Real-Estate Scams Uncovered -- Bankers Call It `Texas Land Flip'
PORTLAND - A network of real-estate dealers has bought land cheap and inflated the value to walk away with cash from bank loans based on phony prices, a newspaper says.
The Sunday Oregonian said the Portland-area scam is known among bankers as the "Texas land flip."
The scheme is simple: Buy property cheap, then sell it quickly - even the same day - to a friend, lover, business associate or employee. Then the buyer gets a bank loan to cover the inflated value.
The banks are saddled with property that's not worth the price, putting them, their depositors, their stockholders and even the taxpayers at risk.
Kathryn Gearhard, who manages the appraisal unit at First Interstate Bank, said the scams can discourage banks from lending in whole neighborhoods.
"When a bank takes one or two $17,000 losses, they mount up," she said. "A bank is probably going to feel a little more conservative about lending in that neighborhood."
Focus of the article was Stephen Michael Olson. The Oregonian said Olson formed bogus companies and paid employees to sign loan and property documents in their names even though the deals were his.
Over a decade, the newspaper said, Olson orchestrated hundreds of transactions, including some that led to bank fraud.
But the newspaper said Olson was just one figure in an often interconnected group of real-estate dealers who own or control hundreds of Portland properties.
The newspaper said the dealers have exploited low-income neighborhoods in scores of questionable real-estate deals over the last several years.
To track the dealers, the newspaper interviewed more than 80 people and examined several thousand deeds, mortgages and other documents over eight months.
Real-estate documents show some property that doubled or tripled in price - at least on paper - in a few days or weeks. Sometimes the price of a house doubled in a single day, the newspaper said.
The newspaper said it was unclear what happened to all the loan money, but it said the deals keep going on because law enforcement and industry regulators find them too complicated to understand, too time-consuming to investigate and too costly to prosecute.
The newspaper said an example was Donna K. Rauschenberg, a single mother on food stamps who knew nothing about real estate when she met Steve Olson.
"I didn't even know what the word mortgage meant," Rauschenberg said.
Nevertheless, over the next five years, Rauschenberg joined Olson in a partnership that set up hundreds of real-estate transactions. Most of the deals involved cheap houses in low-income neighborhoods. Many of the deals were in Rauschenberg's name.
In federal Bankruptcy Court, Rauschenberg admitted that the Portland partnership bought real estate in other people's names and used artificially high appraisals to obtain loans.
In one case, Rauschenberg paid $16,000 for the house, then sold it a month later to Jill Karen Moon for $29,500. Moon obtained a $30,250 loan from Western Savings and Loan Co., now Crossland Savings.
Even though the house was in Moon's name, it became part of the Rauschenberg Investments inventory. Moon later deeded it back to Rauschenberg.
The loan, still in Moon's name, went bad. Farm and Home Savings, which bought the loan, foreclosed. The bank had to pay $40,350, including interest, to get the house back. Because the loan was federally insured, the taxpayers ultimately will get that bill - more than $10,000.