A nasty foreclosure scam has turned up in California that federal officials have indicted 20 people for involvement.

It’s complicated, but involves a scam known to include “Straw Buyers”.

According to the MetroTex Association of Realtors in North Texas, Straw Buyers are described as “loan applicants that perpetrators use to obtain home loans, but who usually don’t intend to occupy the properties they’re buying.”

Scammers will pay someone (the straw buyer) to use their name and credit information on a mortgage application to buy a home. The individual isn’t buying the property and probably has never seen it. They merely sold their name and good credit.

The scam artist will then often take over the payments on the mortgage, and assume title to the home. What they do with the mortgage or home title can vary. But both are guilty of fraud, The straw buyer can also end up being responsible if the lender forecloses and there is a deficiency balance left over.

In this recent scheme, scammers have allegedly made about $12 million from over 100 victims that they tricked out of their homes. Charles Head, 33, of Los Angeles is accused of orchestrating it all, using 2 different “foreclosure rescue” companies to strip equity and take over properties from distressed homeowners, who pay the scammers extra, and end up losing their homes on top of it all.

Prosecutors say that the criminals approach distressed buyers and offer to save them from foreclosure by taking over the mortgage, making it current, and the homeowners then add the criminals to the title of the home.

Some of the 20 indicted people were used as “straw buyers”…being paid to take out equity lines on the property after being added to titles.

Eventually, the scammers may sell the homes, stop making the mortgage payments, and/or being eviction proceedings against the victims…who are now out of a home as well as their equity.

A second indictment from a federal grand jury also included Head and 2 others from the original indictment with other equity-stripping schemes that have added another $5.9 million in losses to other victims on a nationwide level.

The Metrotex BOR list several red flags that consumers should watch for in general to avoid being involved in a real estate fraud scheme. In these cases, three listed would have indicated a problem:

*Amended Contract to Reflect a New Purchaser.
*Multiple Transactions Between Affiliated Parties
*Agreements to be Performed “Outside or After Closing”

Buyers and homeowners need to be on their guard against any company that promises unusual help or a magic way to avoid foreclosures. Try everything you can to work things out with your bank or mortgage company, and don’t believe everything you hear.

For information on foreclosures in Myrtle Beach SC, visit our Myrtle Beach Foreclosures website and contact us for a listing of available properties. Search the MLS for Myrtle Beach Real Estate at www.myrtlebeachcondos.net

When ex-President Bill Clinton visited Myrtle Beach recently, he spoke about Hillary having a plan to help the housing crisis by requiring a moratoriam on foreclosures. Though it would have been ineffectual by the time the November elections come around, it may have sparked an idea in President Bush to implement a similar government control.

The Bush administration has announced “Project Lifeline”, which has assembled 6 of the country’s largest mortgage institutions and had them to postpone foreclosures on qualified homeowners for 30 days. The financial entities will hopefully go out of the norm to help with re-writing and refinancing the past due mortgages…thus saving at least a few foreclosures from happening.

The lenders involved were JPMorgan Chase, Bank of America, Countrywide, Citigroup, Washington Mutual, and Wells Fargo. They have agreed to contact homeowners that are 90 days or more past due, and attempt to lower payments and work to help them keep their homes.

While this could offer help to a select few, a large number of buyers are letting their homes go back due to negative equity and the fact that the home they purchased is unable to be sold for what they financed. Lenders were far too liberal with giving “down payment loans” (which are no more than 2nd mortgages) and financing homes to the point that the buyer has no money to lose by letting them go back – in fact making them feel like foreclosure is the wiser choice.

Myrtle Beach foreclosures are not that high for primary home buyers. The majority of Myrtle Beach real estate problems are with with investment properties, and resulting from those who entered the preconstruction game too late. Several of the resorts in Myrtle Beach and North Myrtle Beach condos had escalated in price by the time of closing that they are no longer appraising at those prices. But from Pawleys Island real estate to Little River, our market is stablizing now, and prices have reached a plateau.

We will hope that the usual upsurge in purchasing and prices will happen as always when our season kicks in, and vacationers fall in love with our area enough to want to have their own place at the beach.

………………………………………….Marco Island, Fla.
…………………………………………………………$1.05 million
In South Florida, on the Western side of the state, Marco Island is a resort community, filled with beachfront hotels. This four-bedroom, three-and-a-half bathroom home was built in 2004 and has 2,700 square feet of interior space. The red-tiled, Mediterranean-style house also has a backyard pool. It is listed through First Preston.

According to Forbes.com, the foreclosure problem is now starting to affect the very wealthy, and to include many million dollar plus properties in ritzy neighborhoods. It seems that the shady mortgage companies also loaned money for luxury properties to those without the luxury bank accounts.

They used a couple of well-known foreclosure websites, specifically searching for homes and condos for sale that were in any stage of foreclosure, including the REO, or bank-owned listings.

The surprising findings included owners with strong credit scores and qualified in that category, but with excessive loan amounts, little or no money down, and income that could not support the expenditures. Quoting a demographics and housing research company executive, they reported that people with $100K annual incomes were granted million dollar loans. That was obviously not going to fly if the properties had to be held instead of reselling…which of course happened when the market suddenly cooled in 2006.

Humorously, these homes were referred to as McMansions. (McDonalds pocketbooks sporting movie star properties one assumes!)

When property prices jumped so high in 2005, it was a good thing for those who had purchased them the years before and then sold for double and ran with it. But for those who got in too late and BOUGHT at the inflated prices, it presented a real problem. Myrtle Beach real estate had some cases of this, particularly in several of the preconstruction resorts going up at the time. We preached and preached about “getting in early”, but there are always those that wait just a little bit too long and miss the boat.

This will happen with Myrtle Beach foreclosures and this buyer’s market that exists right now as well.

Too many people are waiting just a little too long, trying to gauge the market to the very last penny…and that is not always prudent. Myrtle Beach condos that are right now at rock bottom prices are going to escalate at least a bit when our vacation season is in full swing, and the deals that are there in February and March will probably be much better than those in June and July.

And we hope that the upward pricing will kick-start the market and prices will continue to rise. The article went on to cite a home in Washington DC that had dropped in equity by $140,000, and with the bank foreclosure pricing, it declined in value by $300,000. That is what hurts the market and further lowers the prices. The more foreclosures that are listed or sell at these below value prices, the more it erroneously causes the statistics on regular housing to appear higher than what consumers are expecting it to be.

Thankfully, banks don’t like to drop prices below the loaned amount, or things would be even worse.

Florida has the second highest foreclosure rate in the country, but brokers say that even as it pulls in more traffic from speculators looking for that low price, sellers are refusing to buckle under the pressure and give their properties away. I think that is true with our upscale Pawleys Island real estate market, as well as the high end homes for sale in Myrtle Beach, such as Grande Dunes or some of the waterway mansions. If the owners can afford to sit tight, the market is going to eventually bounce back and not cause such a loss in value for the wealthy as well as the regular residents and vacation home buyers.

Interesting Q & A from an article in the Bellville News Democrat

Q. In response to a reader who owned three rental properties in addition to his primary residence in Irvine, Calif., you said he could not do a 1031 exchange on his personal property. We’ve got title companies and aggressive CPAs here in San Jose, Calif., who are suggesting this scenario for highly appreciated properties.

It’s pretty commonplace that someone bought a property for $400,000 and now it’s appreciated to a $2 million house. Say you’ve bought a house for $400,000 years ago here in Northern California. You bought in a good community and now the same property is worth $2 million. So you’ve definitely lived there for five-plus years, although I guess two years should be enough for our example. You move out of the property and rent it for two years, or a year if you’re aggressive. You then sell the property as an investment property.

Because you’ve lived in it for two of the last five years, it should be eligible for a 121 exchange. Since it’s also been an income property for two years, after taking your 121 exclusion, you should be eligible to take the balance in a 1031 exchange since it does qualify under a like kind exchange. So you’ve now pulled $250,000/$500,000 out under a 121 exchange and you’re pulling the balance out and deferring gain into another property in a 1031 exchange. I know this is aggressive, but will it hold water?

A. Yes, the strategy that you have outlined will work, but you must be careful to establish investment intent. Because you have lived in the property for two out of the last five years, you will qualify for the 121 exclusion providing tax-free profits on the sale of a personal residence of up to $250,000 for a single person or $500,000 for a married couple.

The 1031 tax-deferred rules are based on the premise that the property that you own is eligible if held for investment or used in a business. It is important to understand that the IRS will consider the intent of how the property is used at the time of the exchange. This allows the owner the opportunity to change the use of the property from a primary residence or vacation property to an investment property.

As part of demonstrating intent, you should rent or attempt to rent the property for fair market value, report rental income on your tax returns, and depreciate the property. The tax code does not address any required amount of time that this must be met to qualify for 1031 tax status. My 1031 exchange intermediary friends feel that logic dictates a two-year holding period or two-year tax cycle as a reasonable amount of time.

Dr. Thomas Musil is the director of the Shenehon Center for Real Estate in the Opus College of Business at the University of St. Thomas in Minneapolis. He has more than 25 years of experience in real estate as a broker, analyst, consultant and expert witness in real estate litigation and arbitration disputes.