Sunday, May 12, 2013

Down Payment Fraud – in the Perpetrator’s Own Words


I received a lot of feedback on my recent post on Purchase Contract Scams, and I was asked if I could provide an example, so I present one here in the fraudster's own words.
The above video was made in 2007 and is an illustration of a phony down payment scheme which can lead to mortgage loan losses.  Observe that he never states that his scheme is illegal. The red flag in his presentation is the discrepancy between the purchase price of $250,000 and the appraised value of $300,000.   

What immediately charmed me about the video presentation was the speaker himself in his sunglasses. Is he blind?  Is he Kanye West? No, he was the founder of a service known as Payout One, and he evidently thought his future to be so bright that he had to wear shades indoors. Payout One has ceased operations since then.
PayoutOne was one of many "private contribution" services at that time which deceived lenders into thinking buyers were making down payments and paying higher prices than actual. Some of these services, such as the Nehemiah Program, even had religious affiliations, with the attitude that this was the morally right thing to do in order to let low income people own homes. The "private contribution" would be added to the real purchase price to create a new "contract purchase price" that would mislead lenders and appraisers.

I first became aware of Payout One on a hot August day in 2006 on the south side of Kansas City, in a neighborhood (near the intersection of Broadway and Armour) that often leads the nation in multifamily foreclosure rates.
I was there to inspect an apartment building, and the purchase price didn’t make sense to me.  The price was not supported by comparable sales in the neighborhood.

It also made me suspicious when several people showed up for my visit, because additional people are often sent to persuade me about something that I might not believe if told by just one person.  
If I feel that I am being misinformed, I search for the “weakest link” in the group and try to isolate that person for further questioning.  On that day, I judged that person to be a young man who showed up in suit and tie (unnecessary and uncomfortable on the south side of Kansas City in August), carrying a very thick file.  He introduced himself as the mortgage broker’s assistant.

When I got him alone I asked if I could see the file. He said “Sure.  You can even have it!”  I struck pay dirt when I found the escrow instructions from Payout One, as illustrated here.

In short, the purchase price had been inflated by $742,500 with this phony down payment.

Final thought
Readers, please use this information for good and not for evil.

1 comment:

LauraMedley said...

I am very happy to read this. This is the kind of manual that needs to be given and not the random misinformation that's at the other blogs. Appreciate your sharing this best posting.