Don't Get Duped Part 2

Big money is pocketed in inflated appraisal scheme



BY JENNIFER DIXON

FREE PRESS STAFF WRITER



Last of two parts



On the Detroit Investment Homes Web site, the bungalow for sale looked

like a steal.



The site suggested a savvy buyer could snap up the Detroit house for

just $1,500, then persuade a lender to approve a $45,000 mortgage --

leaving $43,500 after closing.



But there's a hitch: The house is in shambles, and the city has ordered

it demolished. And mortgage companies aren't about to lend that kind of
money unless they've been dupedwith a phony appraisal, mortgage experts

say.



It may be hard to imagine a deal like this succeeding. But the Free

Press has found that speculators have convinced mortgage companies to lend

millions of dollars in questionable circumstances.



Wayne County officials fear the schemes are so rampant that they called

in a special law enforcement task force -- including the FBI, IRS and

State Police -- to begin investigating.



Property and court records reviewed by the Free Press indicate that the

deals under investigation appear to be riddled with inflated

appraisals, forged deeds, false claims about a borrower's income and back-to-back

sales of properties on a single day.



Separately, state regulators are investigating whether some of the

mortgage brokers involved are licensed to do business in Michigan and

whether their lending practices are legal.



The deals are a new version of an old gimmick -- a land flip. Flips are

based on buying low and selling high, and can be legal. But they are

illegal if inflated appraisals are used to con lenders into making

mortgages.



Robert Simpson, a lawyer and president of the California-based

Investors Mortgage Asset Recovery Co., said he has never seen such huge sums of

cash promised to investors as the ones in the Detroit area. His company

recovers loan losses for banks and investigates mortgage schemes.



Web sites offer properties in all price ranges -- from rickety

bungalows in Detroit to million-dollar homes in places like West Bloomfield and

Birmingham that promise cash back, sometimes worth hundreds of

thousands of dollars.



Would-be real estate investors are lured into deals not only through

Web sites, but through real estate seminars and newspaper ads promising

cash after closing, no money down and below-market prices on property.



Real estate, investors are told, is a solid investment: Buy a home, fix

it and sell it at a profit. Or rent it out and make some money.



But in many cases, they are not told that they are buying the property

from someone who may have only owned it for a few minutes or a few

days, someone who may have bought it for $10,000 and is reselling it for as

much as $110,000.



"No sane person would want to lend their money for this kind of

transaction," Simpson said.



Simpson said of the schemes used to get loans: "It's outrageous, and,

in my opinion, it is illegal."



Investor now 'desperate'



When Hayko Ekmekjian decided last year that he wanted to be a real

estate investor in Detroit, American Capital Mortgage made it happen for

the Turkish immigrant who has a disability.



He scoured newspaper ads, looking for opportunities. Within two months,

he bought two homes and borrowed $162,800 to pay for them. Today, he is

struggling to make his mortgage payments on his income: a monthly $726

disability check and about $100 a week from a job at a car wash.



He lives in one of the homes and rents out the other.



Ekmekjian bought his first house in April 2003 from Gellett Properties,

an Oakland County firm, and got a mortgage for $82,800, Wayne County

records show. What Ekmekjian didn't know, he now says, was that Gellett

had bought the property just days earlier for $48,000, then sold it to

him for $92,000.



A month later, Ekmekjian bought his second home in Detroit, this time

from JGE & Associates of Oakland County. Wayne County records show that

JGE & Associates acquired the property the same day it sold the house

to Ekmekjian. JGE paid $25,500, then sold it to him for $100,000, the

records show.



Ekmekjian got another mortgage -- for $80,000.



And in both cases, Ekmekjian said, American Capital Mortgage of Oakland

County arranged for him to get the mortgages.



Ekmekjian said he put no money down in either purchase and, in fact,

got a $7,000 check after each closing.



He said he saw paperwork on one of the homes claiming he had put

$24,000 into it -- "which wasn't true."



Ekmekjian said he is barely making it, with help from family -- and

credit cards.



"I'm desperate," Ekmekjian said. "If I lose both of these houses . . .

I'm going to be in the dirt."



All three companies he dealt with are affiliated with Marvin Fried.



Fried said he managed American Capital Mortgage in Farmington Hills,

although an executive for its parent company said Monday that the branch

was closed last week. Fried also has interests in several other

companies, including JGE & Associates, Gellett Properties, AG Financial LLC

and Key Properties of Michigan.



Fried said he makes secured loans to borrowers to help them pay for

repairs or buy furniture.



"I can definitely tell you, if you bring up my name to people, you

won't find one person who said I took advantage of them," Fried said.

"Nobody -- nobody -- has been deceived by myself."



Fried's businesses have bought and resold dozens of metro Detroit

properties in the last three years -- often with back-to-back sales on the

same day. The price can double within hours.



For example, JGE & Associates bought a property in Detroit on June 30,

2003, for $30,000. That day, JGE & Associates sold it for $63,000. Both

sales were handled by the same title company, and the same notary

public signed them.



In another deal, JGE & Associates acquired a house on Wilfred in

Detroit for $17,500 in February 2003 and sold it a month later for $72,000 to

a firefighter looking to invest in properties. Wells Fargo Home

Mortgage Inc. lent $61,200 for the purchase.



Fried was asked why prices shoot up between the time he first buys a

property, then resells it -- and why mortgage companies don't notice. He

said sometimes buyers fix a home, even before they actually own it.



Fried wrote mortgages on some of the back-to-back sales involving his

companies, and three of his customers told the Free Press that they got

cash from Fried or American Capital after closing on the property.



The American Capital office overseen by Fried was a branch of Capital

Mortgage Co., based in Addison, Ill.



Greg Contos, president of Capital Mortgage, said Monday he shut down

American Capital because state regulators alerted him to some compliance

issues, such as proper licenses.



"We're no longer doing business in Michigan," Contos said. "Marvin is

not doing any more deals, not through American Capital Mortgage."



Ken Ross, chief of staff to Linda Watters, commissioner of the state's

Office of Financial and Insurance Services, said Capital Mortgage

failed to file required financial reports with the state, and the agency

revoked the company's license last year.



Ross said that if Fried was operating American Capital as an

independent contractor, he would need a license. But state records show Fried is

not licensed.



"We don't have him in our system at all," Ross said.



Contos, the president of Capital Mortgage, told the Free Press that

Fried was indeed an independent contractor.



Fried maintained that Capital Mortgage was responsible for making sure

the operations in Farmington Hills met state rules, including whether

he has a license.



"That would be something set up by them, not me," he said.



One mortgage company, Guaranty Residential Lending Inc. of Austin,

Texas, is suing Fried and American Capital Mortgage in 48th District Court

in Bloomfield Hills over a mortgage for a Flint property. The suit

alleges that one of Fried's companies bought the property, then resold it

for far more than he paid. American Capital wrote a mortgage for the

property using inflated appraisals, the suit said.



The mortgage went into foreclosure and the lender is out $19,022, the

suit said.



Setup is ripe for prey



Experts say such dealings are pervasive in metro Detroit.



Murray Brown -- director of development for the Michigan Mortgage

Lenders Association in Lansing, a trade group for mortgage lenders -- said

that the home buying and refinancing boom has swamped lenders, putting

them at greater risk of fraud.



"By and large, the mortgage industry has been tremendous in continuing

to drive our economic engine," Brown said. "That said, the kind of

volume of credit that flows through the system draws attention, and

unscrupulous players will try and find ways to tap into that volume and commit

fraud. They're going to find weak spots and prey upon that."



Tony Viviani, who manages the Stewart Title operations in Michigan,

said the Houston-based company, which writes title insurance, is seeing

fraud with increasing frequency in metro Detroit.



"In and of itself, nothing is wrong with a flip -- that is the American

dream," Viviani said. "What is wrong is when they're taking fraudulent

appraisals and inflating the value of the property and obtaining loans

on those fraudulent appraisals."



In September 2002, a firm called the Indiana Group LLC -- owned by

Ralph Marcus Maupin Jr., a real estate dealer who goes by Mark -- sold a

Detroit house on Santa Rosa for $5,000 to Tracey Griggs, an investor who

has conducted other deals with Maupin. Griggs resold the house that

month to Linel Jones of Detroit for $72,000. Jones got a $63,000 mortgage.



Today, the home is abandoned and is on the city's demolition list, its

roof nothing more than wooden planks.



Griggs declined comment. Friends and family members of Jones said he

died three months after the deal.



Southfield-based World Wide Financial Services Inc., also known as

LoanGiant, was recently stung with five bad mortgages believed to be tied

to the scheme, said Jack Wolfe, the company's chief executive.



World Wide also is being sued by the Residential Funding Corp., which

alleges World Wide made another 28 questionable mortgages worth more

than $3.7 million total. One of those mortgages was on a $1-million French

manor in Bloomfield Hills.



RFC is a subsidiary of General Motors Acceptance Corp., which funds

mortgages. RFC has stopped funding mortgages made by LoanGiant because of

questions about the loans, Wolfe said.



The suit alleges that some loans were made to people based upon

inflated claims about their incomes, or inflated appraisals.



Wolfe said not all of the loans in the lawsuit are bad.



"We have a problem, but we don't have $3.7 million in problems, and we

certainly don't have a problem that justifies the termination of our

relationship.



"We are a lender in good faith," Wolfe said. "We cannot guarantee that

borrowers will borrow in good faith."



Inquiry launched



Reacting to concerns about widespread abuse, Wayne County authorities

began discussing the situation with the Detroit Metro Identification

Fraud Task Force this month.



Members of the task force -- who also are looking at Oakland County

deals -- include the State Police, local police from cities such as Troy

and Auburn Hills, the FBI, IRS, Secret Service and Postal Service, the

federal Bureau of Alcohol, Tobacco, Firearms and Explosives, and the

U.S. Attorney's Office, officials said. Wayne County Executive Robert

Ficano's consumer protection unit is also looking into the situation.



Donn Fresard, chief of staff to Wayne County Prosecutor Kym Worthy,

said the office is aware of the problems.



"Inasmuch as there are currently a number of active investigations, we

are unable to comment further," Fresard said.



Another official familiar with the probe said investigators not only

are looking at suspected mortgage fraud, they are looking at possible

identity theft. They also are investigating the possible use of forged

deeds to steal homes from vulnerable people or the estates of homeowners

who have recently died.



Bernard J. Youngblood, the Wayne County register of deeds, said he has

turned over several files of suspicious deals to county prosecutors and

investigators.



He learned of one questionable deal from a distraught owner who

believes several of her properties were taken illegally and used to get

mortgages.



"In recent times," he said, "I've seen a proliferation of what I

suspect is a distortion of many of our land records."



Youngblood said he has spoken to some property owners who say they lost

property through forged documents.



"When they asked, 'How was my land signed over to somebody?' I realized

the pain and cost and hardships they must go through to gain back the

legal title to their property," he said.





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FIRST REPORT IN THE SERIES













Wallets get fat from donated real estate