South Florida feels crunch of exotic loans

Jack Dolan and Matt Haggman of The Miami Herald reported that home buyers in South Florida have been signing so-called toxic mortgages at rates far higher than buyers in other areas of the country. Unlike the well-publicized problems with sub-prime loans, these toxic mortgages are concentrated in some of the nation's most affluent and desirable zip codes, including the celebrity haunts of South Beach and the financial district of Brickell -- the financial center of Latin America.

Southern Nevada's foreclosure rates are the nations highest, due primarily to investors walking away from their property. "Roughly 85 percent of actual auctions or repossessions of homes from March 1 through Aug. 31 involved properties not occupied by their owners," according to a report by Jeff German, Steve Kanigher and Alex Richards of the Las Vegas Sun. They were able to identify the investor-owned homes from owner-occupied foreclosures using property tax records. The story includes a map of Las Vegas-area properties that have either been auctioned or repossessed since January 2006.

Palm Beach Post reporter Jeff Ostrowski reports that "trophy properties" in Florida are changing hands, legally, for $10 and costing the state millions in tax revenue. Commercial property deals are being recorded as "transfers of assets" instead of actual sales. In the case of a $600 million property, 70 cents in taxes were collected as opposed to the $4.2 million which would have been generated by a proper sale. "In a unanimous ruling in 2005, the Florida Supreme Court called the practice of avoiding documentary stamp taxes legitimate, so long as the deals meet a few legal tests. But with state and municipal governments facing a budget squeeze, critics say lawmakers should close the loophole."

Mark Flatten of the East Valley Tribune in Phoenix completed a series on Jim Rhodes who has become in the most influential developer in Arizona's East Valley. In December of 2006, he purchased over 1,000 acres of state trust land. The $58.6 million purchase gave him the right to "master-plan 7,700 acres in the area and set the tone for development of 275 square miles of state land extending from the eastern edge of Maricopa County to Florence." State officials claim they did not know of Rhodes' checkered past, which includes charges of fraud and theft, prior to the land purchase. The entire series can be viewed here.

Meghan Hoyer and Matthew Jones of The Virginian-Pilot investigated the purchase of over 250 houses and lots in depressed areas of cities such as Portsmouth, Norfolk and Newport News by a Virginia Beach-based company and its investors. Five years later, half the properties still sit in disarray with thousands owed in back taxes. "Since forming in late 2001, CM Development has financed its operations largely by selling its properties repeatedly among a growing circle of investors at ever-higher prices. The investors, drawn by the promise of big returns, have taken out larger and larger loans on the houses." They take a look at the investors and the loopholes that allow them to keep cashing in on these blighted properties.

A four-part series by Binyamin Appelbaum, Lisa Hammersly Munn and Ted Mellnik of The Charlotte (N.C) Observer profiles Beazer Homes USA and the failure of starter-home neighborhoods in the Charlotte area. As it sold homes and arranged mortgages, the company crossed the line between selling to people who could barely afford homes and selling to people who couldn't. The series features an up-close look at what went wrong in one neighborhood. It also includes an interactive map that allows readers to check foreclosure rates in their neighborhoods.

A series by Fred Schulte and June Arney of The (Baltimore) Sun reveals that an archaic law is creating problems for thousands of Baltimore residents. "Baltimore's arcane system of ground rents, widely viewed as a harmless vestige of colonial law, is increasingly being used by some investors to seize homes or extract large fees from people who often are ignorant of the loosely regulated process." They evaluated computer records from the Baltimore City Circuit court, identifying nearly 4,000 lawsuits filed by ground rent holders against homeowners since 2000. Maryland laws seem to favor the ground rent holders. Since 2000, 521 houses have been awarded to the ground rent holders for unpaid or delinquent rent -- an incredibly disproportionate settlement in relationship to the debt owed. As some entrepreneurs use ground rent laws for their own profit, public officials call for reforms.

Catherine E. Shoichet of the St. Petersburg Times reports on a bogus real estate company that defrauded unsuspecting buyers of millions. Natalia and Victor Wolf, owners of Sky Development Group, are currently under investigation for real estate fraud; no charges have been filed in the case. The Wolfs apparently fled the country in October and may have pocketed over $20 million from crooked real estate dealings. Allegations against them include taking money and providing forged deeds for property they did not actually own, and accepting money for homes never built or finished.

Vikas Bajaj and Ron Nixon of The New York Times looked at the impact of subprime loans on minority homeownership over the past six years. The very loans that allowed for the purchase of a home are now crippling buyers' finances as interest rates inflate, leading to an increase in delinquencies and foreclosures. "Industry officials say the number of subprime borrowers losing their home and encountering distress is growing and sure to increase because there have been so many more mortgages issued in recent years. But they argue that on balance, subprime lending has been beneficial because it has given people who previously did not have access to credit the ability to buy homes."

The Home Mortgage Disclosure Act database can be obtained from the IRE and NICAR Database Library.

Geoff Dutton of The Columbus Dispatch dissected unusual property deals worth more than $11 million involving Middle Eastern buyers who paid far above the list price on expensive houses. The catch: "the sellers must agree to immediately refund the difference between the asking price and the sale price". Neighbors and real-estate experts fear that the deals, in some of the most affluent subdivisions outside Columbus, are fraudulent. With few people talking, and a limited public paper trail, key details remain a mystery. But some observers fear the worst - that dealmakers might abandon the houses and disappear with the mortgage money, leaving neighbors and lenders to sort out the mess. A lawyer for the central Ohio chapter of the Building Industry Association warned group members in October to steer clear of such deals. Even sellers could be held liable if deals turn out to be fraudulent, he said, reminding builders of the danger of lawsuits or criminal racketeering charges. "This has been a really recent phenomenon," said David Martin, chief executive of Stewart Title, which refused some of the deals. "It's like a whole new industry has formed overnight."