Texas Mortgage Schemes On the Rise in Houston Area
Today’s Houston Chronicle tells the story of Cynthia Muir, who thought she got a good deal in 2003 when a friend told her that with his help, she could buy a townhouse and sell it for a profit in six months.
He promised to pay the monthly Texas mortgage payments and rent out the Galleria-area home until they decided to sell it. But the payments rarely were made, and the home never was rented out.
Instead of profits from what she thought was a strong investment, she was left with a home that cost her more than it was worth. Muir found herself entangled in mortgage fraud as she claims she was taken advantage of - a strong credit score was what she had, and it helped the accused close on the property, according to a lawsuit she later filed.
Mortgage frauds like that alleged in the lawsuit are known as “straw buyer schemes.” Such schemes are gaining popularity in the Houston area, said an investigator with the FBI.
In such schemes, the scammer finds people with good credit, persuades them to buy homes and promises to pay the notes and do all the legwork.
Unbeknown to the home buyers, the criminal, usually working with the home appraisers, mortgage brokers, the seller, or loan officers, arranges for a home mortgage loan higher than the value of the home and walks away from the deal — leaving the home buyers with a bigger note than expected and damaged credit if they fail to pay the note.
The schemer then walks away with the difference between the home mortgage loan amount and the price paid for the home when, at closing time, he represents himself as a consultant, remodeler or other service provider. Money is directed to him or through companies controlled by him.
Sometimes a kickback even comes under the table from the seller.
This scam and other types of mortgage fraud have become so popular locally that the FBI’s Houston division has formed a unit dedicated solely to fighting fraud involving bad credit mortgages.
Currently, the office has about 25 multimillion-dollar cases open involving various types of mortgage fraud. If left unchecked, the fraud could have repercussions for the Texas housing market as bankers, fearful of the growing problem, make it harder for home buyers to get loans.
Texas ranks seventh in the nation for mortgage fraud, according to the Mortgage Asset Research Institute, and Houston ranks third in terms of serious early loan defaults — a sign that many home loans likely involved fraud.
As for Muir, her so-called friend Lawrence Randall Benham was actually more interested in her credit report than in her potential as an investment partner, her lawsuit alleges.
Muir also sued the appraiser, who she claims inflated the property’s value; the mortgage broker, who she alleges knew the property was overvalued; and the title company, which she claims failed to protect her.
“I should have never let someone be in charge of something like that,” said Muir, who acknowledged that she never saw the property before buying it. “It doesn’t matter that they seem nice and clean-cut, and they act like they’re knowledgeable. He didn’t care about me.”
Muir paid $448,000 for her four-bedroom town house. In 2006, the Harris County Appraisal District valued the property at $298,057.
Investigators since have arrested Benham, and a grand jury indicted him on five counts of wire fraud, two counts of mail fraud, one count of bank fraud and one count of money laundering. One of the wire fraud counts includes allegations of wiring money related to Muir’s Texas home loan.
Muir filed a suit in 2004 against Benham that names several others who also allegedly bought overpriced homes through him. Benham’s attorney declined to comment.
She also sued the mortgage broker, Terrell Samuels, owner of A Touch of Green Mortgage Services, accusing him of conspiring with Benham to hide the true value of the property.