Mortgage Fraud Rocks Beverly Hills

by Roberta Murphy

Luxury real estate circles are abuzz with the latest report that two top producing Beverly Hills agents have been indicted for their alleged participation in a mortgage fraud scheme. The LA Daily News reports that Joseph Babajian and Kyle Grasso have been suspended by Prudential California Realty, and are under orders not to conduct any real estate business until federal charges against them have been resolved.

Both men deny any wrongdoing in the charges leveled against them, which reportedly include multiple counts of conspiracy, bank fraud and loan fraud. Included in the the indictment are two licensed appraisers. According to RISMedia, the foursome allegedly duped lenders out “of more than $40 million in fraudulent loans for homes in some of Southern California’s most expensive neighborhoods.”
While details of these alleged transactions are not yet available, a commonality runs through most mortgage fraud cases.

1. The buyer makes an inflated offer to purchase a property and obtains an inflated appraisal to support the purchase.

2. The lender is duped into believing the property’s inflated value, and loans money for the mortgage accordingly.

3. At closing, the buyer/borrower gets money back–which generally exceeds any amount the purchaser has invested in the property. In other words, the buyer makes money on the transaction without the knowledge of the lender.

In our San Diego real estate practice, we have run into several cases of blatant mortgage fraud. In a couple of instances, straw buyers would make inflated offers on our reduced listings and would ask for at least $100,000 back at closing for “repairs.” Lender financing was to be 100 percent.

We advised our clients of the legal dangers, and rejected the offers outright. In one blatant instance, we contacted the San Diego FBI and tried to get them to pursue the case. At that time, they were reportedly “too busy” to pursue such issues.

That was two years ago, when the San Diego real estate market had just started its retraction. Since that time, the mortgage fraud problem has mushroomed and we are all left to clean up the mess.

In the meantime, I am glad these issues are finally being pursued at the federal level–and will be watching this case closely.

For more in-depth reporting regarding this real estate fraud case that has rocked not only Beverly Hills, but Holmby Hills, Bel Air and Malibu as well, visit the Mortgage Fraud Blog.