WaMu Lent $24.5 Million To One Shady Family Of ID Thieving House Flippers

If you’re expecting this story to be about the worst bunch of shady house flippers from the height of the credit boom, you’ll be disappointed. This story is about a family that took WaMu for huge amounts of money by buying homes and selling them to their friends and other family members for grossly inflated prices — and pocketing the profit while the homes fell into foreclosure. They did this as the California real estate market was imploding, and after WaMu had announced that it had tightened its lending standards.

The story begins several years ago, when Vijay and Supriti Soni were found guilty of forgery, falsifying real estate documents, identity theft and grand theft. According to court documents, the Sonis “obtained confidential information from various people – one of whom worked for Vijay and the rest who were clients for properties or mortgages – and then used it to acquire furniture, loan proceeds and commissions, real estate deeds and commissions, a Mercedes Benz automobile and cash for themselves.”

So when the real estate bubble began to collapse, the Sonis saw an opportunity, and WaMu didn’t do a criminal background check.

From the OC Register:

In July 2007, Vijay and Supriti Soni of Corona del Mar paid $440,000 for a home at 2129 W. Civic Center Drive in Santa Ana.

Five weeks later, they resold the house to Javier Hernandez – the family gardener and handyman – for $660,000. That’s a 50 percent gain in 38 days – at a time when real estate prices in Santa Ana were plunging.

But the lender that financed both mortgages – Washington Mutual Bank – took a bath. In March of this year Hernandez’s loan went into default and in July the bank foreclosed. On the trustee’s deed, the bank listed the home’s value at $377,137 – $220,000 less than the outstanding loan.

Records show that Washington Mutual, America’s largest savings and loan and one of its most precariously perched lending institutions, financed at least 43 mortgages worth $24.5 million on properties bought and sold by members of the Soni family since early 2007.

So why didn’t WaMu’s new, stricter lending policies exclude the Sonis?

Experts told the OC Register that WaMu:

* Allowed financing of property flips that occur less than 90 days after purchase. The Federal Housing Administration imposed a ban on financing 90-day flips in 2006. The FHA also requires a second appraisal for homes sold at a 100 percent gain less than 180 days after purchase.
* Relied heavily on imperfect fraud detection software. Computers are good at flagging statistical aberrations – such as unrealistic income statements – but can be deceived by knowledgeable and determined insiders.
* Did not check criminal backgrounds. The Sonis had been convicted in 2003 of numerous felonies for a real estate fraud scheme. WaMu checks criminal backgrounds of loan originators, such as outside mortgage brokers, but not borrowers.

Last month, District Attorney investigators raided the family’s homes and business offices. Now, prosecutors are investigating the Sonis and other members of their family for criminal behavior.

“Unfortunately, we are back looking at these characters again,” said Doug Brannan, the deputy Orange County District attorney who prosecuted the Sonis in 2003.

The OC Register says that the Soni’s effectively created their own market in Santa Ana, selling so many homes to each other for inflated prices that the sales were “later used by appraisers to give credibility to high asking prices for other properties in the area.”

Here’s an example:

Lohia bought the bank-owned house at 827 S. Flower for $249,500 on Jan. 4. She sold it 20 days later for $575,000 to her daughter, Suniti Shah, who financed the purchase with a $488,750 Washington Mutual mortgage.

That was a 121 percent increase in less than three weeks.

“Selling to each other, that’s something an appraiser should definitely discover,” said Mike Sanders, a Laguna Beach real estate appraiser and expert witness in property value litigation cases. “If the appraiser finds all the same people’s names on transactions, then that’s something suspicious.”

WaMu loaned millions to O.C. home flippers with fraud history [OC Register]
(Photo: JOHN GITTELSOHN, THE ORANGE COUNTY REGISTER)

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  1. SkokieGuy says:

    Hurrah! While the government demands we give huge bailouts, it seemed no one was going to jail. It’s obvious that huge amounts of intentional fraud were committed and it’s about time law enforcement starts catching up. I’m also encourage that the FBI is starting massive investigations. I hope political pressure doesn’t interfere and a true bipartisan effort to hold people and companies accountable actually happens.

    Even if the appraiser didn’t know that the family was selling to ther families, how can they justify a new appraisal a few months later for a 50% higher price?

    The appraiser should be prosecuted and the license for the appraiser and the office that employed him / her should be revoked.

    Others in the area who paid inflated prices for homes where these fraudulent sales were used for comps should sue the appraisal firm and WaMu.

    • BlondeGrlz says:

      @SkokieGuy: There is NO WAY the appraiser(s) in these sales weren’t in on the deal. You can’t add that much value to a home – in a declining market – in that little time. I work in real estate and we’re having a hard time selling properties for what people are willing to pay because the appraisals are coming back from the banks at $10-20k under the offers. The appraiders involved in this case are just as guilty of fraud as the Soni’s.

  2. muckpond says:

    so, wait. why am i supposed to feel bad for these bankers again? or should i? i’m so confused anymore.

    • blackmage439 says:

      @muckpond: I don’t think that’s the point of the story. The point is to further highlight the ineptitude and shady (mostly downright illegal) practices of these lenders. They helped to destroy the economy and ruin the lives of average, honest Janes and Joes who have to pay for the mistakes and ignorance of others.

  3. blackmage439 says:

    WOO-HOO! WaMu ~ We’re helping to collapse the economy!

  4. LSonnenhimmer says:

    It can take ~45 days for the first loan to showup in the wamu system, in that time, if you flip the house, wamu would not know, even back to wamu.

  5. mizj says:

    And…we’re supposed to be paying HOW MUCH to bail all these idiots out? These banks are guilty as sin, too. No checks, no balances, just instant approvals for everyone – even criminals. Nice job, fat cats.

    • amuro98 says:

      @mizj: just instant approvals for everyone

      Well…not EVERYONE.

      Back in 2006, we opened a home equity account with WAMU to help pay for a remodeling job we were doing on the house. At that time, it was fast and easy. Took about a week to get all the paperwork signed.

      Skip forward to 2007. The remodeling job had hit a few hiccups, and was now over schedule and over budget (yeah, we didn’t plan well enough.) So we went back to WAMU to see about extending the loan. By this time, our household income had improved, our credit scores had improved, and our overall debts were lower than when we got the first loan. Even our house had appreciated another 20% due to brisk sales in the area.

      This time, however, WAMU dragged its feet. We never got an official “No”, the guy in the department just stopped taking our calls.

      Turned out for the best, however, as we managed to roll the equity loan into a new first mortgage, saving us money each month while allowing us to make just 1 payment. “Whoo-hoo!” indeed, WAMU…

  6. Canino says:

    As this is investigated it’s going to be revealed that everyone involved with this was an insider – the inspector, the appraiser, the loan officer(s), the bank branch manager, everyone up the chain to the point that individual transactions are not looked at by the person above in the chain.

  7. cashmerewhore says:

    I’ve heard of this happening before. They usually offer a cut of the profits to the family member/friend who is “buying” the house. But instead of living in it, they never pay for it and let it go into forclosure, ruining their credit (but they just got like $50K for doing nothing other than that…)

  8. Meggers says:

    Amazing. Absolutely amazing. The family gardener bought the house for 660K? No one thought that maybe a gardener could not afford a home for that much? I am suprised that he made it to March before going into default.

    • econobiker says:

      @Meggers: I am guessing he had a “stated income” on his loan which was as false as anything.

      He probably went from gardener to “owner of garden center” via their paperwork…

  9. krom says:

    One of the most essential items for survival on planet Earth — shelter — has become a commodity for hoarding, profiteering, price-gouging, predation, and exploitation.

    Nothing you can say to me can convince me that this is not utterly morally wrong.

    We can’t prevent this sort of predatory house-flipping and profiteering because, you know, that would undermine capitalism.

    OK, well, people need affordable places to live, capitalism or not.

    • JustThatGuy3 says:

      @krom:

      I don’t know what you do for a living, but I think we should eliminate the predation there too – from now on, you get $7/hr, so you can’t prey upon those who need your work. Doesn’t matter how much they’d be willing to pay, you only get to charge them $7/hr. Sounds fair, right?

    • Orv says:

      @krom: It’s not as if it’s home ownership or nothing. You can always rent. In many markets renting actually makes more financial sense.

  10. TACP says:

    thght t ws jst th vl crprtns’ flt? Y tll m ppl ctlly gt frdlnt mrtggs? Nvr!

  11. handyr says:

    So my little shit-shack in Santa Ana isn’t worth $750,000?

  12. Orv says:

    If you owe the bank $2450 and you miss a payment, you have a problem. If you owe the bank $24,500,000 and you miss a payment, the bank has a problem.

  13. u1itn0w2day says:

    This is just more proof that house flippers helped create artificially high prices.It makes you wonder about the appraisers role in any community.

    Remember that are TV show flippers admitting they need high appraisal values for their loans(Fipping Out guy).Alot local governments probably didn’t question the local appraisals because that inflates the local tax base.

  14. noscamsplease says:

    i started looking into buying a home a few months ago and noticed almost this exact same crime was committed repeatedly by hundreds of individuals. All it took for me to uncover the fraud was a couple of days, a computer with internet access and some curiosity as to why home prices appreciated at 100% levels in mere weeks.

    One example was where an “investor” approached people living in their houses and asked them to sell to him at double what it was worth, in one case $750k for a house that was probably worth about $350-400k. He bought the house with 100% financing, threw $100k at the owners, let the house foreclose, and BAM the original owners were allowed to do a “short sale” three months later where they bought the very same house back for $370k. They never even had to move out! It was all just paperwork. the “investor” did this to a dozen or so other homes and walked away with over $2m in profit…for nothing more than filling out forms over a period of three months!

    i was appalled at how many instances of this type of fraud i came across. NOBODY was policing ANYTHING!

  15. u1itn0w2day says:

    The selling to family members to take profit or inflate the neighborhood prices?

    Apparently this family had a fan club and has done internationally ?

  16. BoomerFive says:

    Too many “taking this seriously” jokes fit here. Way too many.

  17. Ben Popken says:

    Probably cut the appraiser in on the deal too.

  18. LeoSolaris says:

    Wow, this is scary… predictable, but scary none the less.