THE PARTY OF THE FIRST PART, ETC., ETC., ETC.

THE PARTY OF THE FIRST PART, ETC., ETC., ETC.

The Social Engineering of Ramapo

Ramapo is a panacea of conspiracy theories. The term conspiracy theory is often used euphemistically as an insult to discredit the theorist because many do not want to believe him or her out of friendship, loyalty, economic necessity, partisan beliefs; or a combination thereof, against the person or entity that the theory has been developed against. Look no further than the vitriol and conspiracy theories played at daily in our nation’s capital even in the midst of a national crisis.

To be sure, there are many people out there whose emotions, partisan ideology and pre-dispositions can cause them to draw some very incendiary, ignorant and flat out delusional claims. Perhaps the longest running conspiracy theory is the crash landing of an alien spaceship and its crew in 1947 near Roswell, New Mexico and the continued cover-up by the our government.

Conspiracy theories, however, are a staple of every investigation, whether a blue or white collar crime as often depicted in the multiple true-crime stories that populate the airwaves. In today’s mixed up complex world, particularly with financial transactions, for every new regulation to strengthen oversight there seems to be multiple avenues that coalesce into a legal loophole or a way to sidestep and obfuscate potential illegal behavior.

There is a fine line and often a blurred line between activity that may be personally offensive to a majority of society and what is illegal. Is it just exceptional business acumen? As I have said many times before, you cannot be reticent about raising questions even if it means you are eventually proven wrong and end up with the proverbial egg on your face.

There is also an inherent hurdle in many financial transactions. A disconnect between the multiple parties involved, each only seeing one part of a transaction. The obligation to raise a question becomes more moral rather than legal. This is often tempered by a person’s own economic survival or simply our reluctance as a culture to be accusatorial. In white collar crime it only takes a slight manipulation by someone in the transaction chain to alter the results.

Let us not forget that a conspiracy theory is often right; born because of an investigator’s critical thinking ability as the facts unfold. The Watergate Scandal, the Black Sox Scandal of the 1919 World Series and the Gulf of Tonkin incident – precipitating the escalation of the Vietnam War – are three excellent examples of conspiracy theories eventually proven right. In the town of Ramapo, every activity is subject to a conspiracy theory because their long record of failed government, bad behavior and garden variety stupidity leaves even the most uninformed among us shaking our heads.

In 1935, the Marx Brothers, in the movie, “A Night at the Opera,” had a humorous scene designed to poke fun about the legal verbiage in a contract. They got to the party of the ninth part before calling it quits. So let’s get now to the local “Night At The Opera”.

In Ramapo:

Purchaser A, an LLC, buys two single-family properties on the same day; one for $500,000.00 from Seller A and one for $700,000.00 from Seller B. As far as can be determined on the surface, both seller’s and the purchaser have no relationship. The signer for both properties for Purchaser A is the same individual, a member of the LLC.

On the same day, Purchaser A enters into a mortgage loan from a private mortgage lender for $800,000.00 secured by the two properties. To be clear, a private mortgage lender should not be confused with a seller take back mortgage; whereby the seller gives a mortgage on their former property to the buyer. Private mortgage lenders can run the gamut from large non-bank lenders to free loan societies/gemachs and trusts.

The amount of the loan, 67% loan to value on the combined deed prices, not the appraised values, an often overlooked distinction, is not unusual and would be considered conservative; in the best interest of the lender.

So far so good, a normal run of the mill real estate transaction; normal except that most people or entities do not buy two single-family properties several miles apart on the same day. The transaction also draws the logical conclusion that Purchaser A funded the remaining $400,000.00, the difference between the two sale prices and the mortgage loan. Nothing unusual about a buyer coming out of pocket to buy a property; and a conventional lender always requires a verified down-payment. But some private lenders are not always conventional. Of course, in Bronx speak you can raise the question of, “Where did you get that dough,” and true, you can raise that generically with many real estate transactions. Suffice to say $400,000.00 is still a large sum of money.

Upon further inspection, on the surface, the purchase for $700,000.00 seems well above the market value of the property – in lieu of any mitigating factors that cannot be gleaned from the handful of recorded documents on-line. It appears Seller B may have lucked out.

In summary, we have an individual acting on behalf of an LLC, an LLC that has come up with $400,000.00, bought two single-family properties several miles apart and seemingly overpaid for one. But in the words of Rod Stewart – hold on a minute; or better – about thirty months.

Thirty months later Purchaser A sells the property bought from Seller A. And that is noteworthy because; because the property is sold to Buyer A for zero dollars, also known as no consideration. Buyer A, however, is not only Buyer A, they also happen to be Seller B. So wrap your head around that one. Lucky Seller B realizes $700,000.00 from the sale of their property, a property purchased some 20 years earlier for $150,000.00, and now ends up with the former Seller A’s home worth $500,000.00. Not a bad thirty months worth of work; increasing your net worth by about one million dollars – which can also be a conspiracy theory.

You have to wonder what Purchaser A’s end game is; but hold on another minute. The individual who signed on behalf of Purchaser A thirty months earlier, which has now become the seller of Seller A’s property, is not the person who signs over the deed. The signer on behalf of Purchaser A is unbelievably Seller B, who signs as both seller and as the new individual buyer. It is now obvious that Purchaser A and Seller B must know each other as they are members of the same LLC. What exactly their relationship is we do not know.

Conspiracy theories abound. Did the individual who originally signed on behalf of Purchaser A pass away, allowing Seller B to seize the opportunity to take control of the property? Or worse, maybe Seller B transferred the property unbeknownst to all the members of the LLC, basically fooling everybody if there were more than the two members?

My own conclusion is that Purchaser A may never have had the $400,000.00 for the down-payment. We do know based on a one degree of separation that Seller A had no relationship with either. Seller A just wanted to sell and get out of town. That means they wanted their $500,000.00 at closing. That left $300,000.00 of mortgage money available for Seller B, who now owns former Seller A’s property. What you could have is a possible equity trade off.

To put it in more simpler terms, someone offers you $200,000.00 for your home worth $400,000.00, plus an additional home worth $350,000.00 three years down the road. Would you consider this if it was monetarily feasible under your financial circumstances? Notwithstanding all the legalities and protections that need to be built in there appears to be absolutely nothing wrong with the transaction. This may explain why Purchaser A and Seller B were members of the same LLC, to protect themselves from each other.

There are several nagging questions, one of which is that the equity trade – off may have created an inflated sales price, if the sale price was realistic to begin with.

Inflating sale prices can lead to the creation of a false market as comparable sales for properties are used by appraisers in determining market value, which lenders rely on to make loans. For construction loans there is an added concern since the initial advance is generally based on the land valuel alone. In the above described case the two properties involved are several miles apart and the theory is only bolstered if multiple parties in a loose six- degree’s or less of separation are involved in a geographical strategic area.

The conspiracy theory expands.

During the same time frame we find a property within the same geographic footprint exhibiting another head scratching scenario. In this particular case the property owner is in foreclosure. As you trace back the history of the property you find that it was purchased in 2002 for $167,500.00 and has been refinanced several times over the following five years; with each refinance increasing the debt amount from an original $145,000.00 to $385,000.00.

It’s difficult to fathom based on the type of property why a lender would loan that much and that the property value would increase that substantially over a five year period, notwithstanding the borrower’s ability to repay. The property eventually wound up in foreclosure, which in New York State can take longer than some of Broadway’s longest running shows. Prior to the referee in foreclosure holding the sale along strolls Purchaser B, an individual, who pays $520,000.00 to the owner ending the necessity for the foreclosure auction.

This transaction raises several questions that do not make sense on the surface. Surface questions can definitely drive you crazy, but they can be the proverbial tip of the iceberg. The amount of the foreclosure judgment in all likelihood may not be too different from the amount paid by Purchaser B and owed to the lender, but seemingly above what the property value may be worth. Why Purchaser B would not want to try their luck at the referee’s foreclosure auction and potentially pay much less is more than a fair question. If Purchaser B was prepared to pay up to the judgment amount it is doubtful anyone would outbid Purchaser B.

Most lenders set a minimum price at a foreclosure sale, a price lower than the amount owed. Taking a loss, rather than becoming the property owner, particularly if a large portion of the debt is accrued interest, is more cost effective than taking the property back and gambling on some inexperienced buyer coming along and paying the full amount due. An amount and greater loss that continues to grow by the day as the lender has to maintain and insure the property and pay property taxes.

Purchaser B obtains a mortgage for $400,000.00, which means $120,000.00 was needed to complete the transaction. Two years pass and Purchaser B now becomes Seller C, and sells the property to Purchaser C for $625,000.00. The new Purchaser C obtains a mortgage for $500,000.00, which means Purchaser C has to come out of pocket for $125,000.00, almost a dollar for dollar match to Purchaser B’s out of pocket. If in fact either one of them came out of pocket. How the property appreciated over $100,000.00 in two years obviously begs an additional question. It also appears that Purchaser C may be in a business relationship with an LLC member of Purchaser A, who during the same time frame, as an individual, purchases the property across the street from former Seller A, now owned by former Seller B, coming out of pocket $150,000.00.

While all this is unfolding, a single family home in the same geographic footprint is sold to Purchaser D, an individual, for $545,000.00 by Seller D, a business entity. Purchaser D than sells the home 79 days later for $550,000.00 to Purchaser E, another business entity, making a fast $5,000.00 profit. Purchaser E must believe they have gotten the Golden Fleece and/or the fleecing of the next purchaser, Purchaser F, who buys the property 88 days later for $1,220,000.00, a $670,000.00 profit for Purchaser E. To put that in perspective, Purchaser E made a profit of about $7,600.00 a day. Beats the minimum wage I guess. Closer examination reveals that the person signing on behalf of Purchaser E, is also Seller D, who some 15 years earlier transferred the property in their individual name to the entity that is now Seller D.

And if the above doesn’t make you roll your eyes and reread what was written, another property on the same road as the property purchased by Purchaser B is bought approximately 5 years earlier by Purchaser G for $170,000.00. There appears to be an outstanding refinanced mortgage on the property at the time for roughly $350,000.00, which means there is a strong possibility that the mortgage was satisfied at the closing and the actual transaction was much higher than the amount reflected on the deed. Once again, why a loan for that amount was issued is a relevant question.

Approximately six months later, Purchaser G sells the property for $615,000.00 to Purchaser H, with no apparent financing on record directly tied to the property. Purchaser H holds the property for four years before selling it Purchaser I for $735,000.00. Three months later Purchaser I buy’s the property next door, a similar property, for $935,000.00. Another lucky seller, I guess?

Want more? There are enough transactions to make this longer than an encyclopedia instead of an article and reciting more transactions that fall into the same general pattern, although almost all have an interesting twist, is not necessary. You get the picture.

One other though, reminds me of the 1985 Aretha Franklin song, “ Who’s Zoomin Who.” A two unit condominium owned by an LLC, in the same geographic footprint of course, and the same time frame of course, has both units sold one day apart. The first sale is for $210,000.00 more than the one sold a day later. The units measure the same square footage. The second buyer (the day later buyer) turns out to be the managing member of the LLC. You now have the creation of a pick and choose higher/lower comparable sale at the same address. Exactly who’s zoomin who is a good question, with the first buyer maybe wondering if they were sand-bagged.

Now I can list a litany of conspiracy theories and further surface questions, but why announce the multiple issues that I would raise if I was the District Attorney; and maybe some-day Rockland County will have one. But for now let him spend his time on blue collar crimes and leave the conspiracy theories to the general public.

Several issues, however, are clear from these transactions. One is we need to ensure non-traditional lenders and free loan societies/gemachs have strong oversight and independent auditing procedures in place. The Internal Revenue service needs to be more proactive in investigating the source of funds of property purchases and loan payments to lenders. There is generally heavy debt servicing with those loans. Deflated sale prices beg the question of the old cash in the briefcase conspiracy theory.

And while not overtly unusual, it appears that many sellers may not have had legal representation in these transactions, which is their choice, etc., etc., etc.