The Minneapolis Star-Tribune has a fascinating article about real estate speculation in Minnesota. The article focuses on Bradley and Sarah Collin, a couple with three children who were living in a trailer park when they were suckered by a local “property management company” that (illegally) paid the couple $20,000 cash to buy 4 houses in a new subdivision.
From the Star-Tribune:
The couple and their three children, ages 2, 3 and 5, were living in a crowded trailer park in Blaine, when Bradley saw a newspaper advertisement touting real estate as the next quick way to make money.
“I didn’t want to paint the rest of my life, and the trailer park scene was about as bad as parts of north Minneapolis,” Bradley said.
Over a steak dinner at a Perkins restaurant, the couple met with two salesmen from Executive Premier Management Inc., a firm in Wayzata that described itself as a “property management company.”
With no money down, they could buy properties in a fast-growing new subdivision in Otsego known as Otsego Preserve, near Interstate 94 and the Albertville outlet mall. They would get $5,000 in upfront cash for each house they purchased.
The Collins were also told that home values in Wright County were appreciating at 8 percent a year, much faster than the national average. At that rate, the Collins could make $24,000 a year for every $300,0000 house they bought in the county. They were told that rental income would cover their mortgage payments until the houses were sold.
Collin said the management company helped him apply for four mortgages within days of each other. The firm used a different lender each time, a way to hide from the banks the debt he was taking on and wouldn’t be able to afford on his net income as a contractor, which averages about $60,000 a year. The “no documentation” and “no down payment” loans carried a much higher interest rate than conventional mortgages.
The couple purchased four houses — each for about $300,000 — hoping to quadruple their profits. The Collins received a $5,000 check after each closing. The cash payments were not disclosed on the mortgage statements sent to the bank, which Collin says he has since learned is illegal.
Executive Premier Management is not registered with the state, and the telephone number given to Collin no longer works. The two salespeople, Nathan Nordvik and Jonathan Matheson, do not have listed telephone numbers and could not be reached for comment.
The Collins hoped to rent the houses for a few years while the properties appreciated and then sell them in order to raise enough money for a down payment on a house of their own. Unfortunately, the rents didn’t cover the mortgage payments on the houses and when the bubble burst in Minnesota, the Collins learned that the subdivision that they had been told was appreciating at 8% a year was actually filled with other investors who cut and run when property values tanked. Now Collins gets 175 calls a day from creditors and his foreclosed houses are now listed at $160,000-$170,000. He feels guilty for being part of the mortgage meltdown: “All these mortgage companies are going down because of people like me who don’t pay their mortgages,” he said. “I’m partly responsible for that.”