Bankrupt? Desperate? Blog for sympathy
Casey Serin - real estate fruad impresarioGlobe and Mail Update
The blog called I Am Facing Foreclosure (http://www.iamfacingforeclosure.com) is too good to be true. Unless, I suppose, you're the 24-year-old blogger who says he's more than $2-million (U.S.) in debt after making a series of dodgy real-estate investments and, eponymously, is facing foreclosure. But then, one man's nightmare is another man's great read.
By his own account, the blogger, one Casey Serin, got into this muddle by lying to banks to secure easy loans, which he used to purchase eight properties in four different states. His plan was to fix them up and flip them, but he got in over his head. The logistics were too much, sales never went through, and by the beginning of September, he was facing more than $15,000 a month in mortgage bills -- and had no job to fall back on. So he started a blog.
And what a blog it is. You would expect it to be a blog about real estate. But as any television writer will tell you, it doesn't matter where you set a show, be it a hospital or a submarine, they're just props: All that matters is the drama. And "I am facing foreclosure" delivers in spades.
By turns contrite, clear-eyed and apparently nuts, Serin makes confessional blog posts with titles like "I am 2.2 Million Dollars in Debt" (a scanned financial statement is attached), and "Yes! I Lied on my Loans!"; each one unfolds the story a little further. Desperate to avoid giving his houses to the bank, getting a day job and declaring the bankruptcy he so richly deserves, Serin floats a string of hopeful plans to recoup his cash: He'll go into wholesaling! He'll raffle off one of his properties! Then -- and this is the best part -- he plaintively asks for readers' advice: "Do you like my wholesaling idea? Or do you have something else I can do quickly?"
But between them, you can hear the clucking of tongues for miles, smell the self-satisfaction of thousands of readers -- all mildly disgruntled with something in their own lives -- revelling in how much worse it could be. What a salve for liberal sensibilities: A tale of woe that can safely be blamed on the victim. Not only that, but a victim who's asking for it! If this story weren't true, it would make for good fiction. And it still might: For one thing, this is the Internet. For another, when an author confesses to being a liar, and then lies in his confessional -- "Yes! I Lied on my Loans!" was a shocker for regular readers, let me tell you -- the rest of the confessional falls under a suspect light.
At the end of the day, this is an exercise in what makes a good blog. Forget slices of life: Like reality TV, this is great fiction. It has a strong, pathetic anti-hero, a narrative through-line, a cast of motley characters in the comments section, and a sense of something real at stake in the story's outcome. Will he dig his way out? Will he resort to employment? Will he get hauled off to jail? What happens next?
It's a funny counterpoint to poor Dustin Diamond, another on-line wash-up who you might remember as Screech from the after-school sitcom Saved By The Bell. Diamond, it seems, got into some real-estate trouble of his own, and wound up selling T-shirts on-line (http://www.getdshirts.com) to forestall his own foreclosure. But the site was static; it wasn't a blog, and the narrative didn't advance. It just sat there, a desperate plea from a former child star -- one who didn't realize that pleas for sympathy are so 20th century. We live in a post-James Frey world, and we demand confession and catharsis. At last report, Diamond is currently starring in the porn film Saved By The Smell. In the meantime, Serin has leveraged his problem into a narrative, and that has won him a degree of Internet fame. His story, in the end, was his one marketable asset. Internet fame doesn't convert to cash, though it can sometimes be traded in for a book deal. Pitch it as a tell-all, riches-to-rags-to-happiness tale, combined with practical hints on how to avoid his fate. Add a dollop of morality, suggest parents buy it for their children, sell a newsletter, do some motivational speaking. That's my advice, anyway. Run with it, Casey.
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Some months ago, I attended a loan-originator luncheon, where a speaker from the FBI gave a presentation about the latest mortgage frauds and prosecutions. The agent said that if a stated-income loan shows an income of $10,000 per month and the borrower's actual income is much less than that -- say, $5,000 per month -- then it is fraud, and the FBI would prosecute it as such. The loan originators were incredulous. One broker stood up to say, "But lenders created stated loans so we could state whatever income would get the borrowers the loan." If I read his facial expression correctly, the FBI agent couldn't believe what he had just heard. There ensued a lively give-and-take between the agent and the loan originators regarding the intent of stated loans. Essentially, stated-income loans allow a simple representation of income on the 1003 loan application to be the basis of the underwriting decision. These loans were designed for borrowers who have enough income and acceptable credit but who don't meet full-doc standards, such as self-employed borrowers and people with commission-based income. Proponents claim that these loans make qualifying easier; opponents argue that misrepresentation of salaries is pervasive. A case study of fraud In a world where borrowers can state their income on a mortgage application, do investors and originators have the same view of what constitutes fraud? While I was pondering this, the story of Casey Serin crossed my desk. Serin is a mid-20s real estate investor from Sacramento, Calif. After attending various seminars offered by "no-down-payment" gurus, he jumped into real estate investment. Within eight months, Serin purchased eight properties with the help of multiple loan brokers, and he owed $2.2 million. He was unemployed during most of this period and admits to lying about his income on his stated-loan applications. On six of the properties, he received cash back at closing. The largest check he received was for $50,000. The cash was paid to a bogus company, controlled by a third party. It was then funneled back to Serin. In all other escrows, cash was paid to the seller, then back to Serin after closing. Let's look at this situation from a legal perspective. If a loan officer knows a borrower's true income and purposely misstates it, is it fraud? Simply put, the answer is yes.
And although receiving undisclosed cash back at closing is not, by definition, a specifically defined type of fraud, in cases such as this, it is considered fraud. Know the repercussions Conspiracy to wrongfully divert money is at the heart of every financial-fraud conviction. There are so many ways to divert funds illegally that the FBI will prosecute based upon the U.S. Code wire-fraud statute (Title 18 U.S.C. 1343), among others. If you wire funds in connection with fraud, however it is perpetrated, the bureau can hold you responsible. The statute states: "Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both." In other words, a 20-year prison term is possible for each violation of the statute. And if you defraud a financial institution, the sentence can be increased to 30 years. In fact, a 30-year sentence was imposed in 2005 against a real estate attorney in Georgia for her involvement in property flips. What makes her case remarkable is that she had no prior convictions. That much time for a first conviction is harsh by any standard. Determining liability So who, in a case such as Serin's, can be held responsible for fraud? The answer is everyone who knew about the undisclosed cash and knowingly assisted in the scheme, including the sellers and any real estate agents, appraisers or closing agents. Setting aside an examination of criminal liability, this situation also creates plenty of civil repercussions. Loan brokers and their employers can be liable for the loss based on various legal theories, including breach of contract, fraud, negligence and unjust enrichment.
The easiest tactic is to rely on the broker contract. Its provisions commonly require an originating broker to indemnify the investors against losses. With fraud as brazen as what was perpetrated in this case, the contractual obligation squarely is on the loan brokerage in the vast majority of contracts. Although an action based upon fraud is not as easy to prove as an action based upon a broker contract, it is the more devastating of the civil-litigation strategies. If fraud is proven by the lender, licenses are lost -- or worse. During one case litigated in Los Angeles, the judge gave a warning to a loan-broker defendant while encouraging a quick settlement of the dispute. The judge said that the plaintiff's allegations of mortgage fraud were serious and that it could warrant referring the issue to the district attorney to have the proper defendants criminally prosecuted. The case settled. So where does this leave us? A novice real estate investor who recently quit his $50,000-per-year job clearly is not qualified to take on $2.2 million of real estate debt. And yet, Serin is proof that these loans are being made. Who is responsible? Loan officers who "play the game," crafty borrowers or both? Are originators doing their job by playing along? Or is there a moral imperative that accompanies loan origination? What is certain is that there are civil and criminal legal ramifications for loan misrepresentations. These ramifications can lead to fines and penalties with far-reaching consequences. | |||||
C. Casey Serin
