It was Delisa Mackey's dream home: a tidy two-story house with a two-car garage on a quiet Suffolk cul-de-sac with a patch of woods out back.
It was built brand-new to her specifications in 2002, and her name was on the deed. No more renting for this single mother of two. She was a homeowner.
Six years later, on a sweltering afternoon this fall, Mackey piled her family's belongings into a U-Haul and moved back into rental housing. The dream was over.
Many people are losing their homes amid the great deflation of the U.S. housing bubble, but Mackey had some unwanted help along the way. She is one of a number
of Hampton Roads residents victimized by alleged mortgage fraud.
As real estate values ballooned, seemingly without limit, during the early 2000s, some inside players in a labyrinthine cast of characters found ways to suck out large chunks of equity for themselves, leaving unsuspecting homeowners high and dry when the bubble burst.
The alleged scammers presented themselves as saviors of financially distressed - often first-time - homeowners, promising to repair their credit and save their homes.
Instead, they recruited straw buyers to purchase the properties - in the process taking out bigger mortgages - and walked away with the proceeds. That left two classes of victims in the dust: dispossessed homeowners and empty-handed straw buyers stuck with inflated mortgages.
It's the same method used in a small-scale operation described in a Virginian-Pilot report in June. But the operation that snared Mackey is larger. A Pilot investigation has identified nine affected properties scattered across Hampton Roads, and indications are the list of lost homes may be at least twice that long.
The FBI and consumer watchdog groups say the real-estate bubble created fertile ground for mortgage fraud as rising property values became a tempting target for scammers. Annual losses are estimated in the billions.
Last year, Virginia ranked seventh on the Mortgage Asset Research Institute's list of states where fraud is most prevalent.
"There are a lot of these equity-skimming operations going on out there," said Scott Alperin, a Virginia Beach real estate attorney. "A lot of them comb the foreclosure notices and then try to contact the homeowners prior to the sale. That's when they know that they're most desperate."
The figure at the center of the operation in which Mackey lost her home is Shanita Lacy, owner of a Virginia Beach-based company called Clean Slate Financial Services. Settlement documents indicate that she pulled out more than $750,000 in equity from the nine properties identified so far.
Like several other homeowners caught up in the operation, Mackey was referred to Lacy by Fred Terry, who ran a Virginia Beach company called Terry Mortgage Group. Mackey had gone to Terry a year ago seeking to refinance her mortgage and was sent to Lacy for "credit repair."
Neither Lacy nor Terry returned repeated phone calls seeking comment for this report.
"She never did any credit repair," Mackey said.
What's more, Mackey learned over the summer that she was in imminent danger of becoming homeless as the straw buyer of her home faced foreclosure or bankruptcy.
"It was a complete shock," she said. "I thought I was going to have a heart attack. I thought it would be best to move on. I didn't want to be on the street."
Her two teenage sons were devastated, Mackey said: "It's been an ordeal, the last five or six months. At times I just felt like giving up and crying."
Mackey said she never received a penny from the sale of her home. But it turned out to be one of Lacy's most lucrative transactions. According to the settlement papers, the deal yielded a cash payout of $91,591.
What, if any, consequences Lacy will face is unclear. The FBI is looking into the operation, but even if criminal charges are brought, that would do nothing to help the dispossessed homeowners regain their property.
Two ex-homeowners have brought civil lawsuits against Lacy and won by default after Lacy failed to mount a defense. But they are Pyrrhic victories. So far, neither plaintiff has regained their home or collected any money.
"It's truly unfortunate," said Tanya Bullock, the Virginia Beach lawyer who handled both cases. "The more people that can be made aware so they can stay out of this kind of trouble, the better."
"It's never too late to start over with a clean slate."
That was Lacy's pitch when homeowners came to her for help juggling their bills. She talked a good game, and she looked the part. She dressed well, drove fancy cars, and lived in a big new house in an upscale subdivision in the Great Bridge section of Chesapeake. The house, assessed by the city at $597,300, is still listed in Lacy's and her husband's names.
Here's how the program would work, she told homeowners:
She would get their home refinanced, freeing up equity from its rising value. But since their credit wasn't good enough to qualify for a new loan, she would bring in a straw buyer - someone she called an "investor" - to take title to the property and sign for the new mortgage.
In some cases, the homeowners said later, it wasn't made clear to them that they would lose title to their property. But in any event, Lacy assured them they would have an opportunity to get their homes back after a year.
In the meantime, they would be relieved of having to make mortgage payments. Those would be paid by the straw buyers with money Lacy sent them, taken out of the home's equity.
Typically the straw buyers were acquaintances, fellow church members and extended family from Maryland, where Lacy grew up. Lacy's mother was one. Their agreements with Lacy were oral, not written.
There was a financial incentive: Property values were still rising, offering the prospect of future profits. And Lacy paid the straw buyers $5,000 per property up front.
"We trusted her," said Rodney Ringgold of Ridgely, Md., one of the straw buyers. "We met her through the church. We thought she had a high level of integrity. It was presented as low-risk."
Ringgold and his wife, Treena, saw it as a chance to supplement the income from his new grass-cutting business. They signed on for four properties. The monthly mortgage payments totaled more than $5,600.
For a few months, Lacy sent the money for the payments as promised. But last spring the flow of cash dried up. As the straw buyers fell behind on payments, Lacy avoided their increasingly frantic phone calls.
By then the real estate bubble had begun to deflate, and the properties became an albatross.
"We tried to sell them," Ringgold said, "but the market kept going down and she had taken all the equity out."
Over the summer, several of the Maryland straw buyers traveled to Hampton Roads to look at their properties. In some cases, they were shocked by what they found.
One of Ringgold's properties, a vinyl-sided three-bedroom rancher off Providence Road in Virginia Beach, was virtually uninhabitable. The residents had moved out in the spring.
The heating and air conditioning system was inoperable. Swaths of black mold covered the walls. In places, the ceilings were falling in. Strips of siding had peeled off the attached garage. A large tree limb had fallen on the back porch, crushing the roof.
The sale price of the property was $255,000.
Ringgold shook his head, incredulous. How could a place like this fetch a price like that?
After the original mortgage was paid off and the fees paid, the cash payout at settlement was $118,013. Where had all that money gone?
His credit shattered, his savings depleted, Ringgold declared bankruptcy this month.
At its peak, the real estate boom even spawned a side industry of seminars in which practitioners taught others how to drain equity from unsuspecting homeowners.
Neil Phelan, president of Virginia Mortgage in Virginia Beach, attended one such seminar in the resort city early this year.
"The owner of the company was there, and he was very charismatic and put on this great show," Phelan said. "And he had his mortgage person, who put on a good show. And they all talked about how they are all multimillionaires and have done this thousands of times and it was so safe and everything was great.
"I felt like I was sitting at a revival meeting. It made me really nervous. I could feel the blue flame coming off of what they were saying."
Bill Sizemore, (757) 446-2276, bill.sizemore@pilotonline.com
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Worse before it gets better unfortunately
As a Realtor (copyright), it is frustrusting hearing these stories about abusive practices and preying on people. If the people had sought the help of a Realtor(c), this whole situation could possibly have been avoided. Our mission is to put our clients interest above our own. We believe if we do this, we will be successful and the money is a foregone conclusion. A big part of our job revolves around "ministerial acts" such as suggesting attorneys, home inspectors, and mortgage lenders who we believe are the best qualified to accomplish the objective. Unfortunately, we usually hear about these types of disasters after homeowners or buyers have tried to handle things on their own. To suggest that Realtors(c) are somehow just salesman is insulting and simply ignorant. In fact, I helped the FBI catch a lady this year who had written over $200k in bad checks and tried to buy one of our listings (fraudulently). They had been looking for her for over 11 years. So cut us a break.
Sad
It's always sad to read stories such as this. I don't think that there's a home buyer out there that anticipates a foreclosure on their home when they buy it. We all know that the biggest problem for most of these folks in the past 5 years or so has been this "creative" financing that will get them into a home that they could otherwise not afford.
People need to realize (and not trust loan officers/banks) when they buy a home, that even though they may "qualify" for a certain amount on a loan, they may not necessarily be able to afford that amount. Both times in the last 20 years that we've bought a house, we qualified for almost double the amount that we actually paid.
I hate the fact that anyone loses their home. "Preying" on home buyers, not only for the original loan amount, but for those struggling who think they may see a way out, is criminal to me.
Definitely
It's not uncommon these days. People think Realtors and Mortgage Brokers are looking out for them, and don't see them as salespeople.
That's very true and for a lot more than just real estate. They really should have classes in grade school that teach no matter how nice someone is, how well they dress, how confident and professional they sound, they are out for their own interests just like you're out for your own.
The approach for things like this usually are "wink wink nudge nudge" we'll work the system together. They reality is they're working you.
No "victims" here
It looks to me like everyone involved here was an accomplice to a sort of circular fraud in which everyone is guilty and brought their problems on themselves.
The homeowners and the investors both participated in a straw purchase to evade the regulations and requirements for qualifying for a loan, and the financial institutions involved knowingly went along with it. Everyone bet a continuously rising real estate market would bail them out.
Everyone who participates in a Ponzi scheme does so in the hopes someone further down the pyramid gets caught holding the bag instead of themselves.
Will Rogers pointed out that 'You can't cheat an honest man.'
He was right, but it is really easy to cheat someone who wants to get something for nothing.
This is very sad
This is very sad, when american citizens work for the american dream and are cheated and lied too by greedy individuals. Its seems to be alot of that going around, I would like to ask a guestion, why are the house prices here so high, and there are no jobs to support the prices? The jobs that are here pay very small wages, who allowed the housing prices to get out of reach of hard working families. Greed, and its sad, wouldnt it be better to have the 1000s of house on the market occupied by individuals then having them to sit at unaffordable prices. I really dont understand this. May someone can shine light on this one, I have tried too..........
CLEAN SLATE WON'T KNOW WHAT HIT HER
It stands to reason that there is always someone out there to put the hard worker LIFE in the toliet but at the same time we need to check these people and companies out before we do anything. Losing a home is not at all pleasant but just know she ,he, it, they, will get just what they deserve in due time.
Change the paradigms
This whole thing points to several commonly held beliefs in the banking and real estate industry that simply are not true.
1. A rise in appraised value is NOT equity. Equity is the amount that you actually own on the house, i.e., money in the bank. All of this talk about "equity" is misleading because someone who does 100% financing with an interest only loan has NO equity because they do not own any part of the loan. Taking out an equity loan is really, as another poster put it, just taking out another loan at a higher interest rate than a mortgage.
2. A house in NOT an investment. To call it an investment assumes that you will get a higher rate of return on your house once it is sold. At best, most homeowners will get 2%-3% back on their homes, if they bought within the past 4-5 years. A money market account or CD will give a better return on money than that.
3. Just because you can do creative financing with a house does not mean you should. If that's the only way you can get a house, then reconsider that house and find a way to have it without having to do these schemes.
4. As another poster put it, you do not become a homeowner when you take out a mortgage. You start t
Not uncommon
It's not uncommon these days. People think Realtors and Mortgage Brokers are looking out for them, and don't seem them as salespeople. The saying goes that the average American does more research on buying a TV than buying a home. Also, look at the nutty prices on those pictures, that's some serious overpaying. I'd rather leave the region then go into debt for that long for that kind of price on that kind of place. These subprime deals are what helped drive up the prices so high. You had legit buyers with good jobs and conforming loans competing against buyers who were using teaser rates and shady lenders/realtors to squeeze into homes. If the homes don't appreciate in value for a refi before teaser rate isup, then buyer can't afford it and defaults. That's what's happening now. All this stuff, and all of the fraud, was called out 4+ years ago but everyone was too punch drunk to listen.
Caveat emptor
I hope those who committed the fraud are prosecuted and punished. There are always people out there willing to quickly separate a fool from his money, and it is the buyer's responsibility to know whether they're making a good purchase. Having said that, there have been lots of smart folks taken in by slick salesmen in all facets of commerce, and even the most savvy of us are apt to trip up once or twice. Stories like this serve as a lesson and a reminder to always be suspicious when a deal sounds to good to be true.
Get your OWN attorney
You know - with all the crap going on with houses these days, I wonder who these people used for closing attorneys? I'm willing to bet had these people paid the price to get their own attorney, they wouldn't have done the deal as they would have been advised that they would no longer own their house. Also - "we knew them from church" - geese, when are people going to wake up and realize that just because you know someone from church doesn't mean they aren't out to get you. In fact, I'd venture to say that people who attend church and try to do business deals are the ones who are looking for prey.
*sigh*
A homeowner is not a homeowner unless they have the title to the house. This deal where people call themselves (and others) homeowners when they really rent from the bank is non-sense. It sounds like the deal was done to extract "equity" (why don't they call it "take out a loan against the house"). What happened to the money? There is a national trend of sob cases in the media now where the victims put themselves in the position either by buying more than they could afford or by borrowing against the property and spending the money. Some of these people are the ones who helped drive prices up on the properties, others made up for lack of rise in wages by borrowing against the house. In either cases, prices have no where to go but down. I've been crowing this line for over 3 years on here, well before it was a popular stance.
Can anyone say fraud charges
Can anyone say fraud charges are pending here?
Overextending ourselves
I certainly feel sorry for these homeowners and hope that something can be done to avoid this situation in the future. However, the sad reality of it all is that too many people overextended themselves and purchased homes that they knew that they could not realistically afford. They were given, sadly, loans that they normally would not have qualified for. During this home sale extravaganza that we experienced, we wanted bigger and we wanted more than we could afford. Now, we are left with the remnants of a banking and loan system that failed the consumers.
Home swindling act
Goood question, CJ. As the saying goes, money talks, and...walks. Apparently the swindlers made it sound and look really good and were really full of it. In my opinion, the guilty parties need to have their homes taken away from them and the money given to those who were hoodwinked. If you're a desperate homeowner, watch out...there are those just waiting in the wings to take advantage of you. If it sounds too good to be true..then guess what? It usually is.
Snake Oil Salesmen
Those who take advantage of these uninformed people are the descendants of those who sold "cure all" snake oil in the old west, except in this case their schemes cost people their homes and more. These scammers should be tarred and feathered like their forefathers.
Repeat
Same folks who were convinced that they could afford a 400K+ house on what they were making? If it sounds too good to be true, it probably is.
Huh?
How does that sound like a good idea to a homeowner or an "investor"??
Maybe I missed something.