The Condominiums at Waterside seemed like a steal.
Within 18 months, the buildings were sold out and the newest units were
fetching record prices despite a statewide real estate slump that had
brought condo sales elsewhere to a halt.
But it wasn't long before the Sarasota couple's
anticipation turned to anxiety.
Two of every three buyers in the complex stopped
paying their mortgages, most without making a single payment.
When the Habers and their neighbors began trying
to track down delinquent buyers, they discovered other oddities,
including the fact that nearly every buyer was Brazilian and six had
listed fake U.S. addresses on the contracts they signed to buy units.
The few condo owners who continue to pay their
bills now believe they were the victims of a $10 million mortgage fraud
scheme in which straw buyers bought units so they could qualify for
mortgages they never intended to repay.
Mortgage fraud experts say the sales at Waterside
exhibit clear warning signs for fraud. Among them: unusually high sale
prices, loan defaults within a few months of purchase and large
consulting fees accompanying each sale.
A Herald-Tribune review of the 42 Waterside sales
and related mortgages found that 28 involved Brazilian buyers who appear
to have paid inflated prices when values were falling.
From January 2008 to January 2009, those buyers
paid $385,000, at least $35,000 more than any other unit in the complex
had previously sold for and $90,000 higher than the average price paid.
The value of the condos at the time was about $220,000, according to
Wayne Furlong, a Port Charlotte real estate agent who had been trying
unsuccessfully to sell the units before the Brazilian buyers appeared.
The foreign investors each borrowed about
$350,000, mortgage records show. Of that, $225,000 went to repay the
developer, John A. Canino Jr. Most of the rest of the loan proceeds --
about $3.5 million -- was paid out to the real estate companies and
consulting firms that recruited the Brazilian buyers, records obtained
by the Herald-Tribune show.
"When we saw that the units sold for
$385,000, that was the first indication that something was wrong,"
Joan Haber said. "Nothing would have sold for $385,000 at that
point."
"The fact that all the buyers were single
Brazilians and some of them listed false addresses added to our
suspicions," Steven Haber said. "We began to dig in to the
records and additional information kept coming up. So we decided to meet
with a state fraud investigator."
The Herald-Tribune attempted to contact the real
estate agents, attorneys and others who facilitated the Waterside sales.
Most could not be reached, or did not return repeated calls. Those
willing to talk said they now believe the sales were fraudulent but said
they were tricked by others involved in the transactions.
Today, six families remain at Waterside to share
the costs associated with running a 42-unit complex.
The Habers and the other homeowners have been
forced to take on association fees and maintenance costs of $8,000 a
month. Mold has spread through four of the empty units, which had no
electricity and no air-conditioning during Florida's sweaty summer
months.
The empty units have been caught in legal limbo
since the buyers stopped paying their mortgages en masse. Banks have so
far refused to foreclose, which would make them responsible for paying
association fees and for maintaining the empty units.
"There are six people in here trying to keep
this alive," Steven Haber said. "It's a big mess. People are
losing their investments."
According to the Habers and other legitimate
buyers, the state Attorney General has started an investigation into the
real estate transactions and rapid defaults.
Even Canino now believes the sales that helped him
unload his unsold condominiums were part of a scam, although he said he
did not realize it at the time.
"I knew I was getting $225,000 from each sale
and that's all that mattered to me," he said. "It didn't
matter that they were getting $385,000. I didn't care."
Bad timing
Canino, a Florida contractor for 20 years, said
Condominiums at Waterside was his first venture as a developer.
His company signed up 24 buyers and completed the
first two buildings in June 2007. By then, however, the real estate
market was in full retreat.
Nearly half the buyers backed out, leaving Canino
with $8 million in construction loans to SunTrust Bank and little hope
of repaying them.
"The market just stopped," Canino said.
"I had zero sales. Not one person signed a contract and I started
getting worried."
In late 2007, Canino turned for help to Furlong,
the Port Charlotte real estate agent. Furlong said he sent out e-mail
blasts and Internet advertisements and was eventually contacted by a
group of professionals from Florida's east coast.
"They came out of nowhere," Furlong
said.
Furlong said he dealt with Miami attorney Hector
Diaz and a legal assistant who worked for Diaz. But the law firm worked
with several real estate firms and other corporations that specialized
in real estate investing, Furlong said.
Together, the group offered to buy 28 units at
Waterside for $6.3 million, or $225,000 per unit.
That would still leave Canino short of the $8
million he owed SunTrust. But the bank approved the sale.
Canino said he never met any of the Brazilian
buyers who bought his units. Closings were organized by Diaz's law firm
and occurred on Florida's east coast, Canino said.
Canino concedes that the deals were littered with
red flags. But at the time, he said, he did not realize the
consequences.
"He had his back against the wall and
SunTrust was playing hardball," said John Patterson, Canino's
longtime Sarasota lawyer. "When someone really gets their back
against the wall and a white knight appears, the tendency is not to kick
the tires as much as you should."
White knights
It is unclear who led the group that contacted
Furlong.
Furlong said the only people he dealt with were
Diaz and his legal assistant, while Canino said he only dealt with the
assistant.
But documents provided to the Herald-Tribune show
that 10 real estate companies and marketing firms got credit for
recruiting buyers to rescue Waterside.
A February 2009 e-mail exchange between Diaz's
office and Canino breaks down which companies received cash for
arranging the sales.
The document, which was sent to a Waterside owner
by Canino, lists the buyers of 24 units along with the marketing company
and associated fee paid to each company.
The marketing fees range from $93,000 to $123,000.
In addition, HUD closing documents obtained by the Waterside condo
association show the five real estate brokerages involved in the sales
to Brazilians collected nearly $840,000 in commissions, as much as 14
percent on each deal. That means as much as 40 percent of each unit's
sale price went to commissions and fees.
Any kind of fee can be acceptable in a real estate
transaction if it is disclosed to the lender, said Ann Fulmer, vice
president of business relations at Interthinx, one of the nation's
leading providers of mortgage fraud prevention tools for lenders. But
the payment of a consulting fee is one of many warning signs for
potential fraud, she said.
"Any time there's a facilitator involved it's
a red flag, whether it's a marketing facilitator or a sales facilitator
or any kind of facilitator," Fulmer said.
Diaz, whose law firm closed all of the sales and
therefore was responsible for directing funds, said the deals appeared
normal to him at first.
"It didn't seem like anything was
wrong," Diaz said. "I didn't know if the prices were above or
below the market."
Diaz said a legal assistant in his office did much
of the work for the Waterside deals. He accused that assistant of taking
money from the closings and said he fired him when he discovered
details.
The Herald-Tribune was unable to locate the
assistant for comment.
Mystery companies
Among the marketing companies that collected cash
at Waterside closings was Royal Grand Development Inc. The company, set
up by Canino, received $374,000 from four condo sales at a time when
SunTrust Bank had agreed to accept less than what Canino owed on his
development.
Canino said he did not keep the money. He said he
was required to immediately send it to Diaz's law firm. Canino said he
was told the money would be put into escrow accounts and used for
interest payments and homeowners' dues for the Brazilian buyers for a
year or two. But the buyers all stopped paying their mortgages long
before that.
Canino received other money from the sales. HUD
documents indicate that $100,000 from four sales was given to Canino to
pay off liens. He said it went to pay subcontractors and workers
involved in condo construction.
No one got more money from the Waterside sales,
according to the Diaz law firm e-mail, than Gabriel Leite, a Deerfield
Beach real estate agent.
Leite is listed as the top executive of Home
Improvement & Design and GL Realty, state corporation records show.
Those firms received $1.6 million of the total money sent to Diaz,
according to the e-mails reviewed by the Herald-Tribune.
Leite did not return four messages seeking
comment.
Of the 10 marketing and real estate firms that
Canino and others identified, five have never been registered as
corporations with Florida's Secretary of State. Two others were only
registered for the period from 2007 to 2008 when the sales to Brazilian
buyers took place.
Three of the 10 companies still have working
telephone numbers and only one returned calls from the Herald-Tribune.
David Chambless, who heads United Realty Group, a
national firm with 1,800 real estate agents, said he was not familiar
with the four Waterside sales that one of his agents apparently handled.
But Chambless said the situation at Waterside
sounded like a scheme he heard described at a bank-sponsored fraud
seminar.
"They talked about an illegal inducement that
shows up as a consulting or management fee," Chambless said.
Chambless said he planned to track down the agent
who handled the deals for United Realty Group, but he did not provide
that agent's name.
The Brazilian connection
The Herald-Tribune attempted to contact Brazilian
buyers who defaulted on the Waterside condos and confirmed that six had
provided inaccurate or fake U.S. addresses in their sales contracts.
One Brazilian buyer listed the address of a vacant
lot, two gave addresses that do not exist and another cited a home
address that is actually a two-story office building on Tamiami Trail in
Port Charlotte.
The current owners at two other addresses listed
by investors said Brazilians had never lived there, but junk mail in
their names keeps piling up.
Ronilto Gomes, a Bradenton resident originally
from Brazil, is one of the few buyers current Waterside residents have
been able to contact.
In an interview with the Herald-Tribune, Gomes
said he found out about Waterside from another shopper at a Brazilian
grocery store in Deerfield Beach.
Gomes was hooked when Ellen Machado, an agent with
Primicias Mortgage & Realty in Deerfield Beach, told him he would be
able to get a $350,000 loan and an account would be set up from the
borrowed money to enable him to make interest payments and to pay condo
dues for six months.
That meant he would not have to make a single
payment in the beginning.
Gomes said he planned to continue paying his
mortgage, but got injured and was unable to work.
"It was the first time I had bought a
home," said Gomes, who defaulted on his loan in seven months.
"I found myself upside down. I was not able to work and the bank
kept calling."
Gomes said he tried to find Machado after he
defaulted, but her office had closed. She could not be reached for
comment.
No help from banks
The remaining Waterside owners are angry at
consultants and real estate professionals who arranged sales that went
bad. But they say the banks that facilitated the sales are just as much
to blame.
Sales contracts and mortgage records show that 27
of the Brazilian sales involved loans generated by independent brokers.
The mortgages were all subsequently purchased by Citibank and JPMorgan
Chase, banks that were regularly buying up loans from other lenders and
packaging them into securities sold to investors the world over.
Residents say they are amazed the banks agreed to
buy loans made to foreign buyers by independent brokers, especially at a
time when real estate values were falling.
"Does it shock you that Citibank is in so
much trouble?" asked Morgan Bentley, an attorney with Sarasota's
Williams Parker lawfirm, which is representing the Waterside owners free
of charge. "Was anyone paying attention?"
The two banks have earned another round of ire
from Waterside residents because they have delayed foreclosing on the
units. That keeps the banks from becoming responsible for paying condo
association dues and leaves the few remaining owners to pay the bills.
Representatives from Chase and Citibank point out
that that their firms did not originate the loans.
"These loans were originated by a variety of
third party entities over a considerable period of time," said Mark
Rogers, Citibank's spokesman. "In an environment where the inflated
marketplace values may have already been established on a larger scale,
the values on these individual properties may not have seemed
unusual."
But Nancy Norris, the spokeswoman for JPMorgan
Chase, said it is clear the deals were suspicious and her bank's fraud
department is now investigating.
Norris said her bank will take immediate action to
try to help the remaining homeowners.
Haber said he has already been visited by a Chase
representative, who said he would see what the bank could about paying
homeowner dues. But two weeks have passed and Haber said he cannot get
the Chase representative to return calls or e-mails.
"I've been so perplexed and disappointed by
the banks," said Doug Bolduc, a Waterside condo owner who has been
researching suspicious sales in the complex. "All the people they
gave $350,000 loans to are single people with very little in the way of
assets. Where was the due diligence? They were just throwing money at
these folks."