Thursday, June 10, 2010

Odd part three

In the continuing saga of Ronald Wheeler...

I decided to found out how much was lost by the lender (or more accurately, the American Taxpayer) on this foreclosure. The lender sold the property for $455,000. Remember, the first mortage was for $796,000, and the second mortgage to the seller was for $193,716.20, and the third mortgage a couple of months later was for $484,000.

The good/strange/interesting/ironic news is that the individual who sold the house to Mr. Wheeler is the one who bought it from the bank for $455,000. He then got a mortgage for $475,000, which does not appear to contain an owner-occupied requirement.

Odd part two

Update to the Well, this is odd story. Ronald Wheeler, Clarke County Attorney, sent a letter to the Osceola Sentinel-Tribune explaining his side of the story. Boiled down, he says he was duped, that he trusted Mr. Glessman, the individual for whom he acted as a strawman, and that he was inexperienced in real estate investing.

Mr. Wheeler and his wife (also an attorney) purchased property in Ankeny for $995,000 in June 2006. They mortgaged the property to Mid American Home Services for $796,000. Mid American immediately assigned the mortgage to Wells Fargo. Mr. Wheeler and wife also gave a mortage to the seller for $193,716.20. For those of you following along at home, this means they only put roughly five grand into a million dollar transaction.

But wait, there's more! In August 2006, Mr. Wheeler et uxor gave another mortgage to Citibank for $484,000. So, now they owe nearly $1.5 million dollars on something they paid less than $1 million for two months ago. So that is a half million bucks lining someone's pockets inside of two months. And that is without the messiness of having to sell the place at a profit. Not bad work if you can get it.

Now on the one hand, Mr. Wheeler presents this as if it was a real estate investment. But from all indications of the documents available at the court house, this was a loan for owner-occupied property. In fact, the following is copied from the actual mortgage signed by these two attorneys. See if you find it confusing.

"Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy. . . ."

He is an attorney. The documents presented at closing, while voluminous, are not terribly complicated. In an owner-occupied property transaction, there are generally at least two documents which state very clearly that you intend to occupy the property as your residence. If it was FHA, there will be several more.

Mr. Wheeler also claims that Mr. Glessman appeared to be a "legitimate and very successful real estate investor." If he was legitimate and very successful, why was he unable to get his own legitimate finanacing?

He also seems surprised that when Mr. Glessman failed to make the payments, he was the one ultimately responsible. At least that is how I take the use of the word "I" in quotes, in the following sentence. "I then learned, to my horror, that the value of the property was far less than what he had told me, and far less than the amount for which "I" had financed it." Yes, "you" financed it. That is what it means when you sign promissory notes for $1.5 million. Pretty sure I remember that being discussed in first year law school contracts courses. And what did you think? You bought the property for less than $1 million, and two months later it is worth half again as much?

Why did the lender care whether or not Mr. Wheeler intended live in this property? Investors generally pay a higher interest rate and are required to have a larger down payment than people who are going to live in a property. The logic is that if things get tight, you are more likely to bail on property you own only as an investment than your home. And if it was an FHA loan, there is a certain amount of government subsidization, since the government guarantees the loan. There are also several documents which tell you that defrauding a lender is not a good idea, and the penalties can be steep. That may have been mentioned in first year criminal law class.

But, apparently Mr. Glessman told him it was cool....