Lure of quick profits snared investors in Carolina land deals

By Tom Jackman
Washington Post Staff Writer
Saturday, September 25, 2010; 10:44 PM

Mark Dain wanted to sell a lot of real estate, and he wanted to make a lot of money fast, court records show.

But he needed customers. And to attract customers, he needed success stories. So he turned first to his old football coach at Chantilly High School, Danny Meier.

Dain, a mortgage broker, had pitched investment opportunities to Meier in the past, but the popular coach had turned them down. Now, Dain had his own company in Woodbridge and a new pitch:

Buy a piece of undeveloped land in North Carolina, not far from the beach, with no money down. No payments for two years. Flip it quickly for virtually guaranteed profit.

Meier, now the principal at Robinson Secondary School in Fairfax County, said he talked it over with his wife and this time decided to take the risk. And it paid off big-time. Within months, Dain presented his old coach with a check for $60,000. Meier hadn't spent a dime. He still doesn't know how it happened. He told his brother, Tommy, the former Herndon football coach, and Dain whipped up a quick profit for him, too.

It was 2006, when the phrase "real estate investment" wasn't yet an oxymoron. Dozens of Fairfax schoolteachers and administrators, some Pentagon workers and hundreds of other investors in the D.C. area were soon ensnared in what is being called the biggest real estate scam in North Carolina history. A flurry of lawsuits was launched as the value of the vacant properties plummeted from as much as $400,000 to less than $20,000 apiece.

Many of those involved in the alleged scam have declared bankruptcy, and the FBI has begun collecting cooperation agreements and guilty pleas from inside participants, leading all the way to the North Carolina governor's office. Last month, one Northern Virginia mortgage broker was sentenced to five years in prison for his role.

Nearly 500 people left holding virtually worthless "slivers of undeveloped dirt," as one lawsuit put it, are going after some of America's biggest banks, including Bank of America and BB&T, claiming in lawsuits in Virginia and North Carolina that the banks were involved in a racketeering conspiracy with the sales agents and developers.

Loan officers used rigged appraisals and phony sales - a vacant lot increased in value by $190,000 during one week in 2006 - to deal out risky loans to people who couldn't afford them, resulting in "pervasive foreclosures on over-valued property," the buyers allege in the biggest suit, involving 285 plaintiffs in North Carolina.

Window on the meltdown

As the housing market struggles to rebound from the national foreclosure crisis, what happened in these never-built subdivisions near the North Carolina waterfront - just inland of the Topsail and Emerald Island beaches - offers insight into fraudulent practices that were widespread on the eve of the financial meltdown.

Attorneys for the buyers acknowledge that their clients never visited the lots they bought and intended to flip them for profit as soon as they could. But they also say the case is a perfect example of how the banks' giddy willingness to extend far too much credit to people who couldn't afford it contributed to the nation's real estate crash.

"The banks did not actually ever speak to the buyers," said S. Jill Pisner, attorney for 129 D.C. area customers, and no one was rejected for a loan, although applicants had mortgages on their homes and worked in jobs with modest incomes.

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