Friday, September 22, 2006

CASE STUDY: 24yr old lied to get 2.2 million in loans

I have been saying for a long time that anybody can get a loan. I have told you that there is a lot of crap going on in the mortgage industry. I saw the credit reports, the 1003's, the income figures, etc. and was amazed at the loans people were able to get. The thing is, I was looking at numbers on paper...I did not deal with the actual borrowers, only brokers. I 'knew' there were shenanigans going on, but I can't give you the details better than an individual who was DOING the shenanigans. That is why I am going to give you Casey Serin...and let you hear his story.

Seems 24 year-old Casey got himself into 2.2 MILLION in mortgage debt...and is about to foreclose on 5 houses.

Here is part of how he 'did it'. The sad thing is....none of this surprises me. I will go into more detail later.why he is facing foreclosure:
What happened? Why am I facing foreclosure? Basically, I bit off more than I could chew.

Here is the long story.

I started investing full-time in January of this year. This is after going to numerous real estate investing seminars, reading books and learning from other investors for the past 2 years. Made a few successful deals on the side and was anxious to go full-time. I quit my website programming job and went all out!

In the last 6 months I bought 7 houses in 4 different states, mostly with the help of 100% LTV stated income (liar’s) loans. Most are fixers. I was going to rehab and flip each one within a month or so. Buying was easy, but man was I in for a surprise (or a lesson?).

I grossly underestimated everything. The money it would take to find contractors, run a rehab job, and resell quickly. Add the cost of doing out of state deals. I was not prepared for the huge travel expenses to manage the deals.

I messed up the local deals too. First I didn’t calculate all my costs correctly. Second, the lack of construction experience got me in trouble. The contractors took advantage of me. The first crew on the Modesto deal dragged me out for 6 month and never finished. The worst part is I paid them all of the money.

I did NOT have a solid exit strategy. I thought I would just wing it. You see, I become a “motivated” buyer. The kind they warned us in the seminars NOT to be. They told us to play it safe and start with wholesaling. But NO! I thought I can skip the basics and take a shortcut to the big profits NOW!

Yes, I did buy some of the houses at a discount enough to make a profit. However, I juiced up all of the equity on most of them right away by getting cash at close. So every time I bought one there was a “CHA-CHING” sound and my bank account got fatter. This gave me a false sense of profit and kept me going.

Well, everything went wrong. The rehabs were way behind schedule and grossly over budget. I was too busy flying around the country visiting each job. No time to manage details. I couldn’t sell the houses fast enough. I did sell one in Albuquerque on a round-robin auction. But I got stuck with the rest.

The holding costs on 6 houses is what started killing me. Paying about 15,000 per month in mortgage payments and utilities can really drain ones’ reserves. All the cash I pulled out at close is now gone. And the houses are not selling fast enough to keep me afloat.

As the last resort I went for one more cash-at-close deal. It’s another builder lease-back house in New Mexico from the same builder. The builder and I have become friends and we structured a pretty good deal. I told him I will close with no problems.

I went to get financing figuring I will get it just like before. However, this time my credit score took a dive because of all the maxed-out credit cards. I still pressed on and tried different loan programs and loan brokers. Finally I find the right program and was set to close. A few days before the close the bank denies the loan. Why?

They Googled me! Its ironic/funny/embarrassing. They found one of my early blogs where I was talking about flipping houses. It was pretty hard to find too. It was supposed to be hidden from the search engines.

Flipping (or quick turn investing) is not bad or illegal. What’s bad is applying for an owner-occupant loan but having no intention to live in the house. I have been doing this for most of the deals in order to get better rates and/or 100% financing. It’s actually pretty common and many mortgage brokers will encourage you to do it (along with stated income loans). But it’s plain lying! So the bank denied the loan.

That was the last straw.

Since that deal fell through I started falling behind on payments on all the mortgages. I ran out of money to finish the rehabs. No money to even buy groceries.

I may have to get back to a full-time job just so I can pay basic bills. I AM grateful to at least have my web development skills to fall back on. Or I may do some wholesaling or help other investors to make a little money.

It’s embarrassing to talk about this. Yes it’s my fault and I deserve the consequences. It sure is a tough way to learn though. This will teach me to be more responsible and play smart next time.

I started this foreclosure blog in order to talk about my experience. Hopefully this will help you if you’re in the same situation or know somebody who is.

I could go on and on about this situation, but I will keep it brief for now. This kid screwed up HUGE! He lied to get loans. He lied about income. He lied about owner occupancy. He wanted to get rich quick. At least this kid is standing tall and admitting his wrongdoings...for that I give him credit. He isn't grabbing a lawyer and trying to blame everybody but himself for his situation (yet...anyway). He is taking personal responsibility for his mistakes. But just because you take personal responsibility doesn't mean the consequences of your actions are waved. There should be no free-pass for Casey, or any of the people in similar situations. They deserve exactly what they have coming to them, and there should be NO taxpayer funded bailout of ANY kind.

Spend some time on Casey's blog and read about his situation. He is NOT the only person that did such things, or that is in such 'trouble'. Use it as a REAL WORLD example of what happened during this housing bubble.

AND PLEASE...keep the comments civil on my blog and his. Give your honest opinion and criticism, but keep the vulgarity out of it.

I look forward to the comments on this one. I will be active in the comments, and possibly even editing this post to address certain issues. There is just sooooo much I could say, but it is getting late.

Stay tuned....there will be many more stories like this popping up!



Anonymous Anonymous said...

What would have happened if the coin had landed on the other side? If he made 100k over all of the houses? Would he then be charitable and giving it all away? I just don't see how someone can ask for help to bail them out. They look at it like a no risk investment... well, foreclosure is the risk. The guy also didn't have a job for 7 months, is just now getting one, and still wants money to live on coming out of the houses. This guy also spent a lot of the money he received cash out at closing. Where did that go?

9/22/2006 8:12 AM  
Anonymous Anonymous said...

Sounds like he is still in denial.

"I MAY have to get ... a full-time job just so I can pay basic bills."

MAY? I wonder where else money comes from in his life. Out of cash and credit cards at maximum.

" more responsible and play it smart next time."

He is not looking to BE responsible or to BE straight and BE honest.

He is just willing to do a bit better.
He is still dreaming of easy riches.
He is looking forward to Next Time.


9/22/2006 8:23 AM  
Blogger powayseller said...

Don't blame Casey, blame the stupid investors who bought the MBS on his loan: pension funds, hedge funds,
Fannie Mae, banks (Washington Mutual, CitiBank, etc.), foreign central banks, etc. Who DOESN'T own mortgage backed securities or collateralized mortgage obligations?

In their eager quest for higher yields, and in a world of high liquidity, investors were too eager to lend money to anybody. Why did an investor buy a MBS for a loan made to a young kid with no assets?

The investor took a risk, the investor should take the loss.

Likewise, if Providian gives me a $10,000 credit limit, and I blow it, are you going to blame me, or Providian for giving me the credit line?

Let's put the blame where it rests: with the investors who supplied the easy money and lowered the lending guidelines. Didn't anyone bother to check his income or bank account statements?

The recent Amaranth blow-up is a reminder that risky investments are held in our retirement accounts. I wonder how much MBS is in our own portfolios, and what can be done about it. Loans like Casey's could well be held in our city and county pension funds, our money market accounts, and is definitely held by our banks and Fannie Mae.

9/22/2006 11:23 AM  
Anonymous Anonymous said...

This story--Casey's comeuppance--has been all over the web. Something doesn't smell 'right' about this--I think it's a scam, some guy looking for a book deal, or something else.

9/22/2006 5:27 PM  
Anonymous Anonymous said...

I think SoCal is right that this guy must have committed massive mortgage fraud. If there is any justice, he will never live this down.

Fraud is an exception to the rule allowing discharge of indebtedness in bankruptcy. If his creditors are aggressive, they will make sure he doesn't get a discharge when he lands in BK court. Then he will have massive deficiency judgments outstanding in perpetuity. The guy will never recover his credit rating. His wages from his new "full time job" will be garnished.

It goes without saying that mortgage fraud is also a criminal act. But I don't expect him (or any of his fraudulent flipper contemporaries) to face charges anytime soon.

9/22/2006 5:57 PM  
Anonymous Anonymous said...


OUR day will come... i hope anyway!


9/26/2006 7:13 AM  

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