By Elizabeth Razzi
Sunday, August 5, 2007
There's a home-buying deal out there that's more than too good to be true. It's too good to talk about in public.
At least the people running the deal don't want to talk about it, certainly not for publication in the newspaper.
Here's the pitch: There is an invitation-only group of homeowners who have signed up as partners with an organization called Metro Dream Homes, which has offices in the District. Members buy a house, sometimes for more than the asking price and without a down payment. A condition of the sale is that the seller agree to give back 10 to 15 percent of the sales price to the buyer, who in turn pays it into the coffers of Metro Dream Homes. (What does the seller get? A sale, which can be hard to come by these days.)
Metro Dream Homes says it will invest that cash in various businesses, including automated teller machines, video advertising and other Web-based ventures that are under the umbrella of its parent group, Metropolitan Grapevine, headquartered in Laurel. Then, according to Metro Dream Homes, the profit from these businesses goes to fund the monthly mortgage payments for the homeowners, on an accelerated schedule that pays off the house in five to seven years. The company also says it will make sizable contributions to charity. After five to seven years of payment-free living, the homeowner is supposed to sell or refinance the house, with the homeowner and Metro Dream Homes sharing the equity.
What a deal! You buy a house, maybe with nothing down, take out a mortgage big enough to cover your $50,000 to $70,000 payment to Metro Dream Homes and then live payment-free for five to seven years. You've paid nothing. And after a few years, you and Metro Dream Homes split the equity and you live happily ever after.
Hundreds of people locally, with a heavy concentration in Prince George's County, are already having their mortgages paid through this setup, according to a June solicitation letter from the Dream Homes organization that said there are more than 700 homes in the program. One participant I spoke with after a meeting said he was having his mortgage payments paid on three investment properties. Some people who already own their homes are refinancing to get the 10 to 15 percent of home value that's needed to enroll and to get their mortgages paid on their behalf every month.
Judging from the inquiries I have received from readers, plenty more people are considering getting involved in this deal, despite deep concern that it could be too good to be true, or perhaps in some way illegal. Among the skeptical but tempted is a group of builders in the Fredericksburg area looking at the program as a way to get rid of unsold houses.
It's only logical to question how these mortgages get a green light from appraisers and loan underwriters.
The large infusions of cash up front raise the question of whether the Metro Dream Homes/Metropolitan Grapevine setup could turn out to be a version of the old Ponzi scheme, in which the payoffs to current insiders depend on the recruitment of ever more participants, each with cash. When recruiting fails to grow fast enough to pay earlier participants, a Ponzi scheme collapses, with the most-recent recruits losing their shirts. Is that $70,000 in cash from a new partner really invested in ATMs, or is it being used to pay off the mortgages of partners who got in on the deal earlier? And if it all should collapse, will there be a torrent of homes, bought with oversize mortgages, unleashed on the market? Executives of Metropolitan Grapevine did not return multiple phone calls over several weeks.
Kathie Connelly, executive director for the Maryland Real Estate Commission, said she has received a lot of inquiries from real estate agents asking if it's okay for them to represent sellers who get an offer from Dream Homes. "I tell them to recommend to clients that they seek legal counsel and have the documents reviewed before signing anything."
I went to a regularly scheduled Dream Homes presentation at a downtown District hotel, hoping to learn more about "an opportunity that you do not want to walk away from!!!" as company executives state on their business cards.
As a writer for this newspaper, I was asked to leave by the executive marketing director, Renee McIlwain. She threw in a "how did you find out about us?" for good measure. She said the only way to be welcomed at the meetings is to be invited by someone who already belongs to the organization. Numerous phone calls to McIlwain and to Isaac J. Smith, president of Metropolitan Grapevine, and Andy Williams, chief executive of Metropolitan Grapevine, were not returned. Clearly, this is an opportunity they would prefer I walk away from.
But other people in the local real estate business do want to talk about this organization, though they fear their professional reputations could be tainted if they're quoted by name. Some told me they're trying to wave off friends and relatives who have been invited to join. And some expressed concern that, if they're not careful, they could get into legal trouble if they represent sellers who accept an offer from someone involved in Metro Dream Homes.
One real estate agent in Upper Marlboro shared details of a transaction last September in which she represented the sellers of a three-bedroom house in Bowie. The agent representing the buyer in that deal was McIlwain, the publicity-shy marketing director for Metro Dream Homes. At the time of the transaction, McIlwain was an agent with Century 21 AAA Realty, according to multiple-listing-service records. She now is an agent with Re/Max Colonial Homes in Fort Washington.
It was an unusual home sale. The four-year-old house in the Fairwood neighborhood in Bowie was originally listed at $714,000 in April 2006, according to local multiple-listing-service records. The listing agent said that, after one contract fell through, the sellers lowered their asking price to $689,000. They finally sold in September to a Metro Dream Homes buyer, represented by McIlwain, for $750,000, with the sellers giving a subsidy of $71,225 back to the Dream Homes program. Accounting for that subsidy, the sellers walked away with $678,775 (before real estate commissions). But the buyers took out a new mortgage for the full $750,000. And Metro Dream Homes got $71,225. That's right: The buyers paid more than the asking price, with a 100 percent mortgage and with the extra cash going into the Dream Homes program.
Now, if every home buyer could figure out a way to make numbers perform such feats, there would be no slump in the housing market. Pay more than the asking price; get your loan payments taken off your hands, and have the loan paid off in five to seven years, going halfsies on the equity at that time. How does that work?
"Why did I think this was going to come back to bite me?" the listing agent said when I asked her about the transaction. She said that she felt uncomfortable with the deal and that she couldn't get anyone to fully explain it to her. But the sellers needed to get the house sold, and the unusually large cash-back amount is noted on public records. An appraiser and a lender approved the numbers. And, really, what seller is going to turn down an offer these days?
For buyers, however, there are many layers of risk. The idea that they're paying 10 to 15 percent of the home's value (whether out of pocket, through a refinance or by paying extra for the house) into the program is just the start.
To participate, buyers sign a joint-venture agreement with an entity called POS Dream Homes, according to a copy of that agreement I obtained. The buyer indemnifies Dream Homes if any legal action ensues from a mortgage application related to the deal. And if the buyer discloses any terms of the agreement, the contract says that could be considered a breach of the agreement. That should give participants pause, because if the deal is off, they would probably need to refinance a home that they bought at a premium, and possibly inflated, price.
And, not least, the contract requires participants to become involved in unspecified ways in the profit-making businesses that Metropolitan Grapevine says will raise the money that pays all those mortgages. These include the ATMs mentioned earlier, a Web-based video e-mail operation and a prepaid debit card (marketed on a Web site that does not disclose related fees or terms related to that card), among other ventures.
Next Sunday, I'll look a little more closely at the umbrella group, Metropolitan Grapevine.
E-mail Elizabeth Razzi firstname.lastname@example.org.