Mark Zilbert’s Blog

Tue Nov 13, 2007 8:34 AM EST

By Tom Brown

MIAMI (Reuters) - At first glance, the 43-story building in Miami’s international banking district seems little different from other high-rise condominiums overlooking the turquoise waters of Biscayne Bay.

But the 643-unit condo known as the Club at Brickell is a leader in mortgage foreclosures and it appears also to stand at ground zero in a blizzard of fraud that may lie behind many of the failed loans threatening to bury the U.S. property market.

America’s subprime mortgage crisis is partly due to predatory, or aggressive, lenders, hard-sell tactics by mortgage brokers and an easing of underwriting standards in the $10 trillion home-loan industry.

But fraud accounts for a sizable share of the bad bets on mortgages, according to many industry experts, and lenders may have been victimized as much as anyone else.

“The lenders are holding the bag now, that’s what we’re finding out,” said Glenn Theobald, head of a mortgage fraud task force formed in south Florida’s Miami-Dade County in September.

Mortgage scams involve a cartel of inside players — colluding property appraisers, real-estate brokers and accountants willing to draw up fake income statements and tax returns — who recruit people with good credit histories to serve as a decoy or “straw buyer” in a real-estate deal.

The conspirators inflate the price of the property, to get the biggest loan possible, pay the sellers the original price and then pocket the excess loan money as “cash back” at the closing of the deal.

The decoy buyer is paid off — often with just $5,000 — and the property is quickly abandoned to foreclosure, said Theobald, a senior official with the Miami-Dade Police Department.

‘EPIDEMIC’

“It’s an epidemic,” said Nancy Hogan, a veteran realtor and former head of the Florida Real Estate Commission.

“The cash back, the fraud for profit, is what has been so rampant,” she said.

The Club at Brickell has the highest current number of foreclosure proceedings involving any single south Florida property.

There may be other properties in the United States that hold the distinction of being riddled with more cases of apparent mortgage fraud than the Club.

But Doug Dewitt, a real estate broker contracted to work with several lenders on the valuation and disposal of foreclosed properties, said nearly 70 percent of the sales or closings at the Club over the last 18 months were questionable.

That works out to more than 200 possibly shady deals in a single building, he said.

The dubious transactions all fit a pattern that Theobald said should trigger “bells and whistles” for law enforcement anywhere — time and time again properties that failed to sell for months when listed at around $450,000 were pulled from the market and then suddenly sold for more than $800,000.

Florida leads the nation when it comes to mortgage fraud, according to the Virginia-based Mortgage Asset Research Institute, a group that works closely with the U.S. Mortgage Bankers Association.

Many apartments could wind up being sold at auctions like one held last month for bank-owned properties in Fort Lauderdale, further depressing prices in a market suffering its biggest condo glut in decades.

“You’ve seen some of it already. They are actually having auctions to try and sell units,” said Theobald, when asked about discount sales involving recently foreclosed properties.

“I don’t know where it’s going to end up,” Theobald said. “I don’t know when the bottom is going to be.”

Ken Thomas, a Miami-based banking expert and lecturer at the Wharton School at the University of Pennsylvania in Philadelphia, said there was little surprise Florida led the country in mortgage fraud.

It stems, at least in part, in the way lenders plowed “easy money” into the local condo market before Florida’s recent housing boom turned to bust, Thomas told Reuters.

“We’re going to see a lot more of this fraud being exposed, especially as these units go into foreclosure,” Thomas said.

“We were the poster child of the housing bubble … maybe we should have expected more of this.”

(Editing by Michael Christie and Eddie Evans)

By LINDA RAWLS

Palm Beach Post Staff Writer - Thursday, November 29, 2007

Condominium sellers blinked first.

Prices of existing condos in Palm Beach County plunged 30 percent in October - the sharpest annual decline since the Florida Association of Realtors started tracking them in January 2006.

The median price of an existing condo in Palm Beach County was $158,900 in October, the association said Wednesday, down from $225,500 in the same month last year.

“Individual sellers are becoming more realistic and lowering prices,” said Jack McCabe, a Deerfield Beach real estate consultant specializing in the condo market. Seller incentives have failed, he said, and appraisers have “returned to fundamentals.”

Palm Beach County has a 35-month supply of existing condo units, McCabe noted.

On the Treasure Coast, prices of existing condos remained unchanged from a year ago at $225,000, the association said.

Despite falling condo prices, sales continued to decline.

In Palm Beach County, sales of existing condos fell 12 percent, and on the Treasure Coast they fell 13 percent.

Statewide, condo sales fell 20 percent, with 16 of 20 markets posting declines compared with a year ago. The markets that increased were: Lakeland (9 percent), Miami (7 percent), Tampa (8 percent) and Tallahassee (17 percent).

In the single-family home market, the Treasure Coast had a 41 percent plunge in sales compared with October 2006, the Florida Association of Realtors said.

Single-family home prices on the Treasure Coast also fell, to a median of $201,000 from $242,400. The 17 percent price drop was the highest-percentage decline in sales in the state.

Palm Beach County single-family home sales fell 27 percent, while the median price of an existing single-family home in Palm Beach County fell 5 percent, to $348,300 from $365,600 a year ago.

There’s a record four-year supply of condos and single-family homes for sale in Palm Beach County, according to Illustrated Properties Real Estate.

“The high inventory shows that there is still a gap between buyer and seller expectations regarding price,” said Mike Pappas, chief executive of The Keyes Co. In a normal market, six months is the standard supply of homes for sale.

Statewide, single-family home sales plunged 29 percent from a year ago, while median prices fell 8 percent, to $222,100 from $242,700.

Not all single-family markets had falling prices.

Pensacola prices rose 3 percent to a median of $161,900, the Florida Association of Realtors said. Miami prices remained basically unchanged at $354,800, and Fort Lauderdale prices rose 1 percent to a median of $354,000.

Sales of existing single-family homes nationwide fell 21 percent to a seasonally adjusted annual rate of 4.4 million, the National Association of Realtors said.

The median price fell 6 percent to $205,700 from $219,600.

Condo sales nationwide fell 20 percent in October to a seasonally adjusted annual rate of 600,000 from 752,000 in October 2006.

The median price of an existing condo nationwide fell 5 percent to $223,500 from $213,100.

by Sharon Harvey Rosenberg 

A battle over a luxury condominium development in Coconut Grove has caught the attention of developers, philanthropic activists, public officials and even hospital executives. With big money on all sides, the proposed development — 300 Grove Bay Residences — has generated controversy, court motions and neighborhood complaints because it will sit almost in the back yard of the Vizcaya Museum & Gardens, a national historic landmark just miles south of downtown Miami that’s the darling of local historians, society players and tourists.

The project involves three proposed high-rise buildings on waterfront property owned by Mercy Hospital near Vizcaya. The development team includes Related Group and Ocean Land Investments.

“From a legal standpoint, you have plenty of fire power,” says James Murley, director of the Joint Center for Environmental and Urban Problems at Florida Atlantic University/Florida International University. “These parties seemed locked in one classic legal battle.”

Those against the development have challenged Miami’s previous decision to rezone the property from “government institutional” to “multifamily high density.” They argue that the project opens the door to future encroachment on national landmarks.

Backers of the project argue that the development team has scaled back the buildings and agreed to make concessions. What’s more, they argue, Mercy Hospital will use its share of the proceeds to improve the quality of medical treatment.

Mercy CEO John Matuska says, “The project that was developed was the least intrusive on the community in terms of density and impact,” adding that the hospital could have used the land to build a medical office building, an assisted living facility or other healthcare offices that would have generated four to five times the traffic of the proposed project.

Ironically, the battle is being played out as the condo market has stalled, a fact not lost on opponents of the deal.

“We kept saying slow down,” says Becky Maltov of the Dade Heritage Trust, one of the leading preservationist organizations for historical landmarks in Miami. “We’re going to be stuck with all of those condo projects that people can’t sell or live in.”

SOURCE:  Florida Trend