[ChrisM44]

My brother purchased 5 properties with another individual about 1 1/2 years ago. I believe they have been grossly over appraised. The deal went as such: This individual would find deals on properties and get people with good credit to buy the houses. He then would lease the properties back for typically a two year period and place tenants in them. My brother would receive monthly payments totaling enough to cover the mortgages and utilities if applicable. This individual was also responsible for all maintenance and repairs needed on each property. Taxes and insurance were to be handled by him as well. The problems began to arise about 4 months into the deal, when payments were late; and eventually stopped all together. It turns out that this individual has done these types of deals with many people here, all with the same results. He is currently being investigated by the state attorney general and the FBI. My brother has taken back all the properties and has new leases signed by the tenants who are currently living there. Of the 5 properties, 3 are rented and two are not inhabitable. We have the skills needed to repair these remaining two, but not the funds. My brother has retained a lawyer to try to recoup the money owed to him, but this will undoubtedly take awhile. We are really not sure what direction to take. My brother would like to simply let them go into foreclosure, knowing that his good credit would be ruined. His reasoning is that all 5 properties are not cash flowing, and need significant repairs. All have been grossly over appraised and quite frankly are not in the best areas of our town. As an example, one property sold for $47,500.00, but is probably worth more like $20,000.00 (if that). Any advice would be appreciated as to what we should do. More details can be given, if needed.
Thank you,
ChrisM

[Fr_Chuck]

When he went to buy them, there would have been a formal appraisal by a independent company. This would have compared the property to others in the same area, it would have compaired those resently sold and those currently listed.

Next there would have been a formal home inspection that would have listed any and all problems with the homes.

And of course no one buys property without perosnally looking at them also.
With all of that, if this person was a con man, you can almost guess all the money is gone, so don't expcet to get any money back from them.

So it really sounds like your brother did not use proper investigation when he bought the properties. He did not do any standard thing anyone does when buying properties. Sounds like someone promised him a get rich scheme and he fell for it without any proper investigation of the property.

While I do feel sorry for him, he really caused it hisself because he did not investigate properly.

[excon]

Hello Chris:

You have two situations. One is history, and one isn't.

The houses are your first priority. I really couldn't give advice without the numbers, because it's the numbers that should dictate what you do, not your feelings. IF, after you run the numbers, you find that you'll be further ahead by letting them go, then do that. However, IF you find that you'll be further ahead by saving them, do that.

It really isn't any more difficult than that.

If you need more funding, maybe you could hold off on the lawyer you hired to chase after lost money. There are three reasons you should fire that lawyer. (1) It's going to cost you a fortune to sue, (2) EVEN if you win, you'll never collect a dime, and (3) if he's convicted in a criminal court of fraud, the court will order restitution to you anyway - which is way better than a judgment, because if he doesn't pay, he goes to jail. Your county prosecutor will represent your interests in that regard for FREE.

excon

[ChrisM44]

Gentlemen, thank you for your responses. I figured more details would be needed and subsequently I could provide them in another post. Yes, my brother bought these properties blindly, however, is there not a fiduciary responsibility on the part of the mortgage companies when it comes to appraisal fraud. I've had an independent realtor run comps on these homes, only to fortify what I am saying about the appraisals being way out of line. I would think the title companies could be liable as well. We know some serious mistakes were made on our part, due to ignorance, however we would like to make the best of this situation. What will happen if these properties are foreclosed on? What about the tenants, in particular the ones where we are paying utilities? Frankly, I can't see any reason to continue paying for anything related to any of these houses if they are allowed to go back to the bank. We never intended to have any of this happen, we are simply two blue collar individuals who are very good at home remodeling. We don't skimp on materials or quality of work, and have rehabbed a few bank reo's that I would be proud to be the owner of myself.
Thank you,
ChrisM

[froggy7]

Well, the other question is "what were the worth 1.5 years ago". Real estate is not a sure thing, and it is possible that the market has cooled off considerably in the time that has past. So it could be that they were appropriately appraised at the time. Knowing what they are worth now isn't the same thing.

[Fr_Chuck]

NO sorry mortgage companies, will look at your credit first and foremost, and lending more than a property is worth is not uncommom and they don't know who is getting all the money at closing. Now they should have their own rules as to a proper value of the property, but a mortgage company has that for THEIR protection not yours, to protect them from being stuck with the property.

Title company, nope, no liability, they only do the paperwork, and none of them go to the house, none of them care if you over pay, they only care that the paper work is done properly.

IF the mortgage company was in with the fraud, they were connected to the seller in some way, but you will have to prove they were aware that the appraisal was a fruad, in fact you need to be more concerned over them suing you, if you let it go into foreclosure, if they believe you and the seller were doing a fruad on them. ( that is they and the courts will have an assumption that a person does not buy several properties without looking at them.

So yep it will ruin your credit but you can let them go back to the bank,
I have lost a few investments myself to the bank over the years, you won't be the first, and not near the last.

So if this mortgage company is some company that was created by the sellers ( con man) then there is a lot more liablity than if this was just the bank you know, often they lend money just on your word and promise,
Since they have trusted you to pay them. For example I can walk in right now and borrow "temp" money for a foreclosure home, no appraisal, no questions, just on my word, this may be what the bank did for you, if they know you and trusted you.

[Dr D]

I cannot see any liability on the part of the title companies. Were all of the appraials done by the same appraiser? Were all of the mortgages done by the same lender/broker? If you find such a common thread in the transactions, that could indicate possible collusion/fraud. I know that appraisers are required to carry Errors and Omissions Insurance, but don't know if they would pay in the case of outright fraud. Many years ago, in the era of assumable mortgage, I knew a couple of low life Realtors who would buy cheap AZ properties and resell them to wealthy CA investors at inflated prices, on the basis of Blue Sky appraisals. Contact your state and Federal regulatory agencies, and bring them into this mess. Good luck.

[excon]

however, is there not a fiduciary responsibility on the part of the mortgage companies when it comes to appraisal fraud.

Hello again, Chris:

No, because they're victims too. There's no place to spread your misery.

excon

[moe214]

I'm in the same mess as you.. my concerne is after foreclosures hod well the IRS will work with you?