Real Estate and Mortgage Fraud was Massive, Rampant

Let the buyer beware. What is reasonable? Does due diligence mean you should trust nobody and verify everything? Follow upcoming articles for the answer.

Palm Coast, FL – November 12, 2009 – Real estate fraud ran rampant in states such as Florida where the real estate boom overwhelmed the systems’ safeguards. Real estate transactions cross too many jurisdictional boundaries; both state and federal. The result; no single agency takes responsibility for the entire transaction. There simply are not enough safeguards or enough watchers.
The extent to which fraud contributed to the hyper-inflation and subsequent collapse of the real estate market is profoundly underestimated. I believe fraud is the single greatest contributor to real estate market distortions. Fraud was too easy. The rewards were huge; in the millions for some. The chances of getting caught, slim.
Who’s to blame when a buyer’s real estate purchase ends up a bust? Members of one camp blame the "greedy" and "scheming" developers and real estate sales professionals. This is the camp most favored by attorneys. The other camp says that proper due diligence is the responsibility of the buyer; that those who complain, blame others, or file lawsuits are simply whining over bad decisions they made on their own. Further, they shun the idea of getting out from under a mortgage to which they are committed. The perpetual gulf between the two camps is wide.
I support the view that the buyer is responsible for reasonable due diligence and are ultimately responsible for the results of their resulting decisions. But what constitutes reasonable due diligence? Clearly, a real estate transaction is too complicated to verify everything. When a buyer walks into a title company for a 10:00 a.m. closing, they face a pile of forms easily more than one inch thick (sometimes much thicker). If purchasing in a restricted community, there’s another larger pile of papers; the Codicils, Conditions, and Restrictions (CC&Rs) awaiting their scrutiny.
Each piece of paper is at least potentially important, but there is no way the buyer can adequately review them all in the hour scheduled for closing. Deep down they understand that if they don’t sign, they don’t get the house. So they sign.

Trust but verify

On the way to the closing table, the buyer relies on several parties, each of whom have a stake in the transaction. Nearly everyone involved is categorized as a professional; the sales agent(s), the broker(s), appraiser, mortgage broker, and the lender. Most are licensed and/or governed by strict government agency regulations. It’s not unreasonable for a prospective buyer to assume that the parties are acting responsibly, especially when they all seem to support each others’ actions and claims, and that the regulatory agencies are on top of their jobs. Remote U.S. buyers and foreign nationals must rely even more, making them more vulnerable.
Greed was the primary motive of participants in the housing boom and bust; likewise the bubble. But greed alone is not illegal. In fact, the pursuit of personal gain is the linchpin of capitalism and a free market economy. Listen to Milton Friedman’s comments on greed when queried by Phil Donahue. But the pursuit of personal gain must be bounded with limits; hence, laws, regulations, and codes of ethics.
When each party involved in the transaction is tainted, not with greed but with fraudulent intent, the deck is stacked against the buyer. Due diligence becomes impossible; an illusion, smoke and mirrors. The system is too reliant on good faith. Bobby Ginn once told me, "If someone relies on what a salesman says without checking it out, he’s an idiot." While this statement was probably unwise and certainly unpopular at the time, it’s true. But what if all the other "professionals" and public documents supported the salesman’s representation?
At the heart of any real estate transaction is the selling price. The worth of a piece of property is best verified by using comps, or comparable properties; those sold most recently with similar location, size, upgrades, etc. If nearby similar homes recently sold for $800,000, it’s reasonable to assume that the property the buyer is considering is also worth $800,000. But what if the buyer is skeptical about the comps? Let’s say that he/she verifies the transactions at the Clerk of Courts website and the county Property Appraisers website. Sure enough, the neighboring houses were recently purchased for $800,000. The buyer performed his/her reasonable due diligence regarding value.
But what if the $800,000 purchase price of the neighboring house included a $120,000 furniture package and a $150,000 lease back (supposedly paid in cash at closing)? Suddenly, the comparable house is only worth only $530,000. Yet the public records don’t indicate either the furniture or the leaseback.
The county records only what it is given. If the deed says $800,000, that’s what’s recorded as the purchase price, regardless of undocumented side agreements. And the prospective buyer isn’t the only party deceived. The lending bank for the neighboring property and that for the new purchase are also victims unless, of course, their representatives are party to the fraud. (Yes, this did happen.) The initial transaction was rigged to increase the comps for future sales and future bank loans.
There are currently several ongoing mortgage fraud investigations in Florida. They are very paperwork and labor intensive. They are time consuming; taking up months, even years. The alleged perpetrators come from all aspects of the transaction, from real estate sales to bankers. The legal system will determine their ultimate guilt or innocence. But the extensive evidence I’ve seen paints a picture of apparently rampant fraud, with profound effects, both direct and indirect, on the lives of many.
For instance, the person who buys a home resulting from a manipulated property valuation is a direct victim. Owners of neighboring homes are indirectly victimized. The sham transaction raised the "value" of their homes as well, upping appraisals and taxes and creating false equity. The rising tide of fraud-fueled equity floats all boats. Some cashed in with equity loans or "cash-out" refinanced mortgages, only to find themselves unwittingly upside down when prices fell to more realistic levels.
In an upcoming series of articles, will explore three areas where apparent fraud was used to:
1.      Raise the apparent value of development lots
2.      Increase the apparent value of homes, or house/lot packages to up the value of similar properties
3.      Repeatedly inflate the purchase price of homes through manipulated appraisals, then sell the property using straw buyers and complicit lenders and title companies, with no intent to ever pay back the supporting purchase mortgage.

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17 replies
  1. John
    John says:

    My issue

    I’m sure a mob will be after my head for this statement but whatever happened to the market value of anything (land, house, computer, car, etc.) being what the market will pay? If I walked through a house that was felt like it was worth $200k and the seller had an appraisal that said it was worth $500k and a lender was willing to give me $500k would I buy it? NO WAY!! If they can sell it to someone who perceives the value at $500k that is good for them but without all the bells and whistles I’m not their sucker.

    PS – If anyone is interested I have a 1989 Pinto. My neighbor told me he sold one just like it for $85,000. I will let mine go for the basement price of $75,000. Please call for details!

  2. Patricia Fisher-Brewer
    Patricia Fisher-Brewer says:

    Mortgage Fraud

    Regarding your article on Massive Mortgage Fraud….. I have a neighbor who took out a mortgage on a house he inherited from his family about 10 years ago. He only wanted to borrow $16,000 for tuition to attend a technical school. He had not worked in several years and/or worked side jobs getting paid under the table. The mortgage broker kept telling him to borrow more as his property value was approximately $150,000. He initially took out a mortgage for $75,000, then with more persuasion from the same mortgage broker, he refinanced and increased the loan to $100,000 within 6 months. The mortgage broker falsified his income (as he had no job) and went as far as to take photos of his "home business" with tool boxes arranged around a workbench in his carport where he "worked on boats" as a marine mechanic. This mortgage broker surely knew he would never be able to repay the loan at 12% interest. Needless to say, after one mortgage modification last May, he is now back again in default. This greedy mortgage broker collected her commissions twice, and walked away with no risk to herself whatsoever. Something needs to be done to these types of brokers who should be held accountable for defaults resulting from falsified income statements. Plus the fact this poor fella was "hookwinked" into thinking he could actually afford the payments on a house he owned for 10 years mortgage-free with no income to support the loan.

  3. Brian Dickson
    Brian Dickson says:

    Let’s not forget the builders

    There was a lot of things that contributed to the Palm Coast crash.
    Everyone had a stake in it, lenders & speculators (with their countless empty homes) but let’s not forget the part (some) BUILDERS played in the "HOT" and over-driven Palm Coast Market. Builders were escalating their prices regardless of their costs.

    Speaking of our own (National) Builder; their prices were arbitrarily raised almost monthly REGARDLESS of costs…..this builders prices were inflated by as much as $10,000 in a month and this price increase was driven solely by greed. If suckers kept buying the homes prices kept raising.

    Case in Point, today our (National) builder is listing our identical home for $150,000 less than they did 2 years ago……Please don’t tell me it’s because of lower land, materials and labor costs……the price drop was simply the removal of blatent and unethical greed.

    I can hear the chorus of builders replying me now,"buyers have themselves to blame driving up the prices of the new construction," YEA RIGHT boys!

    Nature of sellers…..get as much as I can.
    Nature of buyers…..get it as cheap as I can. And NOT! as your theory suggests that buyers were paying as much as they could.

    Many builders use the words VALUE and TRUST in their promotion materials. Well it was our experience during the crazy wild out of control sales leading up to the inevitable crash ….. for at least this one builder; value and trust were missing in action.

  4. Denis Logan
    Denis Logan says:

    Rules, laws, regulations

    I keep hearing people calling for smaller Government. Then I hear the Government needs to protect us from fraud. Smaller Government is fun to think and talk about, but hard to live with.
    When the buyer goes to the closing table with all the paperwork and all the professionals earning a commission gathered around them. The buyer wants to think there is a referee of some kind keeping them from being cheated. The same goes for buying a new car or appliances, or anything else. We have the laws, but as we are seeing the Government doesn’t have the resources to go after all the law breakers. The cheats that aren’t caught and punished will do it again.

  5. frankie coconote
    frankie coconote says:


    Toby, I’am looking forward to your future articles on fraud. As I am an owner in of one property in Reunion I bought there expectation that Bobby Ginn was a man of his word. As we know now he is not. We all know that he sold every launch within hours and did not deliver any of his promises. As an example Equestian center, world class gym and spa, resturants, shops. I did not buy to "FLIP" my property or sell later for a profit. I bought because I belived the sales man the director of sales and Bobby Ginn’s BS. I thought it was going to be a place my family and I could enjoy for years to come. I did not buy with the intention of greed. Unfortunatly I bought from the greedy. People have to stop blaming the honest hardworking people that bought and believed in Ginns deceptions. He should be in jail.

  6. P Kelly
    P Kelly says:

    Motivation of Buyers

    As you pointed out, Toby, when it comes to analyzing comps; there is always more to the story than just the recorded selling price. I think the biggest thing that was overlooked by so many buyers – especially in the Conservatory – was the motivation of the buyers. Nearly all (if not all) 340 lot purchases were speculatory in nature. This should have been a pretty good indicator that all of these lots would be back on the market – in addition to all the other high-priced vacant lots in the Hammock Area.

    The Law of Supply and Demand tells us that as prices go up for any given commodity, demand will fall. When inventory rises at the same time demand is waning, the pressure on prices can only be downward.

    The real problem, in my opinion, is that too many people threw common sense out the window and became sheep. Now they want to blame someone else for their lapse in judgement.

    Was Bobby Ginn a bit of a scammer? Probably – but the last thing he wanted was for the empire to crumble like it did. His lapse in sound decision making was thinking you could build the empire on speculative buyers.

    SLAYER says:

    Reply to P. Kelly

    Ponzi schemes do not have a long lifespan, this one was 4 years. As you rightly agree all sales were to Speculators, but didn’t Bobby Ginn say to Toby in an interview ‘I never sold to Investors’. Unfortunately Bobby Ginn’s Business plan was seriously flawed and very short term, no end users, no roof tops, no Community. Every one of his Communities was the same, everything was bought by Investors and Ginn salesman/execs, family, friends and LLC’s set up by all of the above to fuel the fire, smoke and mirrors, it was an empire built on sand, no foundation, no future.

  8. slayer
    slayer says:


    Over 30% of all sales in Central Florida are to Foreign National buyers, what chance does he have to do due diligence, when he is introduced to a Salesman, Developer, Appraiser and Loan Originator/Mortgage Broker and they work together to defraud him and all the ‘comps’ are fraudulent, what chance does he have, Caveat Emptor goes out of the window.

  9. Slayer
    Slayer says:

    Ponzi Scheme

    Question: What is a Ponzi Scheme? How Do Ponzi Schemes Work?
    Answer: A Ponzi scheme is a scam investment designed to separate investors from their money. It is named after Charles Ponzi, who constructed one such scheme at the beginning of the 20th century, though the concept was well known prior to Ponzi.

    The scheme is designed to convince the public to place their money into a fradulent investment. Once the scam artist feels that enough money has been collected, he disappears – taking all the money with him.
    Sounds like Ginn and Lubert Adler to me.

  10. Patrick Kelly
    Patrick Kelly says:

    Reply to Slayer re: Ponzi Scheme

    A Ponzi scheme exists when the schemer takes money from investors without any underlying investments. Then as new investors come in, part of their "investment" is used to pay the earlier investors. It is a pyramid – as long as the # of investors grows, prior investors can realize a return on their "investment". They never atually own anything that they can sell to someone else. On the other hand, anyone that bought from Ginn did own real estate that can be sold, albeit at a significant loss now.

    Bernie Madoff ran a Ponzi scheme. Ginn created large demand & the perception of scarcity for a commodity that was not scarce.

    Whether or not fraud was committed will be determined by the courts. There was, however, no Ponzi scheme.

  11. P. Kelly
    P. Kelly says:

    Reply to Toby & Slayer

    I’m going to stick to my guns on this one, guys. During the craze, there were very few (if any) people who followed market activity closer than I did. Buyers set new market highs on a near daily basis. Were all appraisers culpable in perpetration of fraud?

    When hundreds of people line up in hopes of being one of the "Lucky Ones" whose number is drawn to get the opportunity to buy, when every single one of them is more than willing to pay the listed price, when all 340 lots go under contract in a single day; then the market value on that day was whatever the lots sold for.

    Before any lender or appraiser got involved in a single transaction, there was already a contract (so we can’t blame the evil banker or unscrupulous appraiser). An appraiser can use a pending contract as a comp. In fact, in a case like the Conservatory – when there weren’t true comps available in the market, based on lot & community characteristics – those contracts were the most appropriate comps for an appraiser to use. Each sale in the Conservatory, therefore, had 339 comps to support its value.

    From my personal experience, I can assure you that the vast majority of buyers in the Conservatory would have bought regardless of the advice they were given. I was approached by a client & friend to be part of a group that was going to buy a lot. I declined and gave him my reasons – he and the group still bought into the hype. I don’t need to tell you how their story ended. I also told a business associate that I thought anyone thinking of buying in the Conservatory was a "****ing idiot" – I later found out he was a partner in a group that went on to buy two lots.

    Neither Bobby Ginn, nor any of his sales associates, needed to lie to people. All they had to do was give them the helicopter ride & show them the signature line.

    Let me clear – I am not a fan of Mr. Ginn. I thought he was a snake oil saleman from day one. When you listened to him speak, it conjured images of the old-time traveling evangelist who pocketed the contributions of the believers.

    If you analyze the alleged fraudulent transactions where insiders flipped lots for huge profits in the same day – you will find that these were contracts with delayed closings. They were written at what amounted to market prices at the time of contract, and there were already market sales that had occurred to support the prices the 2nd buyer paid.

    The inability to flip lots that set all-time highs in sales prices was easily foreseeable. I am not a clairvoyant, nor is anyone else I know that was perplexed by the willingness of otherwise intelligent people to line up to buy in the Conservatory.

    I think a gentleman I know put it best when said that the real "winners" were the ones whose numbers weren’t drawn that day that Cheryl Crow sang.

    The psychology involved here is that nobody wants to admit to themselves or anyone else that they acted foolishly and naively in buying these lots as an investment. Unfortunately, the truth sometimes hurts.

  12. John
    John says:

    RE: Mr. Kelly

    It is somewhat understandable that you view the past as you do since you were an employee of the Ginn Company. Obviously, the Conservatory is near and dear to your heart since you were the one stuck with the mess left behind from all of your colleagues.

    I will keep my comment short and respond to only one point. Your belief that the original buyers should have stayed away based on the fact that almost everyone was an investor. The ONLY people that knew that information were the salespeople for the Ginn Company. If it was the policy of Mr. Ginn and his company to keep the investors to a minimum they surely failed which is apparent by the ghost town that is now the Conservatory. Did some of the buyers know that there were investors buying, sure. Did everyone who purchased a piece of property know that this product was being marketed purely to investors, NO!!

    Salesmen sold the fact that the properties would surely increase in value based on the obvious "demand" proved by the one day sellout. Once all of the properties were sold and out of Ginn’s inventory ALL activity stopped dead. That is in fact a Ponzi scheme.

    It’s going to be near impossible to prove and if it is a court may not view the acts as illegal but they were without a question unethical.

    Glad you don’t work for such a dirt bag any longer but I must ask, why did you choose to work for a man that you knew to be a "snake oil salesman"? I’ll tell you why. It’s the exact same reason why all of those people purchased lots…..the thought of making quick, easy money. It seems everyone got the short end of that stick.

  13. Toby
    Toby says:

    Reply to John

    No, you don’t have to do a deal that does not make sense to you. But I’m talking about the representatives at every level of the transaction, backed up by public records supporting valuations. At some point, we need to be able to rely on professional opinions. When the whole transaction is rigged, it is impossible to perform realistic due diligence.

  14. Toby
    Toby says:

    Reply to P Kelly

    Yes, the buyers used bad judgment. Yes, there was plenty of greed to go around. Buyers had their happy ears on. In some, not all, cases the deck was stacked against them. The alleged fraud I will talk about involved all participants in the transaction, most of whom are licensed professionals. A buyer should be able to have a reasonable expectation that these people are guided by ethics and standards; that they will follow the law. In fact, that was not always the case.
    The participants coordinated their efforts to artificially raise prices and expectations. Buyers, already predisposed to make a bad decision were led to slaughter. It was like shooting fish in a barrel.

  15. Toby
    Toby says:

    Reply to Dennis Logan

    In fact, government helped create the problem. They created a false sense of security. All the disclosure forms and licensing requirements lull the buyer into thinking they are transacting in a safe environment when in fact they are not. Real estate transactions, driven by arcane real estate laws, overwhelm the average person. Most buyers do a better job of researching their HD TV purchase than the purchase of a piece of real estate. As a result, they rely too heavily on the honesty and integrity of those who are facilitating their purchase.

  16. Toby
    Toby says:

    Reply to P Kelly

    This article was not about Bobby Ginn, although I did quote him once. It was also not about The Conservatory. I believe that fraud played a large role in raising real estate prices during the boom. Let me cite an example that cannot be confused with either Bobby or The Conservatory.
    A real estate agent approaches a motivated seller with an offer. The seller’s home, originally priced at $225K is now listed for $215K. A contract is signed at a sale price of $290K. The next day, the listing price in the MLS system is changed to $300K. I was unable to find the buyer to verify information in this or any other similar transactions.
    Several buyers bought more than one home. Their reported addresses were not always the same on each transaction. This looks an awful lot like straw buyers to me.
    This pattern was repeated several times, many with the same members of the real estate, appraisal, title, and lending professions. It happened in Flagler County and elsewhere. The result, foreclosure in each case I found. A cascade of artificially inflated values was begun.
    And I could go on. In fact I will in the upcoming articles.

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