Hot Housing Market Opens Doors for Fraud

Then there is property flipping. Companies buy homes in foreclosure, obtain false appraisals and resell the homes at huge markups. That is how Maria Mateo, the Dominican woman from Brooklyn, was hooked. She was afraid of being priced out of the market until a friend introduced her to an agent who promised to find her a house without a down payment or closing costs.

The agent told Mateo that her credit and income were good enough to buy two homes, according to a complaint filed with HUD. In fact, Mateo had tarnished credit and earned $500 a week. One night, the agent took her to see a house in Brooklyn but told her that she could not go inside yet.

Mateo wound up paying $305,000 for the house even though two appraisals would later show it was worth about $200,000. The mortgage firm charged her $7,000 in unnecessary fees. When she finally stepped inside after the closing she found walls pockmarked with holes, torn carpeting, and toilets and bathtubs ripped out.

She has spent her life savings on repairs. Foreclosure looms. "My life disappeared into that house," she said.

The agent Mateo worked with could not be located to comment for this article. But such scams, federal investigators say, are commonplace. Many firms rely on questionable appraisals to mark up properties by $100,000 or more, according to state investigators and court papers.

"There's millions of dollars to be made this way," said Josh Zinner of the Legal Services Foreclosure Prevention Project in Brooklyn. "Nobody regulates these companies. It's a huge, gaping hole."

The Race Card

Scammers across the nation target the elderly and minorities, often by appealing to racial and age solidarity. "There's a vulture industry that goes after people deemed vulnerable," said Oda Friedheim, a legal services lawyer in Queens.

A few years ago, Ruth Watt walked into a utility office to pay an overdue electric bill. A widow, she retired from American Express in the 1980s and lives in a handsome house in southeastern Queens, a neighborhood of black homeowners.

The customer service rep, Calvin Norwood, told Watt that he had a side business -- real estate -- and that he could lower her home costs by refinancing her mortgage. Later Norwood introduced her to an elderly partner, Odell Wilson, who was about Watt's age.

They talked of family, religion and race -- the men and Watt are black. Wilson promised to get Watt a refinancing loan of about 6 percent. At the loan closing, Wilson introduced Watt to a lawyer, Bruce Weiner. Watt said that Weiner, who is white, placed a pile of papers in front of her and advised her to start signing.

No one told Watt that the closing costs on her refinanced mortgage were $18,206, which is about triple the typical costs. Her interest rate rose from 8 percent to 11.25 percent and her mortgage payment jumped from $992.32 to $2,214, according to papers provided by the St. John's Elder Law Clinic.

Weiner, who agreed to a court-sealed monetary settlement with Watt, declined to comment on the specifics except to say, "It didn't happen as she said." Neither Norwood or Wilson returned phone calls or answered notes left at their listed homes.

Watt, like so many of those caught up in such fraud, confesses to great embarrassment at her naivete. But she added: "I still can't figure out how any human being can do that to another person."