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Saturday, February 27, 2010

Cash back at closing sends investor and appraiser to prison gonzalez and westergom

Cash back at closing deal nets real estate investor
$6,000,000 bucks!
Appraiser Gary Westergom to prison!

Juan Carlos Gonzalez was a mover and shaker in Jacksonville real estate circles. He is a sophisticated real estate investor with a knack at what makes the mortgage man’s pen go click, click, click! His tactics were not overly inventive. Unfortunately for Juan, his real estate to riches plan got him free room and board for seven years!

"the investor walks out of closing with money in his pocket"

Gonzalez was an expert at 130% financing. Some people call it “cash back at closing”. The technique is simple. Find a property at a fire sale price, have it appraised for true market value, then ask the lender to fund based upon the appraised value. If it all works out the investor walks out of closing with money in his pocket and nothing down on a new investment to add to his portfolio.

The problem is, most lenders are not excited about handing money back to a guy who is speculating on real estate. Lenders figure real estate investing is a risky business. If it all goes right the investor makes a mint! The bank just gets it’s interest. If it all goes bad, the bank loses it’s shirt and the investor hires a bankruptcy attorney to get him out of the problems.  Most banks want the buyer to have a significant down payment.
When is cash back at closing legal?

"I know of only a handful of situations in which receiving cash back at closing is legal:

1. You refinance your mortgage to cash out some or all of the equity in your home.

2. Your agent agrees to refund a portion of his or her commission at closing.

3. The buyer makes a deposit into the escrow fund, obtains a 100% loan, and then receives a credit back. This isn’t considered cash back at closing, because it is the buyer’s own money.

"Let’s say I am selling my house for $300,000.00...I am offering 6% commission $18,000 is coming off of my net.  My house is taking a long time to sell.

What I need to do is lower the commission and offer the buyer an incentive

1. We’re going to keep the price at $300,000.00

2. We are going to offer a qualified Buyer a cash rebate of $7,500.00

3. My Agent and the Buyer’s Agent (if any) are going to split the remainder of the commission"
Based upon the aggressive stance the government is taking in protecting the integrity of the institution of lending in the U.S., my suggestion is you consult legal counsel before entering into creative financing deals.  You know an attorney is being cautious when he advises you to seek advice.  Tim Paynter
"An appraiser can sometimes be convinced to to puff his appraised values"

The solution? If you do enough business with anyone they are likely to favor you when it comes to bending the rules. According to court records, Juan Carlos got into bed with a real estate appraiser. Normally, appraisers are unbiased judges of property value. With a little wining and dining, an appraiser can sometimes be convinced to to puff his appraised values or over look details a lender should know, like maybe the purchase price and the appraised price are worlds apart!

Enter Barry C. Westergom, a 60 year old real estate appraiser in Jacksonville, Florida who owned or worked at JAX Appraisals, Inc.   Barry probably regrets the day he met Juan Carlos Gonzales. His association turned out to make him a fair amount of money and cost him a fair amount of time behind bars!  Here is the original indictment!

Eventually, the profit incentive went far beyond multiple $600 appraisal fees from a well healed client. Westergom eventually acted as a Juan Carlos bird dog. In one deal, he found a good investment prospect out of the area with a motivated seller according to the FBI.  The contract was negotiated for $490,000 on a house that purportedly was worth a lot more money.

"Most people who have $29,000,000 in mortgage loans have a large nest egg to back the debt"

At least Westergom said so. He negotiated the deal for the purchase and earned himself $12,250 bucks as the broker. Next, he got an appraisal fee for $550.00. 

An appraiser has the duty of impartiality, says Chet Boddy, Ethics and the Appraiser.  When the broker and the appraiser are the same person it is likely a violation of an appraiser's duty to remain impartial. The objectives of each party are usually opposed.  The broker wants to sell the house and get his commish, the appraiser is protecting the bank's interest to insure the buyer is not paying too much and the lender is not lending more than their guidelines permit. 

When Westergom acted as the broker and appraiser it made it a lucrative deal for almost everyone, except the seller who caved on the price heavily, and the bank who unknowlingly took all of the risk!  You can read about another seller who took it in the shorts, cliek for a story about short sale fraud here!

Gonzalez submitted first and second mortgage loan applications for the house reflecting a sales price of $625,000. The sales price was really $490,000.00  Fraud!   Gonzalez also submitted altered bank account statements showing significantly larger cash balances in the account than actually existed.  Fraud!  Most people who have $29,000,000 in mortgage loans have a large nest egg to back the debt.  

"The numbers worked for some fast pocket change, if $134K is pocket change, so the agent proposed the deal for his buyer"

The contracts were signed, the lender approved the loans and, at the closing, Gonzalez received $134,000, which was listed on closing documents as an "Assignment of Contract Fee." Westergom received $12,250 as a broker’s fee and his $550 appraisal fee.

The broker who had the house listed must have thought the hand of God reached from the heavens to arrange this sale. In a tough real estate market where buyers are choosy and many properties remain unsold, neither the “realtor”, Westergom, nor the buyer, Gonzalez, ever looked at the house before purchasing it, according to sources. The numbers worked for some fast pocket change, if $134K is pocket change, so the agent proposed the deal for his buyer.

"This was one of the deals that would put each in prison"

It is not illegal for a lender to give a buyer cash back at closing. Buyers and Lenders can enter into any type of financing arrangement they wish. What cannot pass under the law is for the buyer to fool the lender by submitting false contracts, false bank statements and signing HUD-1 documents which misrepresent the true nature of the purchase price and financing. Nor can appraisers over-value a house or fail to disclose material information to the lender, like the true purchase price of the property when they know.
Complaint Details with State of Florida for Barry C. Westergom
Displayed is a listing of public complaints regarding the person or entity selected. Any person may inspect the case file and may obtain copies of any of the materials in the file. The Division does not represent your private interests. Any action taken by the Division will be on behalf of the State of Florida.

Number Class Incident Date Status Disposition Disposition Date Discipline Discipline Date
2006005474 Licensed Activity 01/20/2006 Final Order Final Order 01/03/2007 Revoke License 10/03/2006
2002004607 Licensed Activity 05/22/2002 Final Order Stipulation 06/07/2005 Fine 08/11/2005
2001500548 Licensed Activity 09/10/2001 Final Order Nolle Pros 03/05/2007
As Gonzalez and Westergom congratulated themselvers on being sophisticated real estate investors who know how to get deals done, little did they know what the future held in store.  This was one of the deals that would put each in prison.

"He was able to pocket over $6.2 million buckaroos"

Before the walls came crashing down on these movers and shakers in the real estate business, Gonzalez acquired about 55 houses using the technique. He was able to pocket over $6.2 million buckaroos. Westergom made about $100,000 in commissions and fees. The conspirators’ fraudulent acts resulted in lenders extending more than $29,272,000 in first and second mortgage loans.

With the Florida real estate market crashing, likely any gains made were lost. The biggest loss of all was freedom. Gonzalez, who put $6 million in his pocket got 7 years in the pokey. Westergom, who put $100,000 in his pocket, got 4 years. Which man had the better attorney?

Get rich quick in real estate guys don’t get the point. First, the high flyers often never get rich. So, me catastrophic event, often a downward shift in the market, puts their investment portfolio under water. That is when their fraudulent activities are easy to detect because their mortgages go into default.  Various organizations are watching for mortgage fraud, including the Mortgage Fruad Blog, the Legal Corner, the National Mortgage News, Real Estate and Mortgage Fraud News and Information, Real Estate Fraud and Mortgage Fraud News and Information, and a varitey of governmental task forces like the Mortgage Fraud Task Force.  They rely on private consultants like Curt Novoy who has been there before and his company Corporate Mortgage Advisors.

"All he did was propose creative financing concepts to greedy real estate investors"

The sum of $29,000,000 in mortgage money is a fair chunk of change to go into default. It didn’t take long to spot a rat in Juan Carlos Gonzalez. As investigators reviewed the files, a prominent document stuck out in most of them.  The appraisal supporting the loans on the 55 houses was completed in most cases by Barry C. Westergom!  The Hud-1 settlement statements testified to the rest of the story about how an illegal cash back at closing scheme works. 

Real estate is an excellent investment tool if you know how to use it right.  Cut corners and you could have a lot of time on your hands.  For a comprehensive look into conservative real estate investing check out my blog, Real estate millionaire!

Meanwhile, some real estate seminar guy was sitting on his yacht sipping margaritas. He wasn’t the guy who borrowed the money and defrauded the lender. All he did was propose creative financing concepts to greedy real estate investors! Maybe you better buy a yacht!

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