, the price increases defied logic.More than 100 properties from Palmetto to North Port doubled in price in a single day during

the recent real estate boom. Proposed condos — no more than ideas on paper — flipped two orthree times before anyone moved in.

Some investors bought up dozens of houses within a few blocks. Within weeks or months, theyflipped them at a profit.

A yearlong Herald-Tribune investigation has found that many of these sales cannot be explained byshrewd deal-making or as an innocent consequence of the real estate boom. Instead, they were manufac-tured by property flippers who found ways to drive up housing prices so they could make money at thecommunity’s expense.

The Herald-Tribune examined more than 3,000 property flips that occurred since 2000 in Sarasotaand Manatee counties. Based on interviews with more than 100 investors and real estate professionalsand a review of thousands of pages of deeds, mortgages, foreclosure filings and other public records, theHerald-Tribune found:

■ At least 37 groups of property flippers operated in Sarasota and Manatee counties. The groupsbought hundreds of properties worth more than $350 million and sold them to associates for inflatedprices.

■ The flippers identified by the Herald-Tribune — and the people who ultimately bought their prop-erties — have so far defaulted on more than $450 million in mortgage loans. Their defaults account for$1 in every $13 lost to foreclosure in Sarasota and Manatee counties from 2005 through 2008.

■ Nearly 40 percent of the people involved in questionable flips in Sarasota and Manatee countieswere industry insiders — real estate agents, developers, lawyers and mortgage brokers. Of the 37groups discovered by the newspaper, 21 were organized by real estate agents or mortgage brokers.

■ Most flipping circles were organized by a leader who either recruited investors on the promise ofeasy money or conspired with friends and associates to sell properties at inflated prices. Some of theseinvestors did not realize they were buying properties at inflated prices; others willingly lied about salesprices to obtain mortgages that more than covered the actual purchase.

■ Some of the people who organized or participated in flips were considered leaders of their profes-sion. One was recognized as one of the top 50 Re/Max real estate agents in the world. Another won mul-tiple awards from the Mortgage Bankers Association of Florida. Some flippers identified by the Herald-Tribune were seen as key clients by local banks and were allowed to pick their own appraisers or hadloan approvals expedited to quickly close deals.

■ Widespread flipping occurred in neighborhoods of all kinds. Some groups focused on new develop-

See FLIPPING on 6A

Before a giant leap, plenty of anxietyAPOLLO 11: Local man waspart of the team that putthe moon within reach

1931-2009FRANK McCOURT DIESHis Pulitzer Prize-winning book,“Angela’s Ashes,” told of hisimpoverished Irish childhood. 4A

4 0 t h A N N I V E R S A R Y O F T H E F I R S T L U N A R L A N D I N G

GULF COAST EASY TARGET FOR FLIPSThe Herald-Tribune identified 37 groups of property flippersoperating in Sarasota and Manatee counties this decade. 9A

SARASOTAHOSPITAL MAY UP RATEThe increase would cover grow-ing expenses and fund buildingprojects at Sarasota Memorial.1B

FLIPPERS’ TOLLON GULF COAST:HALF A BILLIONIN DEFAULTS

By BILLY [email protected]

ANNA MARIA — On the daythe Earth stood still for the Apollo11 drama on July 20, 1969, a Grum-man engineer who tested and re-tested the lunar module was onthe edge of his seat. Powerless tochange things now, Dick Morashcould only hope he had asked all

the right questions and run theright tests.

Astronauts Neil Armstrong andBuzz Aldrin were riding the mostthoroughly inspected flying ma-chine in the history of flight as itapproached the moon’s Sea ofTranquility. But with memoriesof astronauts consumed by a padfire and colleagues obliterated ina rocket-engine explosion, Mo-rash knew the high frontier wassmeared with the debris of pastmiscalculations.

“Itwas nail-biting,” recalled Mo-rash, 76, now retired in Anna Mar-ia. “I guess I was like a zombie,hoping it would work.”

Anestimated 500 million peopleSee APOLLO on 2A

SARASOTA INVESTMENT SEMINARSArthur Seaborne leaves his office in downtown Sarasota.Former clients say Seaborne recruited investors intoproperty-sharing ventures that guaranteed him a profit andleft investors with mortgages they could not pay. 8A

A

LAKEWOOD RANCH CONDOSMark Riley stands next to the $300,000 Mercedes Maybachhe leased during the boom. Unhappy former clients say heorchestrated flips in Lakewood Ranch, rarely selling tooutsiders. The toll: $30 million in defaults. 7A

Astronaut Edwin E. “Buzz” Aldrin Jr. poses for a photograph beside theU.S. flag deployed on the moon on July 20, 1969. ASSOCIATED PRESS ARCHIVE

APOLLO 11: A look at how thehistoric mission was executed. 2A

AT SEA: A man linked to the Apollo11 mission couldn’t watch it on TV. 2A

ONLINE: See more historicphotos and watch NASA’s

restored video of the July 20, 1969,moon walk at heraldtribune.com.

A HERALD-TRIBUNE INVESTIGATION: IN SARASOTA AND MANATEE COUNTIES, 37 GROUPS

OF PROPERTY FLIPPERS NOW ACCOUNT FOR NEARLY HALF A BILLION DOLLARS IN

DEFAULTS. REAL ESTATE INSIDERS ARE AT THE HEART OF MANY OF THE GROUPS.

PALMETTO INVESTMENT CLUBMarc Mailloux outside his home in Palmetto. The real estateagent and his associates bought at least 158 properties. Butwhen the market cooled, they started selling to each other asa way to get more bank loans. 6A

HERALDTRIBUNE.COM/FLIPPING: Online-only profiles of more than 100 people in Sarasota

and Manatee counties who were involved in propertyflips. Plus an interactive map that lets you drill into thedetails on each of the 50,000 suspicious Florida flips.

YESTERDAY:A Herald-Tribune investigation of flip-ping fraud finds $10 billion in suspicious Florida deals.Find yesterday’s story at heraldtribune.com/flipping.

TOMORROW: One Sarasota real estate agent orches-trated more than $100 million in questionable deals.

WEDNESDAY: Law enforcement ignored flippingfraud as it happened — and may not punish it now.

THURSDAY: Bankers made flipping fraud possible.

SUNDAY: How to prevent mortgage fraud.

Classified ........ 6CComics ............. 6BLottery ............. 2AMovie Log ....... 5B


INSIDE

A NICHEIN TIMEA new Sarasotacompany helps thelawyers helpinghomeowners inforeclosure.Business Weekly

*

WATSONDENIEDGolfer Tom Watsonmisses a chanceto make history,losing the BritishOpen to StewartCink, right. 1C

INSIDE

MONDAY, JULY 20, 2009 ❘ 75¢ HERALDTRIBUNE.COM

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Flipping hot spotsHerald-Tribune reporter Paige St. John mapped the amount of real estate flipping in each square mile of Sarasota, Manatee and Charlotte counties and found that suspicious flips occurred in nearly every residential neighborhood. But as the dark clusters show, hot spots emerged in some communities. Flipping was most intense in areas with a lot of new construction, such as Lakewood Ranch, and in Bradenton, North Port and other places where housing prices were lower.

Waterfront propertyA Sarasota real estate agent working with 28 investors bought and sold dozens of properties along the Sarasota County waterfront. In some cases, properties were sold from one investor to the next several times.

French Creek CourtFrench Creek CourtSarasota mortgage broker Arthur Sarasota mortgage broker Arthur Seaborne bought about 20 homes Seaborne bought about 20 homes on this East Manatee County on this East Manatee County street and quickly flipped them street and quickly flipped them to investors for what appear to investors for what appear to be inflated prices. Many to be inflated prices. Many are now in foreclosure.are now in foreclosure.

French Creek CourtSarasota mortgage broker Arthur Seaborne bought 21 homes in one North Manatee County neighbor-hood and quickly flipped them to investors for what appear to be inflated prices. Many are now in foreclosure.

North PortAlthough the Herald-Tribune did not find the same type of organized flipping schemes in North Port that it found elsewhere, few places in the region experienced more suspicious flips per square mile than the residential neighborhoods that largely make up this city. Many of the flips displayed classic signs of fraud, including foreclosure soon after purchase. In Southwest Florida, North Port was among the communities with the most new houses built during the boom.

BradentonIn working-class neighbor-hoods in and around Bradenton, one group bought at least 158 properties and legitimately flipped many to outside buyers. When the market slowed, they sold properties to each other, allowing them to obtain bigger loans from the banks.

Lakewood RanchDemand in some new Lakewood Ranch developments, particularly the WaterCrest condominiums, was so high that banks approved loans on properties that nearly doubled in value in a year.

Fruitville RoadFruitville Road

Clark RoadClark Road

Venice Ave.Venice Ave.

Price Blvd.Price Blvd.

Bee Ridge RoadBee Ridge Road

University ParkwayUniversity Parkway

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Dig into property flips in your neighborhoodOnline at heraldtribune.com/flipping, an interactive map displays all of the more than 50,000 suspicious Florida real estate deals

uncovered by the Herald-Tribune analysis. Click on the map button, then double click on the map to zoom in and see specific sales. Or type in a city (Sarasota, Fla.) or a street address to see flips in your neighborhood.

By clicking on the dots, you can view the details of any of the 50,000 suspicious transactions. The size of each dot represents the sale price of the property. The dots are also color-coded so at a glance you can see how big the price increases were in your neighborhood.

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STAFF GRAPHIC / JENNIFER F. A. BORRESENSOURCE: Herald-Tribune analysis of Florida property appraisers’ sales data

Sarasota CountyIn June 2005 alone, there were 89 suspicious property flips. That is about the same number of flips that occurred in all of 2001 in Sarasota County.

Manatee CountyProperty flipping intensified in Manatee County as it did across the state during the height of the real estate market. In summer 2005 there were 155 flips in Manatee County, nearly as many as occurred in all of the previous year.

Charlotte CountyIn summer 2005, more than 200 suspicious property flips occurred — nearly as many as occurred in all of 2002 and 2003.

Flipping toll:$73 million justat local banks


ments in Lakewood Ranch. Others pre-ferred luxury waterfront houses on Birdand Siesta keys or duplexes in the work-ing-class neighborhoods in and aroundBradenton.

■ When the market cooled, flippersand their business partners stuck lend-ers based in Southwest Florida withabout $73 million in bad loans. AlthoughSarasota-area flippers got most of theirloans from national lenders, their mort-gage defaults hit aggressive local banksespecially hard. Those defaults helpeddoom Bradenton-based First PriorityBank.

The Herald-Tribune found that someof those involved in flips were nothingmore than naive investors. They paid farmore than they could afford believingthey could sell the houses before thebills overwhelmed them.

Others were irresponsible specula-tors who bought house after house withlittle or no money down and no clearway to pay their mortgages if the housescould not be resold.

Flipping schemes uncovered by theHerald-Tribune were so common thatsome investors who participated be-lieved they did nothing wrong.

Theyviewed flipping as a legitimate fi-nancing tool, an easy way to demon-strate that property had increased in val-ue so that banks would lend money

against the equity. Banks fed that beliefby approving deal after deal.

But others identified by the Herald-Tribune tricked investors into buyingoverpriced homes or conspired with as-sociates to fraudulently drive up hous-ing values.

Many arranged sales with fake pricesso they could get loans that more thancovered the cost of a house. Then theypocketed the extra money.

The following pages have deeperlooks at several of the local groupswhose real estate flips have led to themost defaults.

Tomorrow, the newspaper takes acloser lookat the area’s most prolific flip-ping group.

Online at Heraldtribune.com/flip-ping, read profiles of more than 100 localpeople involved in suspicious propertydeals — some of them organizers, someof them occasional participants andsome of them innocent victims.

FLIPPING from 1A

By MICHAEL BRAGAand CHRIS DAVISStaff Writers

Drive a few miles through theresidential neighborhoods arounddowntown Bradenton or along thewaterfront in Palmetto and chanc-es are you will pass a house thatwas once owned by a self-de-scribed Palmetto “investmentclub.”

Since 1998, the investors havepurchased at least 158 propertiesin Manatee County. Their goalwas to buy, fix up and sell proper-ties as rapidly as possible.

When they could not find buy-ers for the houses they fixed up,they would get mortgages, rentout those houses and wait for anopportunity to sell.

Theinvestmentstrategyworkedfor years while property valueswere increasing.

But when the real estate market

cooled in the second half of 2005,the investment group, includingMarc Mailloux, Tony Toledo,Brian Sirois, Vincent Bower andDanette Bloomer, began strug-gling to sell their houses to out-side buyers.

Sirois said it became more diffi-cult to get banks to approve refi-nancing as the real estate marketslowed, so club members beganselling properties to each other toget back some of the money theyhad invested in improvements.

If one group member renovat-ed a house and no one would buyit, the price was marked up and asale arranged to another member.That sale was used to apply forfresh loans.

Before summer 2005, propertydeedsshow, investmentclubmem-bers rarely sold properties to eachother — on average two a yearfrom 2000 to 2004. In the follow-

ing three years, the club sold 25properties among its members, allat escalating prices that allowedthem to get larger bank loans.

After receiving the new loans,club members kept making inter-est payments for years, hopingthey could eventually sell theproperties at a profit. But that nev-er happened, Sirois said.

“I was losing money the wholetime I was paying those mortgag-es,” Sirois said. “Trust me, we alltook a beating on this.”

Because the houses the groupbought were primarily duplexesand houses at the most affordableend of the housing spectrum, theeconomicdownturnhit themespe-cially hard.

Their pool of renters dried up asconstruction workers and laid-offmanufacturing employees left thearea.Then thebanks frozetheirac-cess to fresh capital, which pushed

them into foreclosure.Since April 2008, the group has

defaulted on 70 loans. In addition,group members have ceded16 oth-er properties to a private finan-cier, Alan P. Richards of Sarasota.

That means people associatedwith the investment club have de-faulted on 86 loans totaling $17.1million in the past 16 months.

Dennis Black, a Port Charlottereal estate consultant and apprais-al instructor, said the rash of fore-closures is the result of bad lend-ing practices by banks. Lendersshould have looked at how muchrent could be charged for eachproperty and written loans onlyfor amounts that could be justi-fied by the rental income.

Instead, Black said, he believeslenders wrote oversize mortgagesbased on the belief that propertyvalues would continue to rise.

“No lender was basing their de-cision on investment criteria.They were basing it on the hopethat the borrower could sell at ahigher price,” Black said.

“Some people didn’t believe itwould end. But bubbles alwaysend.Theprimaryfunction ofhous-ing is shelter. If rents youobtain donot support the purchase price,then something has to give.”

Sirois said the group operated

within the law and never intendedto inflate values. He pointed outthat banks had their own apprais-ers review each deal and alwayssigned off on the mortgages.

“Did we do anything to their ap-praisers? Did we do anything in-correct?” asked Sirois, a Realtorwhoonce worked at VantageReal-ty of Florida in Palmetto. “Wewould buy a property for $80,000and put $30,000 in and then thebank would send an appraiser toreappraise the property. Some-times the properties were doubleappraised to make sure the valuewas there. We didn’t care.”

Mailloux,another Vantage Real-ty agent, told the Herald-Tribunethat he and his fellow investorswere legitimate investors whofound themselves in a desperatesituation.

He said their property flipswere not designed as scams, butwere the only means they couldfind to avoid foreclosure.

Mailloux said he depleted hisbank account, spending severalhundred thousand dollars payingmortgages on properties until hecould no longer make payments.

“I was just going down this roadthat was a financial train wreck,”he said. “It turned into the Ameri-can nightmare.”

Bradenton area ‘club’bought 158 properties

THE DIFFERENCE BETWEENLEGITIMATE FLIPS AND FRAUDProperty flipping is perfectly legitimate whentransactions are arm’s length — when buyersand sellers act independently. It becomesfraud when buyers and sellers conspire toartificially drive up prices. And if they inflatesales prices to get larger mortgage loans,they commit mortgage fraud.

6A Monday, July 20, 2009 www.heraldtribune.com


Riley: agentat the centerof $30 millionin defaultsWaterCrest condos a microcosmof everything that went wrongBy MICHAEL BRAGAand CHRIS DAVISStaff Writers

Just a few years ago, Mark P. Ri-ley was a rich man.

On the back of the real estateboom, he earned enough moneyto buy a $2 million home in Lake-wood Ranch. He and his life part-nershared a fleetof luxury cars, in-cluding a $300,000 MercedesMaybach with recliner rear seatsand a built-in champagne refriger-ator.

Riley made so much money flip-ping homes that he pledged to paynearly half a million dollars to puthis name on a hockey arena set forconstruction in eastern ManateeCounty.

Today, all of it is gone.The house has been seized by

the bank, the luxury cars returnedor repossessed. The hockey arenais a half-finished shell, abandonedwhen the economy began toslump.

AndRileyhas left a trail of finan-cial ruin and unhappy clients.

Interviews with Riley clients,along with public records and oth-erdocuments obtainedby the Her-ald-Tribune, reveal that from2004 to 2007, Riley acted as thereal estate agent and organizer ofrepeated flips in LakewoodRanch.

The flipping seeded specula-tion in the growing community.To date, it is one of the most finan-cially damaging groups to operatein Manatee County, leading tomore than $30 million in defaults.

The basic premise was simple:Identify investors, flip the sameproperties several times from oneto the next and cash in on real es-tate price increases driven by thespeculation.

In three lawsuits filed againstRiley and his company in Mana-tee County’s circuit court in 2005and 2006, former clients describehim as a flipping orchestratorwho promised to flip under-con-struction properties before thebills came due.

Riley and his company “en-gaged in a scheme to flip condo-minium units at WaterCrest nu-merous times in order to collectrepeated commissions,” StephenSmith alleged in one of those law-suits, filed in January 2006.

According to several of Riley’sinvestors, including former neigh-bor Jim Scalici, Riley would con-vince people to buy a condo,promising them riches with norisk. Then Riley arranged salesfromone investor to the next, rare-ly if ever selling to outsiders, Scali-ci said.

In the beginning, everyoneprof-

ited. Investors made several mil-lion dollars selling property, pri-marily in the WaterCrest condodevelopment. Riley made hun-dreds of thousands in commis-sions on the repeated sales he bro-kered. But it all crashed with thefall of the real estate market.

In interviews with the Herald-Tribune, Riley said he did nothingwrong. He said he was merely a fa-cilitator, helping sellers find buy-ers and vice versa.

If there was any collusion todrive up property values, he wasnot a part of it, he said. In fact, hesaid, sale prices in each deal wereset by the seller and backed up byan independent bank appraisal.

Riley said that all the transac-tions he arranged as a real estateagent were “arm’s length” andthat he did not recruit his buyers.

“All of these people came tome; I didn’t seek them out,” hesaid.

But deeds filed with the Mana-tee County Clerk of the CircuitCourt show that sales brokered byRiley in Lakewood Ranch primari-ly involved about a dozen people,many of whom knew Riley beforethe sales.

Buyers involved in the transac-tions included Riley’s neighborsScalici and Genaro Epifanio; afriendand neighbor, Linda Maugh-an, and her sister, Milene Moses;and Mike Shackelford, a real es-tate agent who worked with Riley.Other buyers were referred to Ri-ley through his employees or hadpreviously used him as their realestate broker.

In a 2005 Herald-Tribune story,Riley described himself as a realestate agent with ready investorswaiting for the next opportunity.

“I get calls from buildersand de-velopers because they know Ihave the buyers,” Riley said at thetime.

In his recent interviews, he saidsales among friends are perfectlylegitimate.

“What could be more normalthan that?” he said. “You havethree or four friends. You callthem and tell them you justbought and sold condos and madea pile of money, and they saythey’d like to do that, too.”

FLIPPING WATERCRESTJust as the real estate market

was heating up in Sarasota, Rileylefthis agent’s jobat Michael Saun-ders & Co. and struck out on hisown.

Confident and charismatic, the48-year-old rapidly joined the topranks of local society, winning thetrust of people of means.

By early 2005, he and his life

partner, Richard Waid, had start-ed their own real estate companyand mortgage brokerage — MarkP. Riley Luxury Real Estate Groupand Mortgage Concierge — giv-ing them the ability to brokertheir own deals and navigate themortgage industry on behalf of cli-ents.

Itdid not take long for an oppor-tunity to present itself.

The year before, Homes byTowne had put nearly 200 newcondo units on the market in itsWaterCrest development in Lake-wood Ranch. Moderately upscale,lakefront and well-located, the de-velopment became a microcosmfor everything that went wrongduring the housing boom.

Demandwas so high that the de-veloper had to hold a lottery to de-cide who would get a unit. Hope-ful crowds were stocked withspeculators who planned to fliptheir units before they were evenbuilt.

Each new flip generated a newsales commission for whoeverbrokered the deal.

“Mark made over $1 million inWaterCrest flipping condos backand forth to the same people twoor three times,” said Scalici, theonetime Riley neighbor who par-ticipated in deals with Riley.

Closing documents from onetransaction show that Riley madea real estate commission of asmuch as 7.5 percent on sales inWaterCrest. Riley’s clientsbought and sold the units as manyas three times within a year, mean-ing Riley could collect $150,000 or

more on a single unit by the timeit was built.

Unit 201 at 6406 WaterCrestWay followed a typical path. InNovember 2005, one of Riley’s cli-entsbought thecondo fromthe de-veloper for $550,763. Three weekslater, Riley’s neighbor, LindaMaughan, bought it for $675,000,a 22.5 percent increase. Deedrecords show she sold it the sameday to Scalici for $825,000, a 50percent increase over the originalprice.

Riley said that the dates onmany of the deeds are misleadingbecause the sales occurred over alonger period of time and thedeeds were simply filed all at oncewhen the condo construction wascompleted. Even so, the time thatpassed between each sale couldbe measured in months.

Riley’s ability to make suchsales happen earned him a reputa-tion as Lakewood Ranch’s masterof the flip. In 2004, when CurtisShaw was frustrated by slow con-struction of a condo in East Mana-tee, he sought Riley for help.

“I went to him because some-onetold mehe was a master at flip-ping unfinished condos. He couldsell it before it had gotten out ofthe ground because he had allthese investors,” Shaw said.

Rileysays he was notdoing any-thing unusual. Especially in 2005,the Sarasota-Bradenton marketwas a frenzy of speculation. Wa-terCrest prices increased rapidlyfrom month to month because somany people wanted to buy.

“Everybody in this community

was part of the greed factor,” Ri-ley said. “Everybody from age 20to age 80 wanted a quick return.”

But a Herald-Tribune analysisof every condo sale in WaterCrestshows that sales prices among Ri-ley’s associates were often higherthan the going rate. Riley said thatcan be explained because many ofhis condos had special amenities,such as high-end flooring andkitchen fixtures.

The Herald-Tribune found thatin 2005 and 2006, when the vastmajority of WaterCrest sales oc-curred, deals arranged by Rileywere on average nearly 20 per-cent higher than the norm.

The gap is even wider whenyou consider only the prices Ri-ley’s buyers could control. Ignor-ing the original purchase from thedeveloper, Riley’s average salesvalues were 38 percent higher in2005 and 31 percent higher in2006 than the total average forWaterCrest in those years.

LAWSUITS AND DEFAULTSWith money from WaterCrest

deals flowing in, Riley and Waidbegan living the high life.

Records from one of Riley’sformer employees show he leasedan $83,000 Land Rover, a $63,000Porsche and a $43,000 BMW atabout the same time.

But by late 2005, it was clearthat something was wrong withmany of the WaterCrest deals.

The final buyers on several con-dos were having trouble gettingbanks to finance their loans, ac-cording to several lawsuits filedagainst Riley in Manatee County’scircuit court.

Starting in late 2005, a string ofRiley’s clients filed lawsuits claim-ing he convinced them to partici-pate in real estate investmentswithout explaining the risks andthat he took money from escrowdeposits before the final contractswere closed.

In one of those lawsuits,Stephen Smith alleged that theunit he bought was worth substan-tially less than what he had paid.In another, Phil and ElizabethGreenwell alleged that Rileyfailed “to disclose that banks andmortgage companies would not fi-nance or would place severe re-strictions on an assigned contract,generally known as a ‘flip.’ ”

Today, about four years afterWaterCrest was completed, oneof every four condos has goneinto default. Sixteen of the 46 de-faults belonged to Riley clients.

Across Sarasota and Manatee,Riley’s clients, including Maugh-an, Moses, Shackelford, Epifanioand Manoj Bhattacharjee, have de-faulted on 17 loans totaling $12.1million since June 2007.

“I made a mistake,” said Bhatta-charjee, a Manatee County real es-tate investor and neighbor of Ri-ley’s. “I should not have gonewith him, and I am paying a penal-ty for my foolishness. At times welose sight and try to earn some-thing extra. This was a situationlike that.”

Riley filed for Chapter 7 bank-ruptcy protection in November,claiming $51 million in debts andonly $3.5 million in assets. It is thelargest personal bankruptcy filingto date by anyone who invested inlocal real estate.

In February, a tow truck driverattempted to repossess Waid’scar. Riley began shouting at thedriver and continued arguingwith a police officer dispatched todefuse the situation, a SarasotaCounty Sheriff’s Office reportsays.

Riley was arrested on misde-meanor charges of resisting arrestwithoutviolence. InMay, prosecu-tors agreed to withhold prosecu-tion.

James W. Scalici at the Lakewood Ranch house he originally bought asan investment with real estate agent Mark Riley. Scalici later bought Rileyout. He said he was told to lie about his income to qualify for a loan.

In March it was moving day for Mark P. Riley, left, and Richard S. Waid at their Westchester Circle home in Lakewood Ranch. As a real estate agent during the boom, Riley benefitted fromrepeated flips he helped arrange among his friends and neighbors. Today, Riley and many of his clients are in foreclosure. STAFF PHOTOS / THOMAS BENDER

Mark Riley’s clients were among the many who flipped condos atWaterCrest in Manatee County. Today, one in four units is in foreclosure.

www.heraldtribune.com Monday, July 20, 2009 7A

Michael Bragahas been a reporter atthe Herald-Tribunesince 2001, and hascovered real estate since

2004. He is also an assistant businesseditor.

Matthew Doighas been a reporter atthe Herald-Tribune since2001 and has been on thenewspaper’s investigative

team since 2004.

Chris Davisis investigations editorat the Herald-Tribune,where he has workedas a reporter or editor

since 1997.

Advice Arthur Seaborne offered to real estate investors through his Webpage can still be found on the Internet. SOUTHEASTCAPITAL.COM

By MICHAEL BRAGA, CHRIS DAVISand MATTHEW DOIGStaff Writers

Back in 2001, Sarasota mort-gage broker Arthur Seaborne wasbroke.

Forced to give up his real estatelicense years before and morethan $2 million in debt, Seabornefiled for bankruptcy protectionfor the second time in 13 years.

None of that stopped him fromharnessing the real estate boom toremake himself into one of Saraso-ta’s most prolific property flip-pers.

From mid-2006 through 2007,Seaborne bought and sold morethan 40 new homes worth $11.6million in Sarasota and Manateecounties. Along the way, he mademore than $1 million in profits,court records show.

He did it by recruiting morethan 30 investors into a property-sharing venture that guaranteedhim a profit and left his so-calledpartners to bear the brunt of thereal estate collapse.

In summer 2006, when priceswere already declining, Seabornestarted buying dozens of newhouses in Ellenton and Venice. Hemarked up the price by $8,000 to$75,000 and, within a few months,sold them to people who came tohis real estate seminars.

He promised his investors theywould pay no money down and hewould pay most of the monthlymortgage bills by finding renters.All they had to do was take out aloan in their name.

Seaborne even lined up financ-ing through his own mortgage bro-kerage, directing buyers to exoticmortgages that paid him a highercommission up front and reducedthe monthly payment he hadpromised to pay, eight of his inves-tors told the Herald-Tribune.

By using his brokerage, South-east Capital Mortgage, Seabornewas able to deposit his own cashin at least seven investors’bank ac-counts so banks would approveloans, according to a 2007 state li-censing investigation that ledSeaborne to surrender his mort-gage broker’s license.

Seaborne paid his share of themortgages at first, but stopped inlate 2007 as the real estate marketworsened.

“He’s a pretty slick charac-ter,” said Dr. Mark Walter, a con-nective-tissue specialist whobought a Palmetto house withSeaborne. “He comes off as verynice and very up front — like hehas nothing to hide. But he end-ed up stiffing a lot of people. In-stead of acting in our interests,it turned out he was only out forhimself.”

Nearly half of the homesSeaborne sold to investors arenow in foreclosure. All told, peo-ple who bought into his invest-ment plan have defaulted on 16loans totaling $4.9 million.

More defaults may be coming,according to Anthony Lefco, a Sa-rasotaattorney whose client, Jessi-ca Leis, sued Seaborne in 2008.

As part of the suit filed in Sara-sota County’s circuit court,Seabornestated in a sworndeposi-tion that he recently stopped pay-ing his mortgages, Lefco said.That could lead to another $5 mil-lion in defaults.

Seaborne told the Herald-Tri-bune that every real estate deal hestruck was legitimate, backed bybank appraisals and paid for bywilling investors.

He denied inflating propertyvalues and said his financial trou-bles came from an unforeseendownturn in the real estate mar-ket that forced him to stop payinghis investors’ mortgages.

“We certainly would not havedone some of the buying we did ifwe knew we’d be where we are to-day,” Seaborne said.

SELLING THE FLIPWhena trusted friend told Jessi-

ca Leis in 2006 about a seminarthat could make her money, the57-year-old Sarasota resident fig-

ured she had nothing to lose.The widow of a police officer

who died from injuries sustainedduring a 1990 rescue, Leis had anest egg to invest. Real estateseemed like a smart choice.

So she gathered with a handfulof others in Arthur Seaborne’sdowntown Sarasota office and lis-tened intently to his “no moneydown” investment pitch.

An hour later she was hooked,convinced she could make moneywith no financial risk.

“He kept saying ‘no moneydown’ and I kept thinking I can’tlose,” Leis said. “I think somewomen want someone to takecare of them and I was definitelysuffering from that. Here was thisnice, rich man who talked abouthow he made his wife rich andhow he wanted to make us rich,too. And I wouldn’t have to thinkor do anything.”

Leis bought her first house withSeaborne on French Creek Court,a quarter-mile stretch of NorthManatee suburbia whereSeaborne bought at least 15 houseshe planned to sell to investors.

Within a year, she bought twomore houses from Seaborne. Notlong after she closed on the lastone, in August 2007, things start-ed to go wrong.

Leis’ deal with Seaborne re-quired her to buy a house fromhim for a set price — as much as30 percent more than Seabornepaid a few months before.Seaborne retained part-interest inthe house. In return, he agreed tofind renters and to pay most of themonthly mortgage.

But in late 2007, Seabornestopped paying his bills, Leisclaims in her lawsuit. Leis told theHerald-Tribune she has beenstruggling to avoid foreclosure.

“I’m almost a million dollars in

debt now,” she said.Leis and seven other investors

told the newspaper that Seaborneput them in negative amortizationloans without telling them. Suchloans reduced Seaborne’s mort-gage paymentsso they did notcov-er the interest owed each monthand the borrowed amount actual-ly increased over time.

Bradenton resident GerryClaeys said he attended aSeaborne seminar and bought ahouse on the promise that hewould only pay $200 a month to-ward the mortgage. Claeys saidSeaborne directed him into an in-terest-only loan, which reducesmonthly payments but give largerupfront fees to mortgage brokers.

“I asked how he was makingmoney on this and he said all hegot was a real estate commission,”Claeys said. “But later he told methat the bank paid him a sizablefee for arranging the financingthrough him. He came out like abandit.”

Claeys said Seaborne stoppedpaying his share of the mortgageand he found himself with a househe could no longer afford.

“Like a lot of scams, this one is ahundred years old,” said DennisBlack, a Port Charlotte real estateconsultant and appraiser instruc-tor. The organizer cannot qualifyfor mortgages to buy dozens ofhouses, Black said, “so he goes outand finds people to borrow forhim. He does a seminar and tellsthem he will help them get loans.If the market goes down, he bails.”

Seaborne said his investmentprogram was intended to makemoney for everyone involved. Hesaid the only reason it did notwork was because the real estatemarket declined too fast.

Seaborne said he has attemptedto help his clients refinance debt,but said he does not have the mon-ey to bail them out.

WAVE OF FORECLOSURESSeaborneused anumber of tech-

niques that allowed him to inflatereal estate values and make mon-ey on property flips.

By buying houses and sellingthem to investment partners, hewas able to mark up the prices onhouses that might not have soldon the open market. In 2006 and2007, when real estate pricesacross the region were falling andmany new houses could not besold, Seaborne was able to buy 41and quickly resell at a profit.

In addition, four former clientstold the Herald-Tribune he direct-ed them to lie on mortgage appli-cations so that they would qualifyfor loans on properties he was sell-ing to them.

“He falsified my income andthe amount of money I had in thebank,” said Bart Borriello, who in-vested in two houses withSeaborne. “He said he was doingthat to keep the payments down.”

In the 2007 complaint that costSeaborne his mortgage license,the state Office of Financial Regu-lation concluded that Seabornefailed to tell World Savings Bankhehad lent the requireddown pay-ment to seven people who applied

for mortgages.Beyond the houses he sold to in-

vestment clients, Seabornebought property through his cor-porations and transferred them tohimself or his wife at increasedvalues.

He and his wife bought 11houses in 2007 for $2.8 millionand then, in essence, re-pur-chased each one a few monthslater for a total of $3.4 million.Based on the sale prices, banksor private lenders gave theSeabornes $2.6 million in loans.

Seaborne says that all of hisproperty sales reflected the mar-ket at the time. Sale prices on hishomes increased only because heoriginally bought the houses inbulk and the builder gave him adiscount, he said.

But a Herald-Tribune compari-son of Seaborne’s sales in twoneighborhoods to other houses inthose same subdivisions showsotherwise. Seaborne’s houses, onaverage, sold for 8 percent morethan the going rate, regardless ofwhat he originally paid for theproperty, the Herald-Tribuneanalysis shows.

In one of those neighborhoods,Covered Bridge Estates in Ellen-ton, Seaborne flipped more than adozen houses for an average of$140 per square foot in 2006 and2007. The average sales price ofother homes in the subdivisionduring the same years was about$130 per square foot.

Today, Seaborne’s mortgagebrokerage is closed. Recordsshow Seaborne and his wife havedefaulted on three mortgage loansin recent weeks. Manatee CountySheriff’s spokesman Dave Bris-tow told the Herald-Tribune thatsheriff’s detectives have been partof an multi-agency investigationinto Seaborne since April.

Seaborne’s business phone stilloperates and offers callers exten-sions to reach his property man-agement and real estate divi-sions.

Since an interview earlier thisyear, Seaborne has not returnedrepeated calls from the Herald-Tribune.


Jerry Claeys says attorneys have told him he has little chance ofrecovering money from Arthur Seaborne. STAFF PHOTO / THOMAS BENDER

STAFF GRAPHIC / JENNIFER F. A. BORRESENSOURCE: Manatee County Property AppraiserSOUOURCERCE: M: Manaanateetee Co Countunty Py Proproperterty Ay Apprppraisaiserer

Arthur Seaborne bought 21 newly constructed houses (in red on the photo) in the Covered Bridge Estates neighbor-hood of Ellenton in 2006 and 2007. At a time when prices were starting to drop, Seaborne sold most of the properties to his clients for tens of thousands of dollars more than he paid. At the same time, he sold houses to himself and his wife at higher prices than he originally paid, allowing him to obtain larger loans.

Rising prices during a downturn Willows Bridge LoopWillows Bridge Loop

Halls Mill Crossing French Creek Court

French Creek Court

Willows Bridge Loop

Halls Mill Crossing French Creek Court

Seaborne:More than40 f lips asmarket fellPromises of ‘no money down’turned into big losses for investors

THE REPORTERS

Arthur Seaborne outside his Sarasota office. Seaborne gave up his mortgage broker license last year after stateregulators said he secretly lent money to clients so they could qualify for loans. STAFF PHOTO / CHIP LITHERLAND

8A Monday, July 20, 2009 www.heraldtribune.com

Gulf Coasteasy targetfor f lipsThe Herald-Tribune identified at least 37 groups of property

flippers operating in Sarasota and Manatee counties duringthis decade. Several people involved in local property flips

are profiled on this page.

PATRICK BRESTERReal estate agent and mortgagebrokerDefaults – 9 – $3.9 million

Brester formerly worked as anagent for FloridaSun Realty Corp.and was once thestrength and con-ditioning coachfor the CincinnatiReds. More re-cently, he worked

for Executive Property Manage-ment.

In an October 2004 SarasotaMagazine profile, Brester recom-mended borrowing as much mon-ey as possible to make money inthe real estate business.

“The more you can leverage themoney, the more property youcan control,” Brester was quotedas saying. “If you are making 10percent, it’s better to make 10 per-cent on someone else’s money.”

Though most of Brester’s de-faults result from buying proper-ties at the height of the boom,court records show he defaultedafter buying a property being re-sold by his one-time business part-ner Richard Dear.

Dear bought a house on SuntanAvenue in Sarasota for $125,000 inJune 2004 and sold it to Bresterfor $179,000 six months later.Brester financed his purchasewith $161,100 in loans and default-ed in December 2007.

Brester also made money bybuying and quickly reselling prop-erties.The Herald-Tribune identi-fied more than a half-dozen indi-viduals — including his sister-in-law — who bought a flipped prop-erty from Brester and later default-ed on their loans. Those defaultstotaled more than $4 million.

In one of those deals, Bresterbought a three-bedroom house at5310 Matthew Court in Sarasota inJuly 2006 for $275,000 and sold iton the same day to Doug Knipperfor $385,000. Knipper borrowed$385,000 and defaulted 16 monthslater.

After the real estate marketcooled off, Brester bought ninecondos at the 238-unit VintageGrand complex in Sarasota in ear-ly 2007 for $1.9 million. He soldthem the next day to MichaelChadwick at a $300,000 profit. Ayear later, Chadwick filed forbankruptcy and defaulted on allnine units.

Brester could not be reached forcommentand did notreturn phonemessages left with his relatives.

HUSSEIN MAKKIReal estate investorDefaults – 7 – $1.9 million

Makki is a property investorwho flipped hous-es with ZeinabMakki and ZahrahDawood in Mana-tee County.

Together, theysold at least 10houses back and

forth to each other between 1997and 2001, raising the value ofthose houses from about $1.3 mil-lion to more than $3 million indeals that occurred just weeksapart.

The increased value allowedthe trio of investors to obtain atleast $1.6 million more in loansthan they originally paid for theproperties.

By May 2001, banks had fore-closed on 11 of their loans worth $3million and Zeinab Makki hadfiled for bankruptcy protection.

Land records show that the lawfirm of Sarasota attorney JohnYanchek closed more than a half-dozen of the property transac-tions involving the Makkis and Da-wood between December 1997and June 1998.

Reached by telephone in No-vember 2008, Makki said all hisdeals were legitimate and heagreed to explain each in detailwhen he returned to Bradenton.He has not returned five callssince then.

In his brief conversation withthe Herald-Tribune, Makki de-nied that he was related to ZeinabMakki, with whom he shared sev-eral addresses and participated inseven flips.

“There are a lot of people with

the same last name of Makki,” hesaid. “It’s like Smith.”

Lawsuits and counter suits filedbetween the twoin Sarasota Coun-ty’s circuit court show that Da-wood was Hussein Makki’s girl-friend.

RICH BOBKAReal estate agentDefaults — 13 — $7.8 million

Bobka, who worked at Re/MaxProperties and at ParadigmGroup in Sarasota, bought rentalproperties during the boom withlittle or no money down.

Between 1993 and 2007, Bobkabought 24 properties for $14.3 mil-lion. He sold a half-dozen of themfor a $600,000 profit and kept refi-nancing the rest until he had $1.6millionmore in loans thanheorigi-nally paid for the properties.

At the same time, Bobka actedas a real estate agent for his broth-er, George Cavallo, helping him tobuy 15 properties for $5.3 million.Cavallo financed the purchaseswith $5.6 million in loans.

During his 13-year real estate in-vesting career, Bobka bought andsold properties with associates andfamily members at higher prices 12times, records show. Five of thosedeals involved three propertiesthatwere bought and soldbetweenBobkaandhisbrotherandsister-in-law. All ended in default.

In one of the deals, Bobkabought a house on SouthpointeDrive in Sarasota in February2003 for $1 million and sold it aweek later to his brother and hisbrother’s wife, Paula Hornberger,for $1.15 million.

The couple borrowed $1.0325million, $32,500 more than Bobkaoriginally paid for the property.Cavallo and his wife later built ahouse on the property and ob-tained $3.125 million in freshloans, on which they defaulted in2008.

In May 2004, Bobka bought afour-bedroom house at 1614 An-chorage St. in Sarasota for $1.1 mil-lion and sold it the next day toHornberger for $1.35 million.Hornberger borrowed $945,000and eight months later refinancedthe loan to $1.4 million.

In December 2005, Hornbergersold the house back to Bobka for$2 million. Bobka borrowed $1.5million from Countrywide,$400,000 more than he had paidfor the property 18 months earlier.A year later, Bobka added another$250,000 loan from Branch Bank-ing & Trust. He defaulted on allthe attached loans in 2008.

Bobka told the Herald-Tribuneall of his deals were legitimate. Iflaws were broken, he said it wasdone by associates he trusted andwithout his knowledge.

“I don’t lie, steal or cheat,” hesaid. “Is it hard to believe youtrusted the people you workedwith?”

MARK BRIVIKDisbarred lawyer and real estateinvestorDefaults – 17 – $14.9 million

Brivik bought 14 houses withpartners. But in-stead of sellingthe houses to out-side buyers, Briv-ik cashed in onthe booming mar-ket by increasingthe debt he car-

ried on the properties, or by find-ing investors who would take on agreater share of the debt.

Brivik said that when a newpartner came in, he would ar-range a sale or a no-cost propertytransfer to that person. Using anew appraisal, the partners wouldgeta larger mortgage. Those mort-gages created a steady flow ofcash — just like homeowners whotake out home-equity loans to tapinto the rising value of their home.Brivik could pocket the money orspend it improving his properties.

The continual refinancing alsoallowed Brivik to shift risk to thebanks that lent money and to hispartners, who took on more andmore debt.

Brivik flipped one of his proper-ties back and forth to partners andcompanies he controlled 12 timesover a 10-year period, increasingthe attached loans from $406,000

to $2.7 million.Brivik has disputed the Herald-

Tribune’s characterization of himas a “flipper.” He says he alwaysreinvested borrowed funds intothe properties he purchased.

But Sarasota County and Long-boat Key government documentsshow that Brivik spent $1.2 millionimproving the properties he pur-chased, while extracting $9.3 mil-lion in loan proceeds above whathe paid.

Brivik said he used much of theextra money to make interest pay-ments and to pay for architecturaland engineering fees and other im-provements that were made to hisinvestment houses without theneed of a permit.

Brivik has since defaulted oneight loans and filed for bankrupt-cy, listing $16 million in debts and$2.7 million in assets.

He defaulted on two loansworth $6.9 million from First Pri-ority Bank. Brivik’s defaults repre-sented about 15 percent of thebank’s nonperforming loanswhen it was shuttered by regula-tors in July 2008.

NEIL MOHAMMAD HUSANIReal estate investorDefaults — none

Husani, along with ManateeCounty builderMichael TringaliandSarasotaattor-ney JohnYanchek, is ac-cused by federalprosecutors of or-chestrating some

of the largest fraudulent flips inthe state.

Between June 2004 and March2006, Husani bought nearly 2,000acres of land for $42.3 million. Hethen sold the properties, often onthe same day, to Tringali for a to-tal of $117 million. The flips en-abled Tringali to borrow $83 mil-lion, $40 million more than Hu-sani originally paid.

Prosecutors estimated that Hu-sani took the bulk of the proceeds,while Tringali and Yanchekwound up with about $7 millioneach.

In July 2008, Husani, Tringaliand Yanchek were indicted alongwith Tampa mortgage broker Lar-ry Nardelli on charges of mort-gage fraud and money laundering.Tringali and Yanchek pleadedguilty.

Husani, who fled to Jordan afterthe Herald-Tribune exposed hisdeals, was arrested by Jordanianlaw enforcement officials andthenreleased onbail. Federalpros-ecutors say he is awaiting extradi-tion to the United States.

JOHN EDWARD COUCHReal estate investorDefaults — 3 — $1.9 million

Couch and his wife, Yu MeiCheng, were invit-ed to Sarasota byanother Californiainvestor, ShaneUnruh, who hadbeen contacted bySarasota real es-tate agent Warren

Hickernell.Hickernell was trying to sell the

units at his Bermuda on Ospreycondo conversion project in Sara-sota and Couch came up with away to finance the sales with no

money down, according to two at-torneys who handled the closings.

Couchbought 30 units for an av-erage price of about $300,000. Hethen marked up the price as muchas $400,000 and sold them to in-vestors he recruited. Deedrecords show that the units weresold to those investors for$450,000 to $700,000.

The higher prices allowedCouch and his investors to obtainloans that more than covered theactual sale price.

According to attorneys whohandled some of the initial clos-ings, the extra money was sup-posed to be put into an escrow ac-count and used to build amenitiesand turn the complex into a seniorliving facility.

But neither of the attorneys —Will Schlotthauer of WilliamsParker and Chad Gates of TylerBetterton & Gates — knew wherethe amenity fund was located orwho controlled it.

One investor — Couch’s bother-in-law Christopher Woods — saidthere was never an amenity fundand no amenities were ever built.

Couch and 21 investors boughtthe 30 units at Bermuda onOsprey from November 2006through September 2008. In theensuing months, they defaultedon all 30 loans, totaling $13.5 mil-lion.

In the midst of buying the units,Couch and Cheng were chargedin March 2007 by the OrangeCounty District Attorney’s Officewith runninga brothel from a mas-sage clinic they operated in theAnaheim, Calif., area. Couch wasacquitted but Cheng was sen-tenced to 60 days in prison.

Couch could not be reached forcomment. Woods said Couch was“missing in action” after all theloan defaults.

Woods said the defaults werecaused by the economic down-turn. He also said the excess mon-ey group members borrowed af-ter flipping the units went to mak-ing interest paymentson outstand-ing debts.

“Everything went to keep theproject afloat,” Woods said.

Just after Couch started flip-ping the units at Bermuda onOsprey to his family and businessassociates, he filed for a protec-tive order against Shane Unruh inSarasota County’s circuit court.Couch claimed that Unruh hadthreatened him and said he fearedfor his life. A judge deniedthe peti-tion.

JASON REYNOLDSHome builderDefaults — 15 — $1.8 million

Reynolds and his wife, Melissa,have been activereal estate inves-tors in Sarasotaand Manateecounties since themid-1990s. Overthat time, theybought 28 proper-

ties for $4 million and resold 19them for $1.4 million more thanthey paid.

The couple borrowed $1.9 mil-lion against the remaining proper-ties and later defaulted on thoseloans.

Among their deals are at leastfive in which Reynolds bought orsold properties with people who

were partners in corporations hecontrolled.

In one deal, Reynolds and hisbrother-in-law, Donald Golder,bought a property at 217 N.E. 22ndCourt in Bradenton through theircompany for $82,600 in Novem-ber 2000.

The company sold the propertyto Golder and Reynolds in April2001, years before the height ofthe boom, for $167,000. Golder ob-tained a $125,250 loan.

“We would buy a propertythrough our investment companyand flip it into one of our namesand then take equity out that wewould use to remodel the house,”Golder said. “Then we would sellit.”

Golder said he has long sincesplit with Reynolds. “He’s a hack,”Golder said. “He took $140,000from me. I just washed my handsof it and walked away.”

Reynolds declined to comment.

TODD KOLBEMortgage brokerDefaults – 5 — $5.5 million

Kolbe helped to manage Affini-tyHomes,a home-building companyinvolving Kolbefamily members.Kolbe was also amortgage brokerat CTX Mortgage,where he met and

interacted with a number of otherproperty flippers identified by theHerald-Tribune.

Kolbe organized a group thatbought and sold houses amongthemselves in Sarasota and Mana-tee counties to get inflated mort-gages. Kolbe and four other mem-bers of his group were sentencedto prison for their roles in 27 fraud-ulent flip deals that defrauded aNew Jersey mortgage companyout of $1.8 million.

TINA VALENTEReal estate agentDefaults – 5 – $2.2 million

Valente and Hubert Steenbak-kers work togeth-er in thesamebou-tique real estateagency, Gulf Real-ty in Sarasota.They also havesold four proper-ties to each other

since 2001.In February 2007, Steenbakkers

bought a property in Sarasota for$324,300. At a time when real es-tate prices were in decline, hesold it to Valente two months lat-er for $585,000. Valente received$526,500 in loans that she default-ed on eight months later.

In another deal, Steenbakkersbought a property for $135,000 inJuly 2003, when the market wasstarting to heat up. He sold it toValente for $290,000 in June2007, long after the market hadpeaked. Valente borrowed$252,000 and defaulted 10 monthslater.

Experts say defaults within ayear do not necessarily indicatemortgage fraud, but they typicallytrigger a close review by banks.

Court records show Valente ul-timatelydefaulted on five loans to-taling $2.24 million. Valente andSteenbakkers did not return fourmessages left at their real estatecompany’s answering service.


The people involved in proper-ty flipping in Sarasota and Mana-tee countiesdid not operate in iso-lation. In some cases, key playerswithin each loose group social-ized or conducted business withpeople in other groups.

To track the connections, theHerald-Tribune built an exten-sive interactive guide to flippingin Sarasota and Manatee coun-ties. Go to heraldtribune.com/flip-ping for:

LISTClick the list tab for the names

of more than 100 local peoplewho were involved in propertyflipping, the people who some-times innocently bought theirproperties and the real estate pro-fessionals — closing agents and

real estate agents, for example —involved in the transactions.

Some people on the list weremerelyspeculators hoping real es-tate prices would continue to rise.Others knew they were bendingthe rules but played the game any-way.

Hover over a name to see a per-son’s connections. Double-clickto read more details about the in-dividual’s involvement.

NETWORKClick the network tab for a so-

cial network analysis. In thisview, you can choose any name inthe database and find who theydid business with — the directconnections between people in-volved in Sarasota-area flip deals.

Hover over a dot to find a

name. Click once on the dot to re-configure the network with thatperson at the center, showing theothers who that person did busi-ness with. Double-click on an indi-vidual’s dot for more information.

CIRCLEThink of this as the “six degrees

of separation” analysis. Click thecircle tab to see how any personin the database is connected withthe others. Connections aredrawn between buyers and sell-ers of flipped properties and be-tween flippers and the real estateprofessionals they hired to com-plete transactions.

Hover over an individual’s dotto see how they are connected.Double-click on the dot for moreinformation.

Online: interactive guide to f lips

www.heraldtribune.com Monday, July 20, 2009 9A

■ The Adams network. 7A■ The title agent who closedmore than 100 Adamstransactions. 7A

ONLINE: Go toheraldtribune.com/

flipping for:■ Interactive map withdetails on each of the 50,000suspicious Florida flips.■ Guide to flipping inSarasota and Manatee.

SNN LOCAL NEWS 6:Lauren Mayk reports from aneighborhood hurt by flips.

LAST SUNDAY: AHerald-Tribune invest-igation of real estate flippingfraud finds $10 billion insuspicious Florida deals.YESTERDAY: More than30 groups of flippersoperated locally.

TOMORROW: Lawenforcement ignored flipfraud as it happened — andmay not punish it now.

THURSDAY: Who madeflipping fraud possible?Bankers.

SUNDAY: Changes areneeded to prevent a rash ofnew mortgage fraud.

BUSINESSSEEKING MISSING PAIRU.S. Marshals are now lookingfor a Sarasota couple accused ofrunning an investment scam. 5C

HERALDTRIBUNE.COMWHO IS A FLIPPER?Have you ever flipped a

property? Participate in anonline poll on our Web site.

INSIDE


ven before the real estate boom made selling houses easy, Craig Adams made it lookthat way.

The Sarasota real estate agent had an uncanny ability to get houses sold and to driveup prices.

By the time the real estate boom peaked in 2005, Adams was something of a local legend.Sarasota’s ultimate dealmaker.But the swagger and the fancy cars and the millions in property he bought and sold were not

just the result of extraordinary skill as a salesman.A Herald-Tribune investigation into scores of property deals orchestrated by Adams places

him at the center of the largest and most financially damaging group of property flippers to op-erate in Sarasota during the recent real estate boom.

As part of the Herald-Tribune’s year-long investigation into property flipping fraud, thenewspaper interviewed Adams’ former business partners and analyzed land deeds, mortgagedocuments and other records related to his real estate deals. The investigation found that formore than a decade, Adams used a network of professional associates and a stable of regularbuyers to control every aspect of his real estate flips.

Instead of selling properties to outside buyers, he created a real estate market where his hand-picked buyers and sellers could set the price they wanted, and repeated flips made Adams hun-dreds of thousands of dollars in real estate sales commissions.

In some cases, Adams and his associates bought a house, marked up the price and quicklysold it to another associate for more than it was worth. Using the inflated sale price, they quali-fied for a mortgage that more than covered the actual purchase, then divided the remaining

See FLIPPING on 6A

THEKING OF THESARASOTA FLIP

EINSIDE

LOCALDISTRICT LIKELY TO PAYAcquittal on charges she abusedstudents means teacher will nothave to pay legal bills. 1B

Classified ....... 10CComics ............ 8DLottery ............. 2AMovie Log ........ 5B

Obituaries ........ 4BOpinion ............ 8APeople ............. 5BSports .............. 1C

Sarasota real estate agent Craig Adams in front of a luxury home he was building on Bird Key in 2005. HERALD-TRIBUNE ARCHIVE / 2005 / ROD MILLINGTON

A HERALD-TRIBUNE INVESTIGATION: WITH MORE THAN 100 DEALS, REAL ESTATE AGENT

CRAIG ADAMS WAS SARASOTA’S MOST PROLIFIC PROPERTY FLIPPER. NOW HE AND HIS

ASSOCIATES HAVE $100 MILLION IN DEFAULTS.

By MATT RICHTELThe New York Times

In 2003, researchers at a feder-al agency proposed a long-termof study of 10,000 drivers to as-sess the safety risk posed by cellphone use behind the wheel.

They sought the study basedon evidence that such multitask-ing was a serious and growingthreat on America’s roadways.

But the agency, the NationalHighway Traffic Safety Adminis-tration, did not commission sucha study — in part, officials say,be-cause of concerns about anger-ing Congress. And seniorgovern-ment officials decided not tomake public hundreds of pagesof the NHTSA’s research thathad led to the recommendation,as well as other draft policies tocurtail the use of phones by driv-

ers.Today, the full body of re-

search is being made public forthe first time by two consumeradvocacy groups, which filed aFreedom of Information Act law-suit for the documents. The Cen-ter for Auto Safety and Public Cit-izen provided a copy to TheNew York Times.

In interviews, the officialswho withheld the research of-fered their fullest explanation todate. Dr. Jeffrey Runge, theformer head of the NationalHighway Traffic Safety Adminis-tration, said hewas urgedto with-hold the research to avoid anger-ing members of Congress whohad warned the agency to stickto its mission of gathering safetydata but not to lobby states.

See DRIVER on 10A

Driving safety datakept from the public


By TODD [email protected]

SARASOTA — Police ChiefPeter Abbott apologized to thecity at a press conference onMonday for a series of “mis-steps” in the handling of an ex-cessive force case against oneof his officers.

The problems started imme-diately, with a lieutenant whosaw video of the officer kickinga handcuffed suspect at the jailbut did not report it to his boss-es for 11 days.

And as the investigation gotrolling, the problems multi-plied, Abbott acknowledged onMonday. He cited his own “mo-ronic decision” to have the leaddetective negotiate a $400 set-tlement with the victim andhand-deliver the check — all be-fore the investigation was over.

City Manager Bob Bartolottapromised to correct “major mis-takes” and hold employees ac-countable. Abbott promised todo better in the future.

Both Abbott and Bartolottasaid the problems with this in-vestigation are not a symptomof a deeper problem in the po-lice department and do notmean there was an attemptedcover-up.

City commissioners on Mon-day night said that assurancewas not enough, saying theywere concerned about the pub-lic perception of the police de-partment, and whether it couldhappen again.

“I’m much more concernedSee VIDEO on 10A

WATCH THE VIDEO:Go to heraldtribune.com

to view the raw footage of an officerkicking a handcuffed man.

By DON LEELos Angeles Times

WASHINGTON — In Febru-ary, when Congress approvedPresident Barack Obama’s plan

to stimulate the economy,transportation projects weresupposed to be among thefastest-acting pieces of the

$787 billion package.All 50 states moved quickly to

qualify for their share. But sincethenthe pace hasslowedconsider-ably, particularly in Florida andCalifornia, where the economiccrisis has been especially severe.

More than 3,600 of the 5,600road projects approved by the fed-eral government — including sixof the 10 largest approved projects— by July 10 had not been giventhe green light to start construc-tion.

“What we’re seeing is a signifi-cant level of bidding activity,”said AnneLloyd, chief financial of-ficer at Martin Marietta Materials,a nationwide supplier of stone, as-phalt and other construction sup-plies. “But the big thing we’re notseeing is work on the ground.”

The reasons are many. One isSee ROADS on 4A

WONDER DRUG OR SNAKE OIL?Entrepreneurs gin up a thriving market for aresveratrol supplement – being toutedas an “anti-aging miracle.”HEALTH + FITNESS

*

In videocase, anapologyby chiefINVESTIGATION: Abbottsays ‘missteps’ are notsigns of deeper problem

Some stimulus projectsare hitting roadblocks

SPORTS

IS RACEOVER?For now, Armstronghas helping role inTour de France. 1C

TUESDAY, JULY 21, 2009 ❘ 75¢ HERALDTRIBUNE.COM


cash among themselves, accord-ing to seven people familiar withthe deals.

Three of those sources spoke tothe Herald-Tribune on the condi-tion of anonymity. But four others— including Sarasota financiersGordon Hester, Stephen Witzerand Nick Melone and Sarasotareal estate agent Stephen DuToit— all confirmed the basics of howAdams and his associates operat-ed.

“They had a joke,” said Melone,who did property deals with oneof Adams’ associates. “They said:‘We’re getting low on money.Let’s go buy a property.’ ”

Adams found other ways tomaximize the amount he couldborrow from banks.

One private financier, ArtWhittmer, said Adams asked himto stop recording their privateloans. That hid outstanding debtfrom other banks lending Adamsmoney.

And public records show thatAdams sold at least five houseswithout telling the banks that heldthe mortgages, allowing him tohang on to the banks’ money formonths, and in at least two cases,years before repaying the loans.

As long as property values weregoing up, Adams looked like a realestate savant. Every property hetouched made money for him andhis investors.

“Craig became the person ev-eryone saw and the example ofwhat everyone wanted to be,”said Hester, who loaned millionsto Adams over the years andmade money until the marketcooled. “He knew the game, andonce others got the taste of suc-cess, it was easy to pull them intomore deals.”

From 1997 to 2008, Adams andhis associates completed morethan 100 real estate deals in whichthey sold each other propertiesfor ever-increasing values. In atleast half of those deals, Adamsserved as the real estate agent,records show.

Adams’ buyers would typicallyhold on to houses for a year ortwo, then sell to another associatewho got fresh loans. More than adozen times, the flips occurredmuch faster, with property valuesincreasing by tens or hundreds ofthousands of dollars within 24hours.

Adams sold properties from hisassociates to his 79-year-old moth-er. He used his 82-year-old aunt,Norma Faye Pearce, to borrowseveral million dollars in hername. On one loan, Pearce’s signa-ture appears to be forged, accord-ing to mortgage fraud expertswho reviewed the documents.The loan documents were ap-proved by a BB&T officer whosigned off on more than 20 loansto Adams’ associates.

Today the deals by Adams andhis associates have resulted innearly $100 million in mortgagedefaults.Twenty of Adams’ associ-ates have filed for bankruptcy orgone into foreclosure. Adams him-self has defaulted on more than$17 million in mortgages.

Adams has moved from Saraso-ta and is working with a Lakelandattorney to help cash-strappedborrowers avoid foreclosure byorganizing short sales. He has notbeen charged with any crime. Cit-ing pending litigation, he declined

to comment for this story.Some who participated in deals

with Adams argue they did noth-ing wrong. Real estate valueswere going up. They were sellingproperty. And banks were approv-ing their loans.

What could be wrong with that?

HOW ADAMS OPERATEDFew communities in the nation

experienced the kind of funda-mental change that re-forged Sara-sota over the past decade.

Thousands of new homes werebuilt. Downtown Sarasota wastransformedinto a vibrant destina-tion, thanks in part to more than adozen new condo towers.

The change was most dramaticalong the water.

On Sarasota’s beaches, baysand canals, developers razed half-million-dollar houses so McMan-sions could rise in their place.

In 2004 and 2005, property val-ues rose so quickly that a housebought one month could beflipped the next at a legitimateprofit, especially if it had a water-front view.

At first glance, that is exactlywhat Adams appeared to do. Heand his friends focused on water-front property and often boughtlots big enough to divide andbuild two houses.

But a closer inspection of Ad-ams’ deals shows more was goingon. Over and over, when he put to-gether a sale, Adams knew all theparties at the table.

Using deeds going back morethan a decade, the Herald-Tri-bune identified 24 people whobought or sold two or more prop-erties with Adams or his associ-ates. Together, these investorsformed a network of buyers andsellers that Adams regularlyturned to. The network includedfellow Riverview High Schoolalumni and contacts Adams madeas a young real estate agent. It alsoincluded his family.

Deed records show seven dealsin which Adams’ aunt bought orsold properties from his associ-ates.Three more involve hismoth-er and three his then-wife. Twopropertiesweresold byAdams’ as-sociates to his sister-in-law anddozens involved sales betweenbusiness partners and friends.

In all, the Herald-Tribunefound more than 100 deals inwhich properties changed handsbetween Adams’ associates. In atleast61, Adams is listedas a real es-tate agent on the transaction inthe Mid-Florida Regional Multi-ple Listing Service database,which recordsproperty sales com-pleted by its member agents. In 37of those 61 deals, Adams is listedas the real estate agent on bothsides of the sale, representing thebuyer and seller simultaneously.

Another 14 sales between Ad-ams associates involve housesthat were never listed in the MLSdatabase. That suggests the dealswerearranged without theproper-ties ever being put on the market.

Finally, the MLS review found13 transactions where no real es-tate agent is listed. In those deals,the real estate agency involved isRe/Max Properties or ParadigmGroup — the companies whereAdams worked at the time of thesales. Although Re/Max had doz-ens of other agents, Paradigm Re-alty was owned by Adams andonly a few agents worked there.

FLIPPING COVE TERRACEA Cove Terrace house on Sara-

sota Bay is a case study in how Ad-ams and his associates increasedthe values of the houses theybought and ultimately left thebank with a big loss.

Built in 1983, the four-bedroomhouse has a pool, a waterfrontview and a slip to dock a boat. Butwhen Dr. Frederick Bloom put itup for sale in 1999, it sat on themarket for months, forcing him tocut tens of thousands of dollars offhis asking price until it was listedfor $600,000.

A decade after the sale, Bloomstill remembers the man whobought the house: Craig Adams.

The deal stuck in his mind be-cause a few weeks after the sale,the house sold again for $725,000.Bloom wondered why his real es-

tate agent had not been able to sellthe house for that much.

“I was not happy,” Bloom said.What Bloom did not know was

that he never actually sold hishouse to Adams. Though Bloomsaid Adams orchestrated the deal,public records show he sold hishouse to Steven Wexler, a real es-tate broker who eventually wouldparticipate in at least nine dealswith Adams or his associates.

Just a few weeks later, Wexlersold the house for $725,000 toJohn C. Keyworth, a roofing con-tractor who bought or sold at leastfour properties with Adams andhis associates over the years.

Keyworth, who bought thehouse as an investment property,kept it for about a year. Then, inearly 2001, he sold it to Adams for$1.1 million — nearly double whatthe house had sold for a littlemore than a year before.

In August 2001, Adams sold itfor $1.475 million to Kelly West,whose husband, John, said Adamswas his real estate agent.

Onpaper, Bloom’s house had in-creased nearly 11/2 times in value inless than two years. The propertyhad changed hands three times,each time between people with arelationship to Adams.

John West, a Sarasota attorney,said there was nothing strangeabout his role in the deal.

“I bought the house. I livedthere for two years and I sold it,”he said.

In 2004, the flipping of theBloom house stopped whenCharles Scott Abel bought it for$1.95 million. Before the purchase,Abel had sold one property to Ad-ams and bought two from him.

Abel declared the house as hishomestead, which implied helived there, and he kept it for threeyears before defaulting on hismortgage.

WhenWashington Mutual fore-closed on the property in July2007, Abel owed the bank morethan $2 million for the mortgageand assorted fees. WashingtonMutual auctioned the property inSeptember 2008 for less than$910,000.

Abel did not return a messageleft with his wife seeking com-ment.

Candy Swick, Bloom’s real es-tate agent on the original 1999deal, told the Herald-Tribune thatshe had a client last year who wasinterested in buying the Cove Ter-race house out of foreclosure.

She said she reviewed proper-ty records available to licensedreal estate agents and found thatover the years only minor im-provements had been made. Shesaid she also noticed that everytime the property had been soldsince 1999, Craig Adams was list-ed as the real estate agent forboth the buyer and seller.

“I found it unusual that everytime the property was listed, Ad-amswas on both sides of the trans-action,” Swick said. “It’s very un-usual. It looked very suspicious.”

ADAMS’ ASSOCIATESIn the mid-1990s, Adams was a

little-known agent in a Century 21office on South Tamiami Trail, nodifferent from hundreds of otherscarving out a living on sales com-missions.

Starting in 1997, Adams beganorchestrating sales among his as-sociates and quickly developed areputation for deals that alwaysmade money. In 2004, Adams wasnamed one of the top 50 Re/Maxreal estate agents in the world.

He could not have done italone.

Adams relied heavily on a regu-lar group of investors to generatesales. Sometimes a property wasflipped several times among thegroup, each time generating thou-sands of dollars in sales commis-sions for Adams.

In at least 20 of Adams’ deals,properties were flipped betweenhis associates more than once,with one associate after the nextpaying more for the property.With some sales, the latest buyerin the chain overstated what he orshe actually paid, according topeople familiar with the sales.Overstatingthe price allowed buy-ers to borrow enough from banks

FLIPPING from 1A

See FLIPPING on 7A

INFLATING PRICESThroughout the boom, spec-

ulators approached sellers andasked them to report a highersale price than was actuallypaid. That allowed the buyer toget a larger mortgage and useloan proceeds to offset thedown payment. In some cases,the inflated price was enoughto give the buyer cash back atclosing.

At least once, Adams at-tempted to use the scheme in apurchase, according to LorryEible, who owns the Foxy Ladyclothing boutique on SiestaKey. Eible said Adams askedher to report an inflated saleprice on a property she boughtin 2004. She said she refused.

ASSIGNMENTInstead of asking outside

buyers to overstate the saleprice, speculators can misuse alegal process known as anassignment to accomplish thesame goal.

The speculator lines up apurchase from an unrelatedseller. Before closing on thefirst sale, he arranges to assignthe property immediately to anassociate at a higher price.Only the second deed, with thehigher price, gets placed in thepublic record and is used toapply for the mortgage.

Adams used this method atleast once, according to EarlSchlegel, who sold a house toAdams in 2006. Documents

from Schlegel’s sale show thatAdams paid $925,000 for thehouse and assigned it to anoth-er buyer. That buyer turnedout to be Adams’ aunt, NormaFaye Pearce, who paid $1.225million, deeds show.

WRONG DEED PRICEWhen real estate agents

complete a sale, they are re-quired to report the price in anonline database that licensedagents use to list their proper-ties.

With help from agents whohave access to the Mid-FloridaRegional Multiple ListingService database, the Herald-Tribune reviewed more than90 properties bought and soldby Adams and his associates.

At least 10 times, the Herald-Tribune found, sale pricesrecorded in MLS were lowerthan the sale price recorded ondeeds.

NOT REPAYING LOANSAt least five times, Adams

sold a house but did not imme-diately pay off his mortgage.Instead, he kept loan proceedsfor at least nine months beforerepaying them. In one case, henever repaid the loan.

Mortgage contracts requireborrowers to repay their loansupon sale. Lee Huszagh, execu-tive secretary treasurer of theFlorida Land Title Association,said selling a property withoutrepaying the loan is fraud.

APRIL 2006

Adams orchestratedmore than 100 flips

Craig Adams at the Pink Party, abreast cancer fundraiser in 2007CORRESPONDENT / AIMEE CHOUINARD

Craig Adams and his associates bought and sold this home on Cove Terrace in Sarasota four times — inflating the price from $600,000 to $1.95 million. STAFF PHOTO / CHIP LITHERLAND

How Craig Adams flipped houses

MAY 2006

FORGED SIGNATUREExperts say at least one of these two signatures of Norma Faye Pearce, who isCraig Adams’ 82-year old aunt, appears to have been forged. The top signatureis from a BB&T loan document dated April 2006. The bottom signature is from awarranty deed dated May 2006.

6A Tuesday, July 21, 2009 www.heraldtribune.com


Title agent closed100 Adams deals

Adams depended on real estate insiders


The instructions from the bankwere clear.

Chevy Chase would approvethe loan, but only if the proceedswere used to repay an outstand-ing mortgage on the property.

As the closing agent on thedeal, it was Sarasota title agentLisa Rotolo’s job to make sure theold loan got repaid. Instead, in2004 Rotolo partially paid off theold loan and handed her clients$100,000, accordingto a 2008 fore-closure case filed in SarasotaCounty’s circuit court.

During testimony in the case,Rotolo conceded that she directedmoney to her clients and then fileddocuments incorrectly stating theold mortgage had been repaid.

Bank officials did not realizewhat she had done until early2008, when her clients, JonathanGlucker and his wife, Heather Ka-bobel, stopped making paymentsand another lender foreclosed onthe property, claiming it had firstrights to sell the house and recoupits losses.

Knowingly filing such false doc-uments is a federal crime, punish-able by up to 15 years in prison, ac-cording to Lee Huszagh, execu-tive secretary treasurer of theFlorida Land Title Association.

Rotolo, citing client confidenti-ality, would not talk about thecourt case or the loan. GluckerandKabobel did not returnrepeat-ed phone calls seeking comment.

Rotolo is among the many realestate professionals who expertssay were in a position to help pre-

vent the rash of questionable ac-tivities that has led to billions ofdollars in bank losses during thecurrent real estate downturn.

Ann Fulmer, vice president ofbusiness relations with Inter-thinx, a leading provider of mort-gage fraud prevention tools forbanks, said as much as 80 percentof the mortgage fraud during therecent real estate boom was facili-tated by professionals. These pro-fessionals may not have been di-rectly involved in fraud, but theyignored signs that it was occur-ring, Fulmer said.

“Professionals drove it. Theydrove it and enabled it,” said Fulm-er, a nationally recognized mort-gage fraud expert and a formerGeorgia prosecutor. “All of thisfraud was aided and abetted bythe real estate professionals whowere making bigger and biggercommissions.”

In addition to misdirecting bankfunds in one transaction, Rotolowas the closing agent on deals in-volving two of Sarasota’s largestgroups of real estate flippers.

From 2002 to 2008, the 46-year-old title agent helped real estateagent Craig Adams and his associ-ates close more than 100 real es-tate transactions. About half ofthose deals involved propertiesthat were sold among a group ofregular buyers, including Adams’family members.

Last year, Rotolo was named ina suit filed by David Oriente in Sa-rasota County’s circuit court. Ori-ente alleged that Rotolo allowedAdams to take $400,000 out of anescrow fund that was supposed tobe used for buying properties. Ad-ams used the money to pay off anold debt and kept $50,000, the law-

suit states.“That’s just plain theft,” Huszagh

said in an interview. “It’s like pull-ing money out of a guy’s wallet.”

Circuit Court Judge Bob Mc-Donald awarded Oriente’s compa-ny more than $471,000 in damag-es in December 2008 after Adamsfailed to respond to the lawsuit.

Rotolo also closed deals for realestate agent Mark Riley, who orga-nized sales between his neighborsand other associates in LakewoodRanch. In those deals, a smallgroup of buyers sold condo unitsto each other, in some cases nearlydoubling the price within months.

Today, Rotolo’s company, Dia-mond Title, has closed. But Roto-lo still has her Florida license tooperate as a title agent. No one, in-cluding the bank officials suingher, has filed a complaint againsther, according to a spokeswomanfor the Department of Revenue,the state agency that oversees Ro-tolo’s profession.

Rotolo remains a committeechair for the Sarasota Associationof Realtors, a trade group that pro-motes itself as a watchdog over lo-cal real estate agents.

Douglas KanterKanter and Adams were partners in a company called Waterside

Developers. He bought from or sold to Adams’ associates at least five

times. In one deal, an Adams company bought a house for $689,000 in

August 2001 and sold it to Kanter the same day for $950,000.

Charles Scott AbelAbel was a mortgage broker who

partnered with Adams in a company called Innovative Real

Estate Concepts and was involved in at least three transactions with

Adams or his associates. Abel was the last buyer of a Sarasota house that was traded five times among Adams’ associates. The sale price

increased from $600,000 in December 1999 to $1.95

million in 2004.

STAFF GRAPHIC / JENNIFER F. A. BORRESEN

Craig AdamsThe Sarasota real estate agent built a

network of buyers and real estate professionals to help him sell dozens of properties in Sarasota County. The inside nature of his deals allowed him to inflate property values. He and his associates have defaulted on more

than $100 million in loans.

Jocelyn AdamsCraig Adams’ 79-year-old mother bought property at

least three times from Adams’ associates. She has since defaulted on more than $3 million in

mortgages.

Friends and business associatesAdams arranged dozens of property sales among his friends and close associates,

including people he knew from Riverview High School and others he met as a young real estate

agent. In many cases, Adams’ properties were not sold to outside buyers, but changed hands

several times among people he knew. Adams or his real estate agency is recorded as the

listing agent in nearly every sale.

Scott SchuhriemenSchuhriemen went to Riverview High School with one of Adams’ associates, Rich Bobka. As a loan

officer with BB&T, Schuhriemen arranged more than 20 second mortgages

for Adams and his associates. When contacted by the Herald-Tribune about

the mortgages, Schuhriemen said: “Those guys cost me my job.” He

declined further comment.

The Adams networkA Herald-Tribune analysis of nearly 200 property deals involving Sarasota real estate agent Craig Adams uncovered a pattern of repeated sales among the same people.

Jonathan GluckerGlucker is a Sarasota mortgage

broker who shared mutual friends with Adams. Glucker and his wife

were involved in at least eight transactions with Adams and his

associates. Sources say he also helped Adams

get some loans through his mortgage brokerage.

Lisa RotoloRotolo became Adams’ go-to

closing agent during the boom. Deed records show she closed more than

100 real estate transactions for Adams and his associates. Half of those deals involved properties purchased and then

sold to a group of regular buyers, including Adams’ family members.

Holly AdamsCraig Adams’ ex-wife appears as a buyer or seller on at least three properties that changed hands among other Adams

associates. She also bought a number of properties jointly with Adams when they were married. Today, Holly Adams has filed for bankruptcy, listing $22.4 million

in debts. Norma Faye PearceAdams’ 82-year-old aunt

appears as the buyer or seller in at least seven transactions

that also involved other Adams associates. Pearce, who said she was unfamiliar with the

transactions, has defaulted on one loan worth $884,000.

Family Adams bought and sold properties in his family members’ names. Properties would change hands between Adams’ associates and his family members at

increasing prices, in some cases allowing the buyer to borrow more than the original

purchase price.

Real estate professionals

Adams developed close ties to mortgage brokers, bankers and closing agents who helped him complete his real estate deals.

SOURCES: Sarasota and Manatee Clerk of Court records, Herald-Tribune interviews

MORE ONLINE: The Herald-Tribune identified more than 100 people who were involved in local

property flips, including many who bought and sold houses with Craig Adams. To read about them and see how they are connected, go to heraldtribune.com/flipping.

to walk away from the purchasewith cash in their pockets.

Using only public records, it isimpossible to determine howmany of Adams’ sales involved in-flated prices and which of Adams’regular investors agreed to over-state what was actually paid for aproperty.

What is clear is that most of theinvestors made money, at least un-til the real estate market cooled.Then, Adams’ repeat buyers be-gan defaulting on their mortgages.

The Herald-Tribune repeated-ly attempted to contact those whobought from or sold properties toAdams. Many did not returnphone calls. Most who did wouldonly agree to speak if they werenot quoted, because they did notwant to be blamed for gettingfriends and business associates introuble.

Several people who participat-ed in Adams’ deals told theHerald-Tribune that Adams kept key in-formation secret. They said Ad-ams would approach them withan investment opportunity that hepromised would make them mon-ey. He set the prices and ex-plained why the property wouldbe worth more in a short period.All they had to do was sign the pa-perwork, they said.

What Adams did not share, ac-cording to several of the buyers,was that he or another associatehad already bought the property,marked up the price and wouldprofit from the sale to them.

By 2008, Adams and his regularbuyers had bought and sold morethan $100 million in real estate.

The buyers included:■ Jonathan Glucker, a mort-

gage broker who once worked atCTX Mortgage and won multipleawards from the Mortgage Bank-ers Association of Florida. Gluck-er socialized with Adams andhelped him get financing on somereal estate deals, according to Hes-ter, the Siesta Key financier whoprovided dozens of loans to Ad-ams and his associates over theyears. Deed records show thatGlucker bought and sold at leastsix properties with Adams or hisassociates. Glucker did not returnseveral calls seeking comment.

■ Heather Kabobel, Glucker’swife and a real estate appraiser.Kabobel was involved in twotransactions with Adams. She alsoprovided the appraisal for at leastone mortgage for Adams, accord-ing to Hester. Kabobel did not re-turn calls seeking comment.

■ Steven Wexler, a fixture onthe Sarasota real estate scene formore than two decades. Wexlerstarted Waterside Property Salesand built it into a 65-person firmspecializing in Longboat Key be-fore selling the company in 1998.

Deed records show he partici-pated in at least nine deals withAdams and his associates. Wexlerwould not comment.

■ Rich Bobka, a real estateagent who worked with Adams atRe/Max and Paradigm Group. Hewas involved in five deals with Ad-ams or his associates and went onto flip properties with his ownbuyers, including his brother andhis sister-in-law. Bobka and hisfamily members eventually de-faulted on more than 20 loans.

Bobka told the Herald-Tribunethat if laws or rules were brokenin any of his deals, it was donewithout his knowledge.

■ Douglas Kanter, a real estateinvestor and home builder whoowned a company with Adamscalled Waterside Developers.Kanter also did five real estatedeals with Adams associates. Inone of them, Bungalow Beach-side, an Adams company, boughta property near Sarasota Bay for$689,000 in August 2000. Thecompany sold it on the same day

to Kanter for$950,000, en-abling Kanter toget $863,000 inloans. Kanter could not bereached for comment.

THE FACILITATORSBy recruiting his own buyers in-

stead of selling properties on theopen market, Adams was able tocontrol the prices.

But to complete the deals, heneeded help from real estate andlending professionals.

Adams found real estate attor-neys, mortgage brokers and bankemployees whom he returned totime and again to secure loans orclose deals.

By using mortgage brokers whowere close associates, Adams wasable to pick and choose the ap-praisers who reviewed his deals.Before banks write a mortgage,they hire professional appraisersto determine if the properties areactually worth what the buyerwants to borrow. If a mortgagebroker is used, the broker oftenhires the appraiser and presentsthe results to the bank.

Severalpeople familiarwith Ad-ams’ deals, including Hester, theprivate lender, said Adams had go-toappraisers to review his transac-tions. Hester also said Adams hadgo-to mortgage brokers andGlucker was one of them. But itisn’t known how many loansGlucker may have helped Adamsand his associates get becausemortgage brokers, who help buy-

ers se-cure loansfrom a bank,are not namedin public records.

Appraisers also are not namedin public records, but otherreal es-tate professionals are. Real estatefilingsshowthat Adams andhis as-sociates used the same attorneysand title agents to close many oftheir deals.

Among them, no one handledmore sales than title agent Lisa Ro-tolo.

Rotolo, who for years ran Dia-mond Title in Sarasota, met Ad-ams through business connec-tions, according to her ex-hus-band,Paul Dezzi. After 2002, Roto-lo closed more than 50 sales be-tween Adams’ associates, many ofwhom bought and sold multipleproperties among themselves.

Rotolo, who is now vice presi-dent of DeSoto Title, would notcomment.

“Settlement agents are justabout the last line of defense,”said Ann Fulmer, a former Geor-gia prosecutor, nationally recog-nized mortgage fraud expert andan executive with Interthinx,which provides banks with fraudprevention tools. “They are the

ones that disburse thefunds, and they are atthe table and can pick

up on clues that the par-ties are not who they

seem to be or the transac-tion is not what it seems to

be.”Before Adams began using Ro-

tolo as his closing agent, he andhis associates closed at least 30deals using Sarasota attorneyStephen Voigt Sr.

At therequest of theHerald-Tri-bune, Voigt and his law firm re-viewed 11 deals in which they rep-resented Adams or his associates.

Thedetailsof each sale were dif-ferent, but most involved a seriesof sales between associates. Insome cases, Adams or his associ-ates bought a house that ended upbeing sold two or three additionaltimes to people who bought otherproperties from him.

Stephen Voigt Jr., speaking onbehalf of his father, said nothingabout the transactions was suspi-cious. He suggested that rapidprice increases might have oc-curred when lots were subdividedso two houses could be built.

Voigt Jr. said he and his fatherwerenot aware ofsome of therela-tionships between Adams and hisbuyers when they closed deals, in-cluding one between Adams andhis aunt, Norma Faye Pearce.

In each case, Voigt Jr. said,he could only guess why Ad-

ams’ associates were willing tobuy properties from each otherfor hundreds of thousands of dol-lars more in a matter of weeks ormonths.

“As for why Pearce was able toresell the unit for $100,000 morethan she paid for it two months af-ter she closed, I don’t know,” Voi-gt Jr. wrote in an e-mail. “One pos-sibility is that the unit had in-creased dramatically in valuesince the original contract date tothe closing date.”

Voigt Jr. also said there mayhave been good reasons for same-day sales by Adams associates.

“It is unusual for a property tobe sold twice on the same day, butit does happen and it is certainlylegal,” Voigt Jr. said.

Public records show that theVoigts’ law firm stopped closingdeals for Adams and his associ-ates in 2003. Citing client confi-dentiality, the Voigts would notsay why.

Several others, including Hes-ter, told the Herald-Tribune thatthey eventually stopped doingbusiness with Adams because ofthe unusual nature of his deals.

“In the end, I knew Craig wasgoing to have problems,” Hestersaid. “He played too many gamesand burned too many bridges.Truth is, people like Craig neverearned the money they borrowed.But in their minds, a dollar bor-rowed was a dollar earned.”

FLIPPING from 6A

Lisa Rotolo

www.heraldtribune.com Tuesday, July 21, 2009 7A

INSIDE

■ Excerpts from the 2005 FDLEreport warning that an epidemicof housing fraud loomed. 7A

ONLINE: Atheraldtribune.com/

flipping:■ FDLE’s full 2005 reportwarning about housing fraud.■ Who’s who guide to flipping inSarasota and Manatee counties.■ Find flips in your neighbor-hood or dig into any of the50,000 suspicious Florida flips.■ Previous stories in the series.

SNN LOCAL NEWS 6:Starting tonight at 5, an IRSinvestigator tells Lauren Maykhow fraud is prosecuted.

LAST SUNDAY: A Herald-Tribune investigation of flippingfraud finds $10 billion insuspicious Florida deals.MONDAY: More than 30groups of flippers operated inSarasota and Manatee counties.YESTERDAY: One Sarasotareal estate agent orchestratedmore than 100 flips.

TOMORROW: Who madeflipping fraud possible? Bankers.

SUNDAY: How to preventmortgage fraud.

HERALDTRIBUNE.COM/REGISTERBREAKING NEWS ALERTSSign up to receive local SMS

breaking news alerts on yourcell phone.

FLIPPING FRAUDIGNORED BY POLICEAND PROSECUTORS

Your Herald-Tribune guide to dining and entertaining | www.heraldtribune.com/food | Wednesday, July 22, 2009

GRAPES

MAY GO

PAGE 8UNSOLD

THE

CKBROADWAY

BAR

LOCALA BUZZ FROM THE PASTToday’s mosquito onslaughtpales whencomparedwith howthings usedto be. 1B


By DAVID LEONHARDTThe New York Times

WASHINGTON — What’s init for me? On the subject ofhealth care reform, most Ameri-cans probably do not have agood answer to the question.And that, obviously, is a problemfor the White House and forDemocratic leaders in Congress.

Current bills would expandthe number of insured — but 90percent ofvoters already have in-surance. Congressional leaderssay the bills would cut costs. Butexperts are dubious. Instead,they point out that covering the

uninsured would cost billions.So the typical person watching

from afar is left to wonder: Whatwill this project mean for me, be-sides possibly higher taxes?

Our health care system is engi-neered, deliberately or not, to re-sist change. The people who payfor it — you and I — often do notrealize that they are paying for it.Money comes out of our pay-checks, in withheld taxes and in-surance premiums, before weever see it. It then flows to doc-tors, hospitals and drugmakerswithout our realizing that it wasour money to begin with.

The doctors, hospitals anddrugmakers use the money totreat us, and we of course do seethose treatments. If anything, wewant more of them.They are sup-

See LEONHARDT on 2A

MILITARY

THE F-22BUDGET WAR

Supporters of the Air Forcefighter jet lose a major spending

battle in the Senate. 3A


essica Leis, the widow of a hero cop who died after saving lives in the line of duty,thought she had been duped in a property flipping scheme.

She figured the Sarasota County Sheriff’s Office would help her.She was wrong.Her call in 2006 was answered by a deputy who told her the Sheriff’s Office had

no one to investigate that kind of crime.So Leis contacted the Attorney General, the District 12 State Attorney and the state agen-

cy that regulates real estate agents. Each sent her elsewhere.At the Department of Business and Professional Regulation, which oversees mortgage

brokers, Leis said a woman threatened to include her as a co-conspirator in the scheme shewas trying to report.

“I was in shock from the scam and I felt just so despondent and hopeless,” Leis said.“When I was calling these agencies and they were saying, ‘We don’t have a department forthat,’ I felt like a bad situation had just gotten worse.”

A yearlong Herald-Tribune investigation into housing fraud found that law enforcementat every level often failed to act even when obvious cases of fraud came to their attention.

Their inaction allowed mortgage fraud to continue virtually unchecked during the real es-tate boom. Phony deals skewed property values and victimized home buyers. Year afteryear, a national mortgage research institute ranked Florida one of the worst states for fraud.

The Herald-Tribune investigation found that mortgage fraud ran rampant all over Flori-da. The newspaper looked for just one kind of fraud — illegal property flipping — and found

See FRAUD on 7ASNN LOCAL NEWS 6FEAR OF FALLINGFind out why seniors are moresusceptible to falls, and get tipson how to prevent accidents.

A HERALD-TRIBUNE INVESTIGATION: IT IS THE DIRTY SECRET OF ILLEGAL REAL ESTATE

FLIPPING — FRAUD PAYS. THE FBI HAS TOO MANY CASES TO CHASE, AND STATE AND

LOCAL LAW ENFORCEMENT DO LITTLE TO PROSECUTE UNSCRUPULOUS FLIPPERS.


SARASOTA — Almost ayear before the city offered$400 to Juan G. Perez to avoid a

lawsuit over a police officer us-ing excessive force, the city paidout another small settlement for

the same reason to a man sitting injail.

Records show the city offered$800 to a man last August to signan agreement waiving his right tosue an officer who punched himduring an arrest.

The waiver, signed by Ab-delkhalak Serroukh, is worded ex-actly the same as the one Perezsigned after a police officer kickedhim while in the jail sallyport June26.

The city has never used itsfunds to settle police liability cas-es as quickly — or as cheaply — asit did for Perez and Serroukh, a re-view of the police liability fundfor the past three years shows.

The fact that both of the peoplewho have signed the waivers areimmigrants — Perez from Guate-

See WAIVER on 6A

ANALYSIS: While mostwant more coverage for theuninsured, worry lingers

HOW TO FIND DINING-OUT DEALSRestaurants add a dash of creative marketing in tougheconomic times. But the key to cashing in onthe deals is, as always, in the details.FOOD & WINE

JSCIENCEJUPITER’S BIG BRUISESomething smacked into theplanet recently, leaving a scarthe size of the Pacific Ocean. 3A

Classified ....... 10CComics ............ 8CLottery ............. 2AMovie Log ........ 7B

Obituaries ........ 5BOpinion ............ 8APeople ............. 7BSports .............. 1C

Jessica Leis, who believed she had been duped in a property flipping scheme. contacted the Sarasota County Sheriff’s Office in 2006. But she found itdifficult to generate interest in her complaint. STAFF PHOTO / E. SKYLAR LITHERLAND

By ROGER DROUINand DOUG [email protected]

SARASOTA — It seemed im-possible a few months ago, butthe county and the BaltimoreOrioles now have a deal thatwould bring the team to Saraso-ta by spring 2010, and team offi-cials will be on hand for two fi-nal votes today.

Given the county’s historywith baseball deals going bad,officials were not quite ready topop the champagne corks onTuesday.

But the basics of the deal areall worked out, after 10 monthsof on-again, off-again negotia-tions. A 35-page agreement callsfor a $31.2 million renovation ofEd Smith Stadium, and the cityhanding the property over tothe county.

The Orioles kept mum Tues-day, refusing to discuss any partof the deal. Spokesman GregBader said the team “will re-frain from commenting on thematter until after the votes takeplace.”

If the agreement is finalizedtoday, the county and the Ori-oles will have 150 days to reachan agreement for redevelopingEd Smith.

Theteam would use the stadi-um as-is in 2010, with construc-tion beginning sometime afterspring ball ends.

The stadium would be ex-panded from 7,500 seats to9,000, including a new partydeck and clubhouse, and wouldresemble a larger version of therebuilt stadium in Charlotte

See ORIOLES on 6A

Oriolesdeal issaid tobe closeSPRING TRAINING: Votestoday may end long effortto bring baseball back

INSIDE: Take a look at thechanges that may be in store for EdSmith Stadium. Page 6A■ Things you should know aboutthe Baltimore Orioles. Sports 1C

*

City’s small bid to endcase was not the first

What’s in this health plan,for the U.S. — and for us?

INSIDE

WEDNESDAY, JULY 22, 2009 ❘ 75¢ HERALDTRIBUNE.COM


$10 billion in suspicious deals thisdecade.

Lawmakers passed a law in2007 making mortgage fraud acrime in Florida for the first time,and state officials created mort-gage task forces and opened a hotline to gather complaints.

But even now, two years into arecession brought on by real es-tate speculation and fraud, stateand local law enforcement is do-ing almost nothing to prosecutepast fraud or prevent future fraud.

The Herald-Tribune found:■ In 2005, the Florida Depart-

ment of Law Enforcement issueda report to law enforcement offi-cials and prosecutors warning of acataclysmic rise in mortgagefraud. Even so, most law enforce-ment agencies, including those inManatee and Sarasota counties, ig-nored FDLE’s most basic recom-mendations.

■ While the FBIhas recentlyde-voted more manpower to mort-gage fraud, most local law enforce-mentagencies have not. Most Flor-ida police departments and sher-iff’soffices have no detectivesded-icated to mortgage fraud. Manydo not even have detectivestrained to pursue such cases.Meanwhile, the FBI is pursuingabout 2,500 mortgage fraud casesnationwide, a tiny fraction of thefraud that was committed.

■ In some counties, victims ofreal estate fraud schemes were re-buffed when they sought helpfrom local law enforcement. Atthe Sarasota County Sheriff’s Of-fice, a half-dozen people said theytried to report fraud but deputieswould not even write up an inci-dent report. In at least one case,multiple victims reported a fraudto multiple agencies, includingthe Sarasota County Sheriff. Noone investigated.

■ Until recently, no one at thestate level coordinated the re-sponse of the various agenciesthat regulate mortgage fraud andthe real estate industry. Com-plaints to one agency were notnecessarily shared with otheragencies that could have investi-gated or might have received com-plaints about the same schemes.

■ Florida Attorney General BillMcCollum made no attempt to co-ordinate mortgage fraud responseamong local law enforcement un-til April, a few days after the Her-ald-Tribune called McCollum toget his reaction to the newspa-per’s findings. That month, McCo-llum held his first mortgage fraudconference call with representa-tives from local law enforcementand state regulatory agencies. Hecalled the mortgage fraud crisis a“state of emergency” and saidthere needed to be better coordi-nation among agencies.

■ For years, McCollum’s officehad been collecting complaintsand referring cases to local law en-forcement agencies — police de-partments and sheriff’s officeswhose detectives had no trainingto go after mortgage fraud.

Many law enforcement officialsinterviewed by the Herald-Tri-bune said they lack the resourcesto aggressively pursue mortgagefraud. Such cases can take a yearor more to build and often requirespecially trained detectives.

Bill Black, a white-collar crimeexpert and economics professorat the University of Missouri, saidthere needs to be a “fundamentalrethinking” in law enforcement.

“You get no deterrence and it’sfree money,” said Black, whohelped the World Bank developanti-corruption initiatives. “Thesethings caused far more losses thanblue-collar property crimes.”

IGNORING A WARNINGIn November 2005, when the

real estate market in Florida hadjust begun to slow, the state’s toplaw enforcement agency issued awarning that mortgage fraud wasabout to wreak financial havoc.

In sober language, a 36-pageFlorida Department of Law En-forcement report explained thatbanks would collapse and losseswould be counted in “hundreds ofbillions of dollars.”

The level of fraud would rivalthe Enron case and the Savingsand Loan collapse of the 1980s, theintelligence report warned.

The report, which was not re-leased to the public but was sentto prosecutors and law enforce-ment officials across the state, laidout a series of responses to helpprevent or lessen the disaster.

But instead of heeding the warn-ing, most law enforcement offi-cials — including Earl Moreland,the elected state attorney for Sara-sota and Manatee counties, andBill Balkwill, Sarasota County’ssheriff at the time — did nothing.

Even the most basic recommen-dation in the FDLE assessment —posting a notice at the countycourthouse warning that mort-gage fraud is a criminal offense —was ignored in Sarasota County.

Today, as the FDLE assessment

warned, the scope of fraud hasoverwhelmed state and federallaw enforcement agencies to thepoint that only the most egregiouscases are likely to be prosecuted.

In addition to the FBI’s 2,500cases, state agencies, includingthe Attorney General and FDLE,have pursued a few hundred moredating back to 2000.

But the amount of fraud dwarfsthe number of cases being pur-sued, the Herald-Tribune found.The Herald-Tribune analyzednearly 19 million property transac-tions looking for one type of hous-ing fraud — illegal property flip-ping. The newspaper found morethan 50,000 transactions in whichprices increased so much, soquickly, that fraud experts inter-viewed by the newspaper deemedthem highly suspicious.

Former U.S. Attorney AlexAcosta, who led South Florida’sMortgage Fraud Task Force untilearlier this year, said only a frac-tion of fraudulent flippers havebeen prosecuted.

“Our approach here is we’re fo-cusing on the worst of the worst,”Acosta said in an October inter-view.

POLICE WON’T HELPWhile the FBI and several mort-

gage fraud task forces across Flori-da struggle to keep up with theircaseloads, local law enforcementagencies have largely avoided tak-ing on the complicated cases.

In Sarasota County, a half-doz-en people interviewed by the Her-ald-Tribune said they attemptedto report mortgage fraud scams tothe Sheriff’s Office. In each case,the victims said, they were told

the Sheriff’s Office could not helpand they left without even an inci-dent report being taken.

Sarasota resident Gary Mos-seau said he contacted the Saraso-ta County Sheriff’s Office to re-port that he and others were vic-tims in a multimillion-dollar mort-gage embezzlement scheme in-volving Bradenton’s Coast Bank.As with the Leis case, a deputy re-ferred Mosseau to Florida’s Divi-sion of Financial Regulation anddid not file a report.

Mosseau said he was ready toprovide the names of principalsand a detailed chronology ofevents. He was disappointed tofind such a lack of interest in whathe considered a major white-col-lar crime case.

“What I wanted everyone toknow is that I had been robbed,”he said. “In the end, it was proba-bly 165K that disappeared frommy construction loan.”

Sarasota Sheriff Lt. Paul Rich-ard acknowledged that detectivesshould have documented themortgage fraud complaints.

“Anyperson who feels like a vic-tim, we should document it,” Rich-ard said. “It could be a breakdownin communication. Under thosecircumstances, we should havetaken a report.”

Sheriff Tom Knight, who waselected last November and tookoffice after Balkwill retired in Jan-uary, said he has instructed offic-ers that they should never tell any-one the Sheriff’s Office is unableto handle their complaint. Theyshould at least take a report,Knight said.

But taking a report does notmean the Sheriff’s Office will in-

vestigate. Richard and Col. SteveBurns said it is unrealistic to ex-pect local law enforcement agen-cies to go after flipping fraud.

Richard said he had not readthe FDLE assessment and said it ispossible that no one at the Sher-iff’s Office read it. Burns addedthat while it might be easy to iden-tify fraudulent real estate deals, itcan take years to build a case, andthe office simply does not havethe money or manpower.

“I’d like to go aggressively aftera lot of things, but we just don’thave the budget,” Burns said.

NO TRAINING, NO STAFFMost Florida law enforcement

agencies have the same lack of ex-pertise.The Herald-Tribune inter-viewed officials from more than adozen Florida sheriff’s offices andfound that none had detectivesspecializing in mortgage fraud.

During McCollum’s April meet-ing, Amy Mercer, the executive di-rector of the Florida Police ChiefsAssociation, said that most oftheir agencies do not have thetime or resources to investigatemortgage fraud.

Mercer added that she doubtedmost officers would even recog-nize such a case for what it was if acitizen complained.

Even agencies with detectivesdevoted to white-collar crimes —such as the Manatee County Sher-iff’s Office — reported they hadnot pursued a mortgage fraudscheme more complicated thanforgery. However, Manatee Coun-ty Sheriff’s detectives took on theLeis case in April with help fromfederal agencies.

The biggest problem, expertssay, is lack of training and staff.Some police agencies say theycould expand fraud efforts butonly if other crimes were to go un-punished.

Even if detectives build a case,it might end with the state attor-ney, whose prosecutors are rarelytrained to pursue complicatedwhite-collar crime.

The lack of training is not limit-ed to Florida, said Ann Fulmer, aformerGeorgia prosecutor and na-tionally recognized mortgagefraud expert. “There’s no one inthe prosecutor’s office who canprosecute these cases,” Fulmersaid. “Why should a cop make theeffort even if he has the interest?What’s the incentive for the copto do it if the prosecutor is not go-ing to touch it?”

In Southwest Florida, victims of

various mortgage fraud schemeshave filed complaints with the At-torney General. More than a doz-en of those complaints were for-warded to State Attorney More-land, whose district includes Sara-sota and Manatee counties.

Moreland did not pursue any ofthem or even meet with local sher-iff’s office officials to press for aninvestigation, Assistant State At-torney Dennis Nales conceded.He added that the office can onlydeal with the cases sent by law en-forcement agencies.

Nales said it would not be ap-propriate for his office to suggesta shift in resources by sheriff’s of-fices and police departments.

COUNTIES THAT TRYMany experts, including Fulm-

er, say more prosecution is onlypart of the solution. Far more im-portant, she said, is fraud preven-tion. Even so, some local agencieshave attemptedto prosecute mort-gage fraud in their communities.

The Hillsborough County Sher-iff’s Office has a representative ona local mortgage fraud task forcerun by the U.S. Attorney’s Office.Palm Beach County’s financialcrimes unit pursues its own realestate fraud cases and works withthe FBI on others.

Florida’s most aggressive locallaw enforcement agency is the Mi-ami-Dade Police Department,which created its own mortgagefraud task force in 2007. The de-partment assigned about 20 offic-ers to the task force, which hasnow made more than 100 arrests.

The task force includes officersfamiliar with real estate, includingSgt. Richard Davis, who said he isalso a licensed Realtor and mort-gage broker.

Davis said members of the taskforce receive specialized training.

“Mortgage fraud is so complex,and there are so many scams,”Davis said. “A lot of the fraud is go-ing to be the insiders. They’re go-ing to manipulate the system.”

U.S.Rep. Kendrick Meek, D-Mi-ami, has advocated for a nationalmortgage fraud task force andsaid he believes local agenciesacross Florida should take thesame approach.

“A sustained and coordinatedlaw enforcement effort goes along way in solving this problem,”Meeks said in a statement to theHerald-Tribune. “The Miami-Dade model of combating mort-gage fraud needs to be exportedthroughout Florida.”

FRAUD from 1A

In a November 2005 report distributed to Florida law enforcement agencies and prosecutors — but not the public — the Florida Department of Law Enforcement’s Office of Strategic Intelligence warned bluntly that failing to curb mortgage fraud would be disastrous. Below are excerpts from the report. Find the full report online at heraldtribune.com/flipping.

FDLE’s 2005 warning about mortgage fraud

Flip fraud ignored by law enforcement

Gary Mosseau, who tried to file a complaint about alleged financialmisdeeds with the Sarasota Sheriff’s Office. STAFF PHOTO / E. SKYLAR LITHERLAND

www.heraldtribune.com Wednesday, July 22, 2009 7A

INSIDE

■ During the boom, loans defiedcommon sense. 7A■ Bad appraisals fed flippingfraud, experts say. 7A■ A guide to flipping loans atthe 18 local banks. 6A

ONLINE: Go toheraldtribune.com/

flipping for:■ Who’s who in flipping inSarasota and Manatee.■ Find flips in your neighbor-hood or dig into any of the50,000 suspicious Florida flips.■ Previous stories in the series.■ Lauren Mayk’s three-partseries on SNN Local News 6.

LAST SUNDAY: A Herald-Tribune investigation of flippingfraud finds $10 billion insuspicious Florida deals.MONDAY: More than 30groups of flippers operated inSarasota and Manatee counties.TUESDAY: One Sarasota realestate agent orchestrated morethan 100 flips.YESTERDAY: Police andprosecutors ignored flippingfraud as it happened — and maynot punish it now.



LOCALGRISLY CRIMEA Sarasota man is murderedand his mutilated body is setablaze. 1B

HERALDTRIBUNE.COM/TICKETBEST BETSGet a jump on your

weekend entertainmentplanning by checking out Ticket.

BASEBALL: Officials votein favor of deal to haveOrioles train right here

By ROGER DROUINand DOUG SWORDStaff Writers

SARASOTA — After threeyears of failed deal brokeringwith three teams, local officialssaved spring training onWednesday.

Just when even the slightestpossibility of a baseball dealseemed unlikely, county offi-cials reached an agreementwith the Baltimore Oriolesclearing the way for a 30-yearcontract with the team and a $31million renovation of Ed SmithStadium.

Sarasota lost two teams, theReds and Red Sox, because ofmoney. It got the third team forthe same reason — the cost wasright.

Both the cityand county com-missions approved a deal. Nowthe team and local officials have150 days to reach a final agree-ment. The team is scheduled tostart training in Sarasota nextspring in the stadium as-is.

In an interview, Orioles attor-ney Alan Rifkin said he hopedthe high level of detail in the35-page agreement would con-vince everyone that the dealwas basically done and that theterms of the lease and theproject agreement are alreadyworked out.

“For all intents and purposesSee ORIOLES on 12A

Baltimore,say helloto sunnySarasota


raudulent property flippers had an unlikely accomplice during the real estateboom — the lending industry.

A yearlong Herald-Tribune investigation into thousands of suspicious Floridaflip deals found that lenders of all kinds approved risky deals and ignored obviousred flags for mortgage fraud.

In 2006 and 2007, several banks and mortgage firms loaned $2.5 million to a Sarasotaproperty flipper despite a revoked real estate license and two bankruptcies on his record.

When a Sarasota home builder was unable to sell his newly built houses, mortgagecompanies lent him and his family nearly $2 million so they could purchase fourthemselves. Three of those properties are now bank-owned.

Washington Mutual loaned a Sarasota resident $2 million three months after it hadforeclosed on a previous $2 million loan. The new loan went into default less than a yearlater, about the same time WaMu’s crush of bad loans put it out of business.

The Herald-Tribune’s review of nearly 19 million Florida property sales from 2000through 2008, along with a closer inspection of more than 3,000 suspicious flip deals,showed that:

■ Banks and mortgage companies approved loans on tens of thousands of propertiesthat changed hands at least twice in 90 days and increased at least 30 percent in value.Industry experts and mortgage fraud investigators say such quick price increases shouldhave been an automatic sign of fraud for any banker.

■ Lenders approved loans even when applications exhibited additional signs of fraud.Hundreds of loans were written after properties had been sold at large price increases

See FLIPPING on 6A

BUSINESSGYROCAM BEING SOLDThe Manatee County companyis joining one of the largestdefense contractors. 5C

NATIONVACCINE TESTINGMedical centers areset to begin a seriesof studies on anew swine fluvaccine. 8A

SNN LOCAL NEWS 6ONLINETo see the latest news andfeatures by SNN, visitHeraldTribune.com/snn.

LENDERS FAILEDTO HEED RED FLAGS

By TONI [email protected]

In another sign of stress on theSouthwest Florida economy, gi-ant retailer Dillard’s is closing twoof its four stores in the region.

The anchors at Westfield Sara-sota Square and DeSoto Square

Mall in Bradenton are two ofthe five store closings that

the Little Rock,Ark.-based retailerplans nationally in2009.

The company confirmed onWednesday that the Westfield Sa-rasota Square is closing, but a cor-porate spokeswoman would notconfirm the shuttering of theBradenton site.

Sales associates, however, saidthey were told that the DeSotoSquare Dillard’s would close be-fore the end of the year. Many oftheir co-workers have alreadybeen transferred to other stores.

Consumers have cut theirSee DILLARDS on 4A

2 Dillard’s stores are saidto be closing in the region

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NATION

ON HEALTHPresident Obama, ina televised newsconference, sayshis health careoverhaul planwill help familiesand the economy.3A

Crippled by bad loans, including $15.7 million related to flips, Bradenton’s First Priority Bank was shut down in 2008. STAFF PHOTO / E. SKYLAR LITHERLAND

A HERALD-TRIBUNE INVESTIGATION: REVOKED REAL ESTATE LICENSES AND MULTIPLE

BANKRUPTCIES WEREN’T ENOUGH TO STOP LENDERS FROM MAKING LOANS

*FACES OF COMEDYTraci Kanaan owns a successful merchandisingcompany in Palmetto, but she also squeezes in timefor her real passion: making people laugh.

TICKET

F

Dillard’s confirmed it will close its store at Westfield Sarasota Square. Also,sales associates at the DeSoto Square Dillard’s said they have been toldthat store will close before the end of the year. STAFF PHOTO / CHIP LITHERLAND

INSIDE

THURSDAY, JULY 23, 2009 ❘ 75¢ HERALDTRIBUNE.COM


between relatives, spouses orclose business associates. Otherswere approved on sales betweenbusinesses and their officers. TheHerald-Tribune was able to identi-fy many of these relationshipsthrough Internet searches alone.

■ Lenders allowed propertyflippers to hold millions in mort-gages all at once with no clear wayto afford the payments. Then theylet flippers drive themselves fur-ther into debt, refinancing overand over on multiple properties.

■ Banks and mortgage compa-nies dug an even deeper hole forthemselves by continuing to lendmoneyfor suspiciousdeals longaf-ter the real estate boom ended. In2007, more than a year after themarket started falling in mid-2005,flippers arranged more than $1 bil-lion in sales involving suspiciousprice increases.

■ Insider contactswere notnec-essary to get loans approved.Whether from a small local bankor a big national chain, mortgageswere readily available. In fact, sev-eral bank insiders told the Herald-Tribune they approved question-able loans because if they did not,they knew another bank would.

■ A Herald-Tribune review ofevery mortgage written by 18bankswithheadquarters inSaraso-ta and surrounding communitiesfound that flippers were responsi-ble for $72.4 million in loan losses.Nearly half that total — $36million—fell on just three banks: First Pri-ority, Freedom and First State.

What makes the flipping fraudso egregious is not just that it hap-pened, but that it would have beenso easy to stop.

Using public records and Inter-net searches, the Herald-Tribuneidentified hundreds of deals thatexhibited classic red flags forfraud. They include sales betweenfamily members and businesspartners in which prices in-creased $100,000 or more over-night. In other cases, flippers re-peatedly traded properties fromtheir company to their own name,each time increasing the price andthe amount they borrowed.

Lenders knew they were writ-ingbad loans, but did it anyway be-cause they were making so muchmoney on underwriting fees, saidJack McCabe, a Deerfield Beach-based real estate consultant whohas been studying Florida housingfraud for years.

“There’s no doubt during theboom years in Florida there werelenders who were fully knowl-edgeable of rings of people whowere acquiring loans without anyplans to pay them back and wereout to pocket as much money asthey could,” McCabe said.

“They knew in the pit of theirstomachs that what they were do-ing would bring the system crash-ing down. But they didn’t say any-thing because they did not want tobe blamed for ending the gravytrain.”

IGNORING THE RISKDuringthe boom, Scott Schuhri-

emen earned rainmaker status atthe Sarasota BB&T branch wherehe worked.

By 2006, the loan officer wasamong the most productive in hisoffice, thanks in part to his rela-tionships to some of Sarasota’smost prolific flippers.

One of Schuhriemen’s regularclients was Craig Adams, a Saraso-ta real estate agent-turned-flipperwho organized repeated sales be-tween his family members, friendsand business associates.

Schuhriemen had gone to River-view High School with Rich Bob-ka, who worked with Adams attwo Sarasota real estate compa-nies.

In two years at BB&T, Schuhrie-men signed off on more than 20home equity lines of credit for Ad-ams and his associates, mortgagefilings with the Sarasota CountyClerk of the Circuit Court show.

One of the loans approved in2006 went to Adams’ 82-year-oldaunt, Norma Faye Pearce.

Schuhriemen, also the NotaryPublic on Pearce’s mortgage docu-ments,signedthestandardoathstat-ing that Pearce had appeared be-fore him and signed the papers. ButPearce’ssignatureontheloandocu-ment does not match her signatureon more than a dozen other loanand real estate documents filedwith the clerk of court. Pearce’s sig-natureappears tohavebeenforged,two fraud experts told the Herald-Tribune.

When contacted about thePearce signatures and his ties toAdamsandhis associates, Schuhri-emen said, “Those guys cost memy job.” He would not elaborate.

Schuhriemen was not alone inapproving questionable loans.The Herald-Tribune found thatbanks of all types ignored clearred flags.

At Sarasota’s First State Bank,officers provided six loans to Sara-sota attorney John Yanchek andhis client James Russell Crainfrom March 2001 to August 2004.

In each case, Yanchek boughtproperties and sold them on thesame day for hundreds of thou-sands more to companies ortrusts that involved Crain.

In one of their deals, Yanchek,who recently was sentenced tofive years in prison for his part inan unrelated mortgage fraud case,bought a house in March 2001 for$362,500 and sold it the same dayfor $560,000 to Sarasota’s JaybirdInc., a company that lists Yanchekas an officer.

A loan officer at First Statesigned as a witness to the deed be-tween Yanchekand Sarasota’s Jay-bird and also signed off on$498,000 in loans. That gaveYanchek $135,500 more than hehad paid for the property.

First State approved five moreloans to Yanchek and Crain undersimilar circumstances.

John E. “Jed” Wilkinson, First

State’s chief executive, said a newgroupof managers in 2002 eventu-ally recognized the risk associatedwith flippers and refused to writethem new loans.

“We identified loans that hadbeen made like these and we im-mediately put policies in place toprevent this type of lending in thefuture,” Wilkinson said. “We thenlet borrowers know that theirloans would not be renewed andthat they should take their busi-ness elsewhere.”

ROAD TO FAILUREThe Herald-Tribune’s review of

suspicious flips found that flippersqualified for loans at large nationallenders, including Countrywide,Washington Mutual and Indymac.

But smaller regional and localbanks also wrote them loans.

A review of every mortgagewritten by 18 banks based in the

Sarasota area found that flipperswere responsible for loan defaultsat all but five.

FlipsidentifiedbytheHerald-Tri-bune led to $28.7 million in badloans at local banks. Another $43.7million in losses came from mort-gage defaults that did not involveflipped properties, but were tied topeoplewhoparticipated inflipping.

All told, the $72.4 million inloan losses represented nearly 20percent of local banks’ non-per-forming loans and write-offs as ofMarch 31.

Nobank in the areawas hithard-er by flipping than First Priority.

Founded in December 2003, thebankgainedareputationforaggres-sively writing loans to local devel-opers and real estate speculators.

A Herald-Tribune review ofpublic records shows that mort-gage loans to flippers representedat least 10 percent of the bank’s to-

tal loan volume and were amongthe largest made by the bank.

“Iusually see banks as conserva-tive lenders,” said Gordon Hester,a financier who writes high-inter-est loans to borrowers looking formore flexibility than traditionallenders offer. “First Priority wasway outside that profile. They didloans that I wouldn’t have done.”

GOOD MONEY AFTER BADUntil mid-2005, when the real

estate market began to cool, lend-ers thrived despite the question-able loans they wrote.

As long as real estate values in-creased, it did not matter if buyersdefaulted.Lenderscouldtakeown-ership of the houses and recouptheir money by selling them.

But when Florida propertysales slowed in late 2005, banksand mortgage companies did not

FLIPPING from 1A

See FLIPPING on 7A

Lenders looked past obvious signs of fraud A Herald-Tribune review of every mortgage written since 2000 by the 18 banks based in the Sarasota area found that only five of the 18 have been unaf-fected by property flippers’ defaults. Some bank losses were minimal. But at First Priority and Free-dom Bank, defaults on flipping loans helped put the banks out of business.

The listings below show total loan defaults at each bank; the amount of defaults from suspicious prop-erty flips, which the Herald-Tribune defined as prop-erties that changed hands quickly among associated parties; and total defaults by people involved in suspicious property flips. The last number includes defaults from flips and from other transactions.

Flipping and defaults at local banks

First Priority Bank Freedom Bank

First State LandMark Bank Flagship Bank

Insignia Bank

(CLOSED) (CLOSED)Total defaulted loans: 36 millionDefaults caused by flips: $1.3 million, 4 percentTotal defaults by flippers: $6.4 million, 18 percent

Total defaulted loans: $45.6 millionDefaults caused by flips: $15.7 million, 34 percentTotal defaults by flippers: $18.9 million, 41 percent

Total defaulted loans $51.1 millionDefaults caused by flips:$5.8 million, 11 percentTotal defaults by flippers: $10.5 million, 21 percent

Total defaulted loans $16.7 millionDefaults caused by flips:0Total defaults by flippers: $12.6 million, 75 percent

Bank of CommerceTotal defaulted loans$14.3 millionDefaults caused by flips:$1.7 million, 12 percentTotal defaults by flippers: $8 million, 56 percent

Total defaulted loans $30.5 millionDefaults caused by flips:$843,000, 3 percentTotal defaults by flippers: $2.9 million, 10 percent

Total defaulted loans$5.4 millionDefaults caused by flips:$1.5 million, 28 percentTotal defaults by flippers: $5 million, 93 percent

Total defaulted loans $124.7 millionDefaults caused by flips:$1.5 million, 1 percentTotal defaults by flippers: $6.6 million, 5 percent

Century Bank Community National Bank Community Bank of ManateeTotal defaulted loans

$12.8 millionDefaults caused by flips:$245,000, 2 percentTotal defaults by flippers: $545,000, 4 percent

Total defaulted loans$16.9 millionDefaults caused by flips:0Total defaults by flippers: $524,000, 3.1 percent

Horizon BankTotal defaulted loans$12.2 millionDefaults caused by flips: 0Total defaults by flippers: $106,000, 1 percent

Total defaulted loans $7.4 millionDefaults caused by flips:0Total defaults by flippers: $202,000, 3 percent

Manatee River Community Bank

Sabal Palm BankTotal defaulted loans $5 millionDefaults caused by flips:0Total defaults by flippers: $150,000, 3 percent

Bank of Venice Total defaulted loans $795,000Defaults caused by flips:0Total defaults by flippers: 0

Total defaulted loans $284,000Defaults caused by flips: 0Total defaults by flippers: 0

First America Bank Gateway Bank Florida Shores Bank 1st Manatee Bank Total defaulted loans 0Defaults caused by flips: 0Total defaults by flippers: 0

Total defaulted loans 0Defaults caused by flips: 0Total defaults by flippers: 0

Total defaulted loans 0Defaults caused by flips: 0Total defaults by flippers: 0

* Bank defaults include non-performing loans and write-offs as of March 2009 or the date when defunct banks were closed by regulators.

6A Thursday, July 23, 2009 www.heraldtribune.com



In his report to Synovus Bank,real estate appraiser GlennGreber said the Siesta Key housewas in good condition and worth$6.55 million.

But his report missed a crucialfact: The house had been strippeddown to bare walls and turnedinto a paintball battlefield.

When the owner defaulted onhis loan just six months after refi-nancing, Synovus found itself fore-closing on a house worth far lessthan the underlying mortgage, its2007 foreclosure filing alleges.

Greber, who said he remainsone of Sarasota’s most respectedreal estate appraisers, would nottalk about the specifics of the ap-praisal, but he denied that his ap-praisal of the house was too high.

“It wasn’t a value issue at all,”Greber said. “There was nothingwrong with what I did on that ap-praisal.”

Professional appraisers are sup-posed to act as independentwatchdogs to protect lendersfrom inflated property values.

But experts told the Herald-Tri-bune that during the real estateboom, many appraisers aban-doned their professional stan-dards and facilitated price increas-es on houses that were actuallyworth far less.

“Appraisers sold out,” saidAndy Gray, who offers real estatetraining courses in Sarasota.“They got involved in a greed situ-ation and forgot that when youwake up and look in the mirror,you have to be able to respectyourself.”

Lenders were just as culpable,

experts say, because banks andmortgage companies needed ap-praisals that valued propertieshigh enough to allow deals to pro-ceed. Appraisers who failed to hitthe right number quickly learnedthat lenders would find someonewho would.

“You don’t need to bribe an ap-praiser,” said Bill Black, a white-collar crime expert who teachesat the University of Missouri.“You just don’t send them busi-ness.”

A 2007 study released by Octo-berResearch said90 percent of ap-praisers surveyed felt they hadbeen pressured by mortgage bro-kers, real estate agents and cus-tomers to restate values upward.Four years earlier, at the start ofthe real estate boom, the numberwas only 55 percent.

It is impossible for the public toreview appraisals or to determinewhich appraisers signed off onovervalued sale prices. Deeds andmortgage records that must befiled with the clerk of court do notcontain information about the ap-praisal.

Across the Gulf Coast, many ofthe corners cut by real estate ap-praisers and the banks that hiredthem became apparent only afterthe real estate market crashed andbuyers began to default on theirmortgages.

The Herald-Tribune found anumber of examples:

■ Punta Gorda appraiser Jef-frey Miller valued a North Porthome at $360,000 in April 2007.His value was $120,000 more thanthe number reached by anotherappraiser at the same time.

Miller’s report stated that thehouse had two stories when it

only had one, and he provided theaddresses of two comparableproperties that did not exist, ac-cording to records at the state De-partment of Business and Profes-sional Regulation, whose Real Es-tate Appraisal Board handles com-plaints against licensed apprais-ers.

Miller surrendered his licensein October 2008 after the apprais-al board accused him of fraud inits complaint. Miller denied com-mitting fraud, saying he simplymade mistakes in the appraisalprocess.

“I chose to surrender it ratherthan fight because of all the fingerpointing that’s going on,” Millersaid. “Everyone is filing com-plaints against everyone else.Banks and homeowners are look-ing for scapegoats. No one is will-ing to admit that greed is whatcaused everyone to do all this.”

■ Sarasota appraiser RomySteinberg misstated the size of aproperty she was appraising andprovided a sketch that did notmatch public records or the actualfloor plan, an appraisal board re-view found. Disciplinary docu-ments show she also said shedrove by and inspected a propertyfrom the street when that wouldhave been impossible because awall blocked the view. Steinbergwas placed on probation. Shecould not be reached for com-ment.

■ Naples appraiser JulianStokes appraised at least threeproperties boughtby NeilMoham-mad Husani and his associatesfrom 2004 to 2006. In those deals,Husani bought properties andsold them the next day to his then-partner, Michael Tringali, for

more than twice the original pur-chase price.

After reviewing the properties,Stokes issued an appraisal reportbacking up the sales prices. In atleast one case, Stokes did not in-clude the fact that the propertyhad been bought by Husani formillions of dollars less the day be-fore. The appraisals allowed Trin-gali to get $38 million in mortgageloans that he later stopped paying.

Stokes, who was not implicatedin subsequent federal case againstTringali, told the Herald-Tribunethat he was tricked and that hewas unaware of the first sale whenhe made his report. Husani andTringali were indicted on mort-gage fraud charges in 2008 afterprosecutors alleged their salesprices were purposefully inflatedso they could get oversized loans.

■ Sarasota appraiser HeatherKabobel was fined this year andplaced on a year of probation fol-lowing allegations that she over-stated the value of a Cape Coralproperty by $163,000. An adminis-trative complaint by the Real Es-tate Appraisal Board states that in2005 Kabobel used properties thathad spas, boat lifts and otheramenities to establish the value ofa property that did not have suchfeatures. Kabobel did not returncalls.

WHY LENDERS MADESUCH BAD LOANS

What the Herald-Tribunefound in Florida is emblematicof lending problems acrossthe nation.

Starting in the 1990s,lenders that once cautiouslywrote mortgages to ensurethey would be repaid foundthey could make more moneyselling loans to major financialinstitutions, including MerrillLynch, Bear Stearns andLehman Brothers.

Those companies andothers were buying loans andturning them into securitiesthat could be sold to investorson Wall Street.

The incentive for bankersand mortgage brokers toscreen for fraud was reduced.Instead, they wereencouraged to write more andmore mortgages, no matterhow risky the loans seemed tobe, said Bill Black, a Universityof Missouri professor andinternationally recognizedwhite-collar crime expert.

In the rush to collect moreunderwriting fees, lendingofficers discarded their ownunderwriting rules and insome cases approved loansthey suspected werefraudulent, Black said.

“The lenders are the key,”Black said. “The lenders didn’twant any internal controls.They were making theirmoney by making bad loans.”

Boom loans ignored default,bankruptcy and common senseBy MICHAEL [email protected]

The Herald-Tribune closely re-viewed more than 3,000 Floridaproperty flips that occurred thisdecade. Banks facilitated many ofthe deals by approving mortgageseven whenthe sales lookedunusu-al or the borrowers had past cred-it problems.

Among them:

HUSANI DEFAULTSBankers at Naples-based Orion

Bank, Fort Lauderdale-basedBankAtlantic andClearwater-basedMercantile Bankwere all embar-rassed by the loansthey made to NeilMohammad Hu-sani and his associ-ates, who bor-

rowed $83 million from these andfour other banks during the boom.

Court testimonyby an Orion ex-ecutive in the fraud trial of one ofHusani’s associates shows thatOrion actually made a loan inthree weeks rather than the usual90 days so Husani’s partner couldborrow $13.1 million during thebusy 2004 Christmas season.

Bankers at Orion and the othertwo banks also testified that theynever confirmed whether Hu-sani’s partner actually held mil-lions of dollars in escrow ac-counts, or whether other criticalstatements made by Husani andhis partners were true. Ultimate-ly, the group defaulted on morethan $70 million in loans.

SEABORNE BANKRUPTCIESDespite having two previous

bankruptcies and losing his real es-tate license, Sarasota mortgage

broker ArthurSeaborne got 11loans from variousbanks and mort-gage companies onproperties hebought in Sarasotaand Manatee coun-ties.

On average, he and his wife gottwo new mortgages each monthfrom March through September2007, borrowing $2.5 million.Lenders included SunTrust,BankUnited and Regions Bank.

Court records show they havedefaulted on three loans totaling$684,000. Seaborne recently saidin a court deposition that he was90 days behind on other mortgag-es, according to Anthony Lefco, aSarasota attorney representing aninvestor suing Seaborne in Saraso-ta County’s circuit court.

Seaborne said all his real estatedeals were legitimate and that hewas a victim of the market col-lapse.

AGENT DEFAULTSFrom 2001 to 2003, Richard

Asendorf defaulted on four mort-gage loans to three banks. But theSarasota real estate agent did nothave to sit out the real estateboom.

From April 2005 to February2006, he and his wife, Victoria,bought three properties in hername in Manatee and Sarasotacounties.

In February 2006, the Asen-dorfs bought a house in The Land-ings for $850,000, deed recordsshow. They qualified for a$722,500 loan from PeninsulaBank, an Englewood-based com-munity bank. Peninsula fore-closed seven months later.

“It’s not illegal to get a gooddealonsomething,” Victoria Asen-dorf told the Herald-Tribune inlate 2006. “As long as your houseappraises for the higher amount,you will get a loan.”

BERMUDA ON OSPREYStarting in 2006, John Couch

and a group of California inves-tors began buying units at Bermu-

da on Osprey, anapartment com-plex being convert-ed into condos inSarasota.

Couch got theunits for about$300,000 each, ac-cording to attor-

neys involved in the developmentproject. Deed records show hequickly resold the units to himselfor other investors for an averageof $540,000 — an 80 percent in-crease in value.

Lenders, including CitiMort-gage, Countrywide and LehmanBrothers, approved 30 loans tothe group. The loans averaged$450,000 each, $150,000 morethan Couch paid for a unit.

William G. Schlotthauer, an at-torney withWilliams Parker inSa-rasota, represented the develop-ers who sold units to Couch’sgroup.

He said banks approved thelarge loansbecause theextra mon-ey was supposed to be placed inescrow and used to build a club-house and other amenities.

But the amenity account neverexisted, according to ChristopherWoods, Couch’s brother-in-law,who bought several of the units.No amenities were ever built.

Couch, whose phone numbershave been disconnected, couldnot be reached for comment.Woods said the excess loan pro-ceeds went to making interestpayments on the group’s debt.

By February 2009, Couch andhis investors had defaulted on all30 loans, totaling $13.5 million.

“When you talk about toxic as-sets, this is a great example,” saidJack McCabe, a Deerfield Beach-based real estate consultant.“These loans will never be repaidand when the properties are soldthey will yield only a sliver ofwhat the banks originallyloaned.”

DEVELOPER CASHES OUTNeil Malamud and Ron Shen-

kin are Sarasota-area developerswho were partners in more than ahalf-dozen companies over theyears.

In mid-2006, Malamud soldtwo properties to companiescontrolled by Shenkin for $9.1million, which was $3.7 millionmore than Malamud originallypaid. Malamud had bought oneproperty in 2000 for $400,000and the second in September2005 for $5 million.

At a time when the real estatemarket was slowing, the sales al-lowed Malamud to recoup mil-lions of dollars he had spent onthe properties.

Twobanks, SunTrustand Penn-sylvania’s First National, agreedto finance the deals and take onmost of the risk.

Ultimately, Shenkin was un-able to complete the develop-ments. He defaulted on $11.6 mil-lion in loans two years after hispurchase.

“It’s easy to look back andjudge those loans given what hashappened,” Malamud said. “But atthe time, they looked like perfect-ly good loans and were justifiedbased on both the appraisals andthe market. It’s like looking at amarriage that resulted in divorce.At the time of the wedding, itlooked like it would last.”

BRIVIK APPRAISALSIn 2006, real estate investor

Mark Brivik ap-plied for a loan onproperties he hadbought in ManateeCounty and sold tohis own companyfor a higher price.

Brivik and agroup of investors

paid $6.1 million for a 17-acretract, which Brivik cobbled to-gether over a four-year period for$3.2 million.

First Priority approved a $5.4million loan. And instead of order-ing an independent appraiser toensure the property was worth$6.1 million, First Priority hiredGlennGreber,who Brivik had pre-viously paid to appraise the land.

Brivik’s investor group default-ed on the loan 18 months later.

During the foreclosure pro-cess, the investors argued in courtdocuments that they should nothave to repay the loan becausethe bank was to blame for signingoff on its inflated value.

FirstPriority “violated the cove-nant of good faith and fair dealingby failing to obtain an appraisalfrom an independent and ap-proved third party, the result ofwhich was an elevated and evenbiased value being accorded tothe property,” the investors ar-gued.

Brivik told the Herald-Tribuneearlier this year that the appraisalwas the bank’s responsibility, nothis.

Glenn Greber

Brivik

Seaborne

Appraisals hidden from view,but experts say they fed fraud

adjust.Many continued writing

risky loans and ignoring clearsigns of fraud, the Herald-Tri-bune found.

In fact, the deals approvedby lenders got bigger as themarket worsened.

In 2005, the median price in-crease from the first to the sec-ond sale for flips identified bythe Herald-Tribune was about$65,000. A year later, after thereal estate market had begun anoticeable decline, that amountincreased to more than $73,000.By 2007, the spread was stillmore than $70,000.

The increase was driven inpart by lenders allowing bor-rowers to take on largeramounts of debt — essentiallybetting that real estate priceswould start rising again andbail everyone out.

Starting in 2006, some inves-tors and builders arranged salesto themselves or to their associ-ates at higher prices so theycould qualify for larger loansand shift exposure to lenders.

Sarasota home builder DavidWinterrowd was in financialtrouble in late 2006. He said hewas being pressured by banksto pay off $1.15 million in con-struction loans on four housesheandhisbrotherhad just built.

Unwilling to let his lendersseize the houses, Winterrowdsold the houses from his busi-ness to himself and his brother.

They exchanged $1.15 mil-lion in construction loans for$1.95 million in personal mort-gages at a time when Winter-rowd said he was having trou-ble making the mortgage pay-ments on the Laurel Oakshome where he and his familylived.

Winterrowd told the Herald-Tribune that he disclosed whathe was doing to the banks andthat he believed the real estatemarket would rebound.

But just four months after re-ceiving the last of the loans onhis new houses in January2007, Winterrowd and hisbrother began defaulting onother debts. Between May2007 and June 2008, banks fore-closed on 11 of their loans total-ing $9.5 million, including twoloans the brothers received af-ter selling newly constructedhouses to themselves.

Experts say that Winter-rowd did nothing wrong, butthat bankers and mortgage bro-kers whoallowed such loansaf-ter 2005 were making bad un-derwriting decisions.

“The problem in late 2006and early 2007 is that builderbailoutswere justadelayingtac-tic,”McCabesaid. “Itwasanon-conspiracy conspiracy on thepart of banks and developers tokeep the gravy train running.Deals got riskier and riskier.”

Those deals protected manyof the parties involved. Theoriginal lender got repaid. Theborrower got enough money topay off his old debt and some-timesputextra cash inhis pock-et. Ultimately, the borrowerwas able to walk away fromproperty worth far less thanthe outstanding mortgage.

“Everyone — except the tax-payer at the end — came outahead,” said Port Charlotte ap-praisal instructor DennisBlack.


FLIPPING from 6A

Couch

STAFF GRAPHICSOURCE: Sarasota and Manatee clerks of court, Securities and Exchange Commission

Bank damageFlippers identified by the Herald-Tribune were responsible for nearly 20 percent of the problem loans at the 18 banks with headquarters in Sarasota and Manatee counties.

Total non-performing loans and write-offs

reported by 18 Southwest Florida community banks$379.8 million

Total bad loans resulting directly from flips$28.7 million

Total bad loans caused by people who regularly engaged in flips$43.7 million

Total bad loans caused by flips and flippers$72.4 million

First Priority Bank$18.9 million

Bank of Commerce$12.6 million

First State Bank$10.5 million

LandMark Bank$8 million

Century Bank$6.6 million

Freedom Bank$6.4 million

Insignia Bank$5 million

Flagship National Bank$2.9 million

Other banks$1.5 million

Husani

www.heraldtribune.com Thursday, July 23, 2009 7A

ONLINE

Go to heraldtribune.com/flipping for the Herald-

Tribune’s full coverage of realestate flipping fraud:

■ Who’s who in flipping inSarasota and Manatee.

■ Find flips in your neighbor-hood or dig into any of the50,000 suspicious Florida flips.

■ Watch the three-part seriesby Lauren Mayk on SNN LocalNews 6.

■ Read all the previous storiesin the series:

PART 1: A Herald-Tribuneinvestigation of flipping fraudfinds $10 billion in suspiciousFlorida deals.PART 2: More than 30 groupsof flippers operated in Sarasotaand Manatee counties.PART 3: One Sarasota realestate agent orchestrated morethan 100 flips.

PART 4: Police andprosecutors ignored flippingfraud as it happened — and maynot punish it now.

PART 5: Lenders made flippingfraud possible.

PART 6: How to preventflipping fraud.


LOCALBUILDING AN EARTHSHIPA house going up in ManateeCounty will be virtually self-sustaining when it’s done. 1B

Sarasota City Manager BobBartolotta, above, said Abbottwould be on paid leave pendingthe outcome of an inquiry into theevents surrounding the arrest ofthe man whom an officer kicked.

By MICHAEL [email protected]

SARASOTA — In a beachfrontcommunity where New Ageboomers sip yerba mate while tak-ing courses in how to attract mon-ey into their lives, Beau Diamondgrew up like a young prince from aroyal family.

His father, Harvey Diamond,was the co-author — along withthen-wife Marilyn — of a 1980sbest-seller about food-combiningcalled “Fit For Life.”

The elder Diamond, a divorcedfather, became a Sarasota celebri-ty within his circle of friends —plugged-in folks drawn to thisbeachfront city, long known for itsblend of organic chic.

Now both the father and his31-year-old son are in the hot seat

over a foreign currency futurestrading program that took inroughly $38 million and spun outhuge monthly dividends for atleast a year and a half before goingsuddenly — and totally — broke in

January.The failure washed over the

community at about the sametime that news broke that thehedge funds managed by accusedPonzi schemer Arthur G. Nadel

were drained of $400 million.The Diamonds and their invest-

ment company, three-year-old Di-amond Ventures LLC, are now thesubject of a lawsuit in SarasotaCounty circuit court that is aboutto grow in scope, with the numberof plaintiffs doubling from 11 to 23.

But that could be the least of theDiamonds’ worries. The Herald-Tribune has confirmed that theCommodityFuturesTradingCom-missionandthe FBI, ina coordinat-ed investigation,are lookingatDia-mond Ventures and at chief traderBeau Diamond, who never regis-tered as a fund manager and whoportrayed himself as someone run-ning a private investment club.

“We are still undertaking our in-vestigation, and that means our in-vestigation is confidential and thatwe cannot share it with anyone,”said Diane Romaniuk, a lead en-forcement attorney with theCFTC, a government agency thatis the futures trading equivalent of

See DIAMOND on 9A

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INSIDE


lipping fraud was not invented during this decade’sreal estate boom. It helped burst Florida’s real estatebubble during the 1920s and played a key role in thenation’s savings and loan crisis in the 1980s.

But widespread flipping fraud does not have to happenagain with the next real estate boom.

Though people determined to commit fraud will alwayslook for weakness in the system, experts say there are waysto make mortgage fraud more difficult.

Some changes have already been adopted or are in theworks. In 2007, Florida lawmakers specifically mademortgage fraud a crime for the first time in the state. Beforethat, such crimes had to be prosecuted federally or underthe state’s more generic fraud statutes.

And earlier this year, new regulations were introduced toprevent appraisers from being influenced by banks andmortgage companies. Lenders are now required to useindependent appraisal management companies to hireappraisers instead of hiring appraisers directly themselves.

But more is needed and the changes must be made withinthe industry and at every level of government, says AnnFulmer, a former Georgia prosecutor and nationally known

See FLIP on 8A

HOW TOPREVENTFLIPPINGFRAUD

F

SNN LOCAL NEWS 6ONLY 5 MORE MONTHSWe’ll show you how Santa’shelpers are getting a head starton Christmas in El Jobean.


SARASOTA — Police ChiefPeter Abbottwas put on adminis-trative leave Saturday over themishandled criminal investiga-tionof anofficerwho wasrecord-ed on video kicking a handcuffedman.

City Manager Bob Bartolottasaid Abbott would remain onpaid leave pending the outcomeof an administrative investiga-tion. The move came the day theHerald-Tribune reported thatthe lead detective in the criminalcase was told to take “cash for aninstant settlement” to his first in-terview with the man who waskicked, Juan G. Perez, 21.

An e-mail released Friday be-cause of a public records requestrevealed that police consideredsending a detective with a settle-ment offer even before begin-ning the criminal investigation.

Combining the criminal inves-tigation with the civil settlement

violates a basic rule of policework, say legal experts who havealso suggested that police offi-cials may have broken the law.

Last week, Abbott apologizedto the community for trying tosettle the case before it had beenfully investigated, and impliedthat the unusually quick settle-ment attempt came only afterthe detective had taken Perez’sstatement for the criminal inves-tigation.

Mayor Dick Clapp said thee-mail that came out Friday sur-prised him. He said he was disap-pointed that the city had to learnabout it through the newspaperand not the chief himself.

“All of that should have beenSee ABBOTT on 5A

Capt. Lucius Bonner, right, will serve as Sarasota’s interim police chiefwhile Peter Abbott, left, is on leave. HERALD-TRIBUNE ARCHIVE PHOTOS / 2009

Police chiefput on leavein SarasotaINQUIRY: The troublestarted with a video ofan officer kicking a man

SCIENCECAN WE GOTOO FAR?Some scientistsare worried thatmachines mayone day outthinkhumans. 6A

A HERALD-TRIBUNE INVESTIGATION: IN FLORIDA ALONE, THERE WERE

$10 BILLION IN SUSPICIOUS DEALS DURING THE BOOM. HERE ARE

10 WAYS TO KEEP A FRAUD EPIDEMIC FROM HAPPENING AGAIN.

*

‘Everybody knew Beau and trusted Beau’FINANCES: Area residentsthought their investmentswere safe with a whiz kid

Beau Diamond, left, founder of Diamond Ventures LLC, posed for a photowith investor Paul Cavalier, right, in June 2007. Cavalier attended thesame spiritual center that Diamond frequently visited. COURTESY PHOTO

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mortgage fraud expert. “Our fig-ures are suggesting that fraud isnot slowing down, and yet wehave not seen anything from thegovernment explaining what weare going to do to stop fraud in theoriginating process,” Fulmer said.

Below are a series of proposalsthat bankers, mortgage brokers,appraisers, fraud specialists, econ-omists and real estate analysts saycould help curb mortgage fraud.

MORE TRANSPARENCYMany elements of real estate

dealsremainhidden,andthatsecre-cy allows mortgage fraud to thrive.

1Appraisals, commissions,fees and informationabout mortgage brokers

should be made public.Today, even the name of the

person who conducted the ap-praisal, which is used by banks toestablish the value of a property,is secret. Disclosure of appraisalreportswould discourage apprais-ers from inflating values.

In addition, HUD-1 documents,which must be filed with everymortgage loan, remain secret. Re-quiring the HUD-1, or a portion ofit, to be publicly filed would letthe public see if a real estate saleinvolved back-door dealing —such as a cash-back incentive orfurniture allowance — that artifi-cially inflated the sales price.

Florida lawmakers could insti-tute the changes in the state, orCongress could make the docu-ments public across the nation.

As part of federal legislationpassed in 2007, mortgage docu-ments are now required to recordnames of the mortgage brokers orloan officers who originate a loan,according to the Florida Associa-tion of Mortgage Brokers.

Trade groups that represent ap-praisers and mortgage brokers ex-pressed concern about disclosingmore information.

“Opening up the HUD-1 to pub-lic scrutiny would mean takingaway a consumer’s ability to keeppersonal information private,” ar-gued Valerie Saunders, presidentof the Florida Association of Mort-gage Brokers.

But such information could beredacted, and other information,such as the name of the appraiserwould not be problematic, somesaid.

Marc Savitt, the immediate pastpresident of the National Associa-tion of Mortgage Brokers, said hedid not have a problem with mak-ing the HUD-1 public.

“I think it should be left up toconsumers,” Savitt said. “If theydon’t mind having that informa-tion public, then I don’t have aproblem with it.”

2 Close the loophole thatlets people sell a proper-ty they have just pur-

chased at a higher price with-out recording a separate deed.

Fraudulent property flippersused this method — known as anassignment — to make it look incounty records like the purchaseprice was higher than it actuallywas, allowing them to get largerbank loans. That led to larger loandefaults and meant higher proper-ty taxes for the people living in thesame neighborhoods.

By requiring buyers and sellersto file the appropriate paperworkforeachdealbeforeenteringanoth-

er, there would be a more accuraterecord of the property’s value.

“In the interest of honesty andaccountability, there should be away to prohibit the use of this toolfor fraudulent purposes,” saidJack McCabe, a Deerfield Beach-based real estate consultant.

3Make it illegal to paymore in documentarystamp taxes than is re-

quired by law.Florida counties collect a tax on

the sale of every piece of proper-ty, and the tax payment — not thesales price — is recorded in publicdocuments.

But nothing prevents a buyerfrompaying additional taxes, a tac-tic used by those who want todupe banks or other buyers intothinking properties sold for morethan they actually did.

“When someone pays more indoc stamps than they have to, youknow they’re trying to do some-thing screwy,” said Grant Thrall, aUniversity of Florida land econo-mist and member of the AppraisalInstitute’s academic board of di-rectors.

ENFORCING RULESMortgage fraud can be a lucra-

tive enterprise for those involvedand financially devastating for ev-eryone else, especially when it op-erates largely unchecked.

4 Real estate agents, titleagents and county prop-erty appraisers should

be required to notify law en-forcement about suspiciousreal estate transactions.

Elected county property ap-praisers already scrutinize real es-tate deals to determine whetherthey are legitimate and they re-flect the values of adjacent proper-ties for tax purposes. But if theycome across suspicious deals,their only responsibility is to ex-clude them from assessments.

Whileappraisers wereneveren-visioned as regulatory agents,their role could be broadened toidentify suspicious sales.

“The more eyes that are fo-cused on mortgage and real estatefraud, the better for everyone,”said McCabe, the Deerfield Beach-based real estate consultant.“County appraisers see a varietyof documents cross their desksand are skilled in understandingthe difference between normaltransactions and ones that coulduse investigation.”

State or federal lawmakerscould pass a law requiring proper-ty appraisers or others to reportsuspicious deals. Although someelected appraisers say their em-ployees already are overworked,

others interviewed by the Herald-Tribune said reporting potentialfraud would not create an undueburden.

But Manatee County PropertyAppraiser Charles Hackney saideven if his office reported a suspi-cious case, it was unlikely to leadto action.

“Even in cases when we findthose kinds of things, we don’tknow what to do with them,”Hackney said. “Unless it’s prettyflagrant, they’re not going to takea huge interest in prosecutingthese things.”

5Train local law enforce-ment to investigate andprosecute mortgage

fraud.Mortgage fraud cases are often

complex, time-consuming and re-quire specialized knowledge topursue. Time, money and man-power are in short supply at manylocal agencies. As a result, few cas-es are pursued unless federal au-thorities are involved.

The biggest hurdle for local lawenforcementofficials may be shift-ing their priorities. White-collarcases have long received less at-tention than drug and propertycrimes.

“There needs to be a muchmore fundamental rethinking oflaw enforcement,” said Bill Black,a former bank regulator and awhite-collar crime expert whoteaches at the University of Mis-souri. “These things cause farmore losses than blue-collar prop-erty crimes.”

Local policing agencies andprosecutors do not need to waitforstate or federal initiatives to re-direct resources. City and countyofficials, prosecutors, police de-partments and sheriff’s officeshave their own budgets and couldput more resources into investi-gating real estate fraud.

At least one effort to increasetrainingand resources for local po-lice has started. In the 15 stateswith the most mortgage fraud, a$200 million federal grant pro-gram is under way to bolster lawenforcement agencies, said GlennTheobald, chief counsel of the Mi-ami-Dade Police Department.

Theobald, who helped createthe grant program and is chairmanof Miami’s mortgage fraud taskforce, said local law enforcementagencies need to pursue moremortgage fraud because the FBIcannot handle the problem alone.

“There’s a void there with lawenforcement,”Theobald said. “Lo-cal law enforcement must get in-volved.”

On the federal level, Black said,the FBI needs more agents onwhite-collar crime to step in for

agents diverted to fight terrorism.

NEW BORROWING RULESMuch of the blame for rampant

fraud falls on a lending industrythat stopped following its own un-derwriting rules during the boom.

In their rush to approve loansand earn origination fees, banksand mortgage companies createdmortgage products that did not re-quire borrowers to prove their in-come. Lenders also approvedmortgages that gave borrowers100 percent financing.

Reining in lenders must occurat the federal level, experts said.For example, Fannie Mae andFreddie Mac, government-char-tered organizations that buy upmortgages to ensure money is al-ways available for home buyers,could refuse to accept mortgageson certain kinds suspicious prop-erty flips or in cases where bor-rowers do not put down cash tobuy a property.

6The lending industryshould closely scruti-nize any property that is

sold more than once in lessthan 90 days.

Recognizing that these types ofquick flips are potentially fraudu-lent, the Department of Housingand Urban Development an-nounced in 2003 that mortgagesfor those deals would no longer beeligible for government insurance.

Black said lenders should pre-sumeloan applications for proper-ties that sell twice in 90 days andincrease substantially in price arefraudulent.

“This would be a very suspi-cious circumstance for an honestlender,” he said. “You should rec-ognize this as a substantial risk.That’s what an honest, competentlender would do.”

7 Borrowers should be re-quired to have a signifi-cant investment in a

property, especially when it isnot their primary residence.

Fraudulent flippers typicallycraft schemes that allow them toborrow as much money as possi-ble against a property.

During the boom, borrowerscould often get close to 100 per-cent financing without having toresort to inflating property val-ues. If they could concoct salesthat inflated values, they couldput cash in their pockets. Requir-ing borrowers to put more moneydown — especially borrowerswho are regularly buying and sell-ing properties — could discour-age risky speculation and reducecertain types of flipping fraud.

“If you require the old standardrule of 20 percent down, it forcespeople to keep some skin in thegame,” said Ken Thomas, a Miamieconomist and bank analyst. “Thatmeans they will be less likely towalk away from their mortgages.”

8 Congress should ap-prove proposals thatwould require lenders

to retain an interest in mort-gages loans they issue.

A proposal approved by theHouse in May would ensure thatlenders lose money if loans gobad. So far, the Senate has not ap-proved the measure.

“If we make banks keep a five or10 percent interest in a loan, theywill also have skin in the game and

will be less likely to back dealsthey know have been inflated,”Thomas said.

USE DATABASESMortgage fraud schemes can be

difficult to uncover, and they cancross county, state and even inter-national lines. But modern toolsmake schemes easier to prevent.

9 Require banks to usethe kinds of fraud-pre-vention databases pri-

vate companies have createdto flag mortgage applicationsfor potential fraud.

Such anti-fraud tools can deter-mine if an applicant has appliedfor recent loans at other banks,check for sharp price increases inshort periods and flag applicantswhohave bought multiple proper-ties in the same area — all redflags that can predict fraud.

Today, these modern fraud pre-vention tools remain voluntary.Even banks using them now maystop by the time the next real es-tate boom arrives.

Advance detection tools haveexistedsince at least 1995, said Ful-mer, who is also an executivewith Interthinx, one of the lead-ing providers of such tools.

But Fulmer said that during theboom, some lenders wrote loanseven when the detection servicesflagged loans as potential fraud.

“Fraud detection protocols areentirely voluntary, subject only tothe demands of the secondarymarket, which today is, for all in-tents and purposes, the federalgovernment,” Fulmer said. “Mostdefinitely, the federal govern-ment should mandate robustfraud detection and preventionprotocols and the use of availabletechnology.”

10Require Floridaregulators to cre-ate a computer-

ized case-management systemto keep track of mortgagefraud complaints that come into various regulatory agen-cies, licensing boards and lawenforcement offices.

Mortgage fraud schemes canbe complicated. They can involvemultiple counties and often re-quire cooperation from real es-tateprofessionals who are regulat-ed by different state agencies.

Florida has no mechanism to re-solve these problems. If mortgagefraud complaints are filed withone sheriff’s office, for example,deputies there have no way ofknowing their target is under in-vestigation by another agency.

Officials at the Attorney Gener-al’s Office said it makes sense forthem to lead coordination efforts.Attorney General Bill McCollumhas launched an effort to create amortgage fraud task force involv-ingstateagencies and lawenforce-ment across the state. McCollumalso oversees a mortgage fraudhotline for citizen complaints.Those complaints are directed toagencies for response.

Creating a tracking systemwouldtake money and would like-ly require lawmaker approval andfunding at a time when the state’sbudget is squeezed.

FLIP from 1A

DAY 1A review of 19 millionFlorida real estatetransactions since 2000finds $10 billion insuspicious propertyflips.

DAY 2More than 30 groups offlippers operated inSarasota and Manateecounties — and nowaccount for nearly half abillion dollars in defaults.

DAY 3One Sarasota real estateagent orchestratedmore than 100 flips. Heand his associates arenow responsible for$100 million in defaults.

DAY 4Police and prosecutorsignored flipping fraud asit happened — and maynot punish it now.

DAY 5Lenders made flippingfraud possible.

DAY 6Ten steps to preventmortgage fraud.

HERALDTRIBUNE.COM/FLIPPING

Go online to find:

NEWSPAPER STORIES: All ofthe stories and graphics thatappeared in the newspaper areavailable online in two formats:as traditonal Web pages or in apdf format that lets you read orprint the pages as theyappeared in the newspaper.

SNN LOCAL NEWS 6:Watch Lauren Mayk’s three-partseries on real estate flippingthat aired last week on SNNLocal News 6.

EXTRA ONLINE FEATURES:Go online for added reportingthat is only available atheraldtribune.com/flipping:

■ An interactive map that letsyou find flips in yourneighborhood and lets you diginto any of the 50,000suspicious Florida deals

identified by theHerald-Tribune.■ An interactive guide to flips inSarasota and Manateecounties, with details on morethan 100 local people involved— some of them innocently,some unknowingly, somewillingly — and a social networkanalysis that showsconnections.

MAKE HUD-1 DOCUMENTS PUBLICThese forms, filed with every mortgage, reveal the real estate professionals involved in a sale and how much they werepaid. Publicly reporting the information would discourage inflated appraisals and other fraudulent acts, experts say.


CONTACTS TO CALLTo report fraud:■ Florida’s mortgage fraudhotline: (866) 966-7226

■ Sarasota County Sheriff TomKnight: (941) 861-5800

■ Manatee County Sheriff BradSteube: (941) 747-3011

■ Charlotte County Sheriff BillCameron: (941) 639-2101

■ District 12 State Attorney EarlMoreland: (941) 861-4400

To report a real estate agent:■ Florida Department ofBusiness and ProfessionalRegulation: (850) 487-1395

To report a mortgage broker:■ Florida Office of FinancialRegulation: (850) 410-9805

Ten ways to prevent real estate flipping fraud

MAKE IT ILLEGAL TO PAYEXTRA FOR DOC STAMPSThe amount paid can be inflated tomake it appear that a property sold formore than the actual purchase price.

8A Sunday, July 26, 2009 www.heraldtribune.com

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