Beverly Hills agents indicted

Good morning. Real estate fraud in Beverly Hills? The U.S. Attorney says so. From this morning's L.A. Times:

"Two high-profile Beverly Hills real estate agents and two licensed appraisers were indicted Thursday on charges of joining in a sophisticated scheme that lenders said cost them more than $40 million in fraudulent loans for homes in some of Southern California's most expensive neighborhoods."

More: "Joseph Babajian and Kyle Grasso, agents with Prudential California Realty, along with appraisers Lila Rizk of Trabuco Canyon and Scott Robinson of Dana Point, were each indicted on multiple counts of conspiracy, bank fraud and loan fraud. They face several years in prison if convicted, said Assistant U.S. Atty. Jeremy Matz. Babajian and Grasso are also charged with money laundering."

The case dates from sales made in 2000 to 2003. Babajian and Grasso were listing agents on the $22-million home David Beckham bought earlier this year.

Comments? Thoughts?

Comments

[www.BetterVillage.com, XYZ, PDq.]

I'll bet they all had really nice warm smiles. Buh-Bye.

Next.

[lefty]

i think babajian is VERY well known. i am surprised.

[Enrique Rodriguez]

If they could had only used their canning abilities in a more positive way?
Hope that the California Department of Real Estate opts for, besides taking away their licenses, making them pay back all the money that they packeted with all of the fraudulent sales that they've made. Hopefully, this will work as a detterrant for frivolous agents who try to do the same in the future.

[RALPH R. ROBERTS]

Illegal Flipping in Beverly Hills?
Friday, August 3, 2007, United States Attorney's Office Central District of California, yesterday announced the indictment of two highly successful Beverly Hills real estate agents and two licensed appraisers on multiple charges of conspiracy, bank fraud, and loan fraud (another term for mortgage fraud) in relation to an alleged illegal house flipping scheme.

Named in the indictment are Joseph Babajian and Kyle Grasso, agents with Prudential California Realty, and appraisers Lila Rizk of Trabuco Canyon and Scott Robinson of Dana Point. Babajian and Grasso were also charged with money laundering.

According to the press release from the Department of Justice, the "defendants and the previously-charged conspirators sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars higher than the homes actually cost."

Previously charged in the case are Charles Elliott Fitzgerald, Mark Alan Abrams, Nicole LaViolette, Jamieson Matykowski, and Timothy Holland.

Grasso, Fitzgerald, and Abrams allegedly bought homes at market value on the condition that the original sellers and their agents keep the actual purchase prices confidential, and then conspired to inflate the purchase contracts to make it look as though they actually paid hundreds of thousands or millions of dollars more than they were actually paying. Rizk and Robinson allegedly inflated the appraisals to support the inflated prices. According to the indictment, the team then sent false loan applications, many in the name of straw borrowers to banks to fool them into approving loans for significantly more than the actual purchase price. (A straw borrower is a made-up person or a real person who borrows the money in name only—someone else is actually receiving the proceeds from the loan.) In-house escrow companies assisted in laundering the excess proceeds from the transaction.

After defrauding the banks, those charged in the scheme allegedly illegally flipped the houses to unload them on unsuspecting buyers at the inflated prices. Lehman Brothers Bank alone was allegedly deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

In one case in 2000, Fitzgerald and Abrams allegedly purchased a home in Beverly Hills for $2 million and told the bank that they paid $4.395 million. Rizk and Robinson supplied inflated appraisals, and Babajian and Grasso had the listing. The agents allegedly manipulated the Multiple Listing Service database to falsely report that the home was listed at and sold for $4.495 million. The group then submitted a bogus loan application to Lehman Brothers Bank in the name of a straw borrower, and the bank approved the loan for $2.8 million--$800,000 more than what Fitzgerald and Abrams paid for the property. The fraudsters then split the excess loan proceeds including Babajian's and Grasso's $46,000 in commissions.

Although those charged are certainly innocent until proven guilty, the case draws attention to the growing problem of real estate fraud and mortgage fraud and the threat that fraud poses to the real estate industry and homeowners. Artificially inflated appraisals and mortgage fraud eventually result in inflated housing prices, higher loan default rates, increasing rates of foreclosures, higher property taxes, and the erosion of neighborhoods, not to mention the fact that this white collar crime is essentially bank robbery. Because appraisers consider recent purchase prices when calculating their appraisals, an inflated appraisal and purchase price can artificially raise the prices of all homes in a given area, making housing much less affordable.

If you think that cash back at closing and illegal house flipping are victimless crimes, think again. The victims are very real. Get involved. If you are a real estate professional who is bending the rules, stop it, encourage your colleagues to act with integrity, and report any suspected incidents of fraudulent transactions to local, state, and federal law enforcement. If you are a consumer, educate yourself, so you can spot the signs of fraud, stop it, and report it to authorities.

Ralph Roberts is a real estate fraud expert and activist and co-author of Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan, August 2007) and Flipping Houses For Dummies (John Wiley & Sons) . Visit FlippingFrenzy.com or contact Ralph at RalphRoberts@ralphroberts.com or 586.751.0000.

[Pat]

Do you think that maybe this story and the Kate is outbid story are related?

[willie]

These people are idiots, who on earth will loan millions without an INDEPENDENT appraisal. Banks beware of these scumbags, they are still around and always willing to pull a fast one even in this slow market.

[Steve]

Do you expect anything different in an enviroment that is straight commission only. Every RE and Mortgage broker the rules, because nobody gets payed unless they do.

[Mr Income Stream]

"...i think babajian is VERY well known. i am surprised..."

He is very well known, has been around for awhile and has his fingers in a lot of things. Here's the thing, I'd put money on the fact he's only the tip of the iceberg. From 2000 on people have been buying in a false market, for every deal he did it put a false value on everything within a mile. So for 7 years people have not only been paying for the price of the bubble but fraud as well. So how much is the house really worth? Not even close to what you paid for it. Now that some of the fraud has been discovered, wha tis the house worth when you write it down to market.

You would be a complete fool to buy on the Westside right now, knowing that fraudulent appraisals have been propping up the market for 7 years. Actually you would be a fool to buy anywhere, 800k over market? Do you know how that boosts the numbers, trickles down and spreads out. how that effects and inflates values for miles around. That's insanity. Kate should be thanking the Real Estate gods that she was overbid.

People get on the sidelines and wait it out, let the property get written down to market. That story is huge... Amazing how little play it's getting.

[Jenny Mcarthy]

I cant believe this! Is this what all Realtor"s and Appraiser"s do? No wonder they have there Millions of dollar Homes and there Merecedes benz! People like them should be put away and have there license taken away! No exuses..... They all new what they were doing, when they made there millions... look how they all lived! I bet you all they had there million dollar homes with there mercedes benz. They now have to pay the price, for all the money they stole. Babajian, Grasso,Rizk, Robinson. YOU WILL PAY FOR FRAUD DOING.

[Jenny]

Same group of con people involved on Central Coast with RW Hertel & Sons, Inc and Robert JS Fowler with Richard Willrodt the scam continues

[avoice]

I think you have to assess these kinds of things on a case by case basis. After all, brokers and salesmen are supposed to get the most money possible for their clients if they are the sellers brokers and get the property for the least amount if they represent the buyers, but there is an inherent conflict of interest on the buyers' brokers part since the salesperson earns more when the price is higher. The overall industry view is that higher prices are better for all concerned, but as we've seen this is problematic. Real estate bubbles like stock bubbles may just be natural consequence of an open economy. Events like this go back hundred of years--recall the Dutch tulip speculation of the 1600's and its disastrous consequences. It's nothing new.. Everyone tries to get the most money possible for what he or she is selling and people go wild over the thought of a quick profit. It's just human nature.

In Babajian's case the question is how much he knew about the allegedly ginned-up appraisals and whether he knew they were completely false or just thought they puffed up. I am curious to know. He might even be convicted if he should have known they were false based on his wide knowledge of the local market; he doesn't need to have known everything about the alleged conspiracy. If someone tells you something you know is a lie you can't just pass that on to someone else as being true. That's still lying.