HOUSTON -- Investing in real estate is touted as a great way to make big bucks -- buy cheap and sell high.
In Houston, the craze is catching on with criminals. But investigators do not call it investing. They call it mortgage fraud. The KPRC Local 2 Troubleshooters uncovered a white-collar crime that is cheating Houston homeowners out of millions of dollars.
Houston's building boom is good for the economy, bringing in riches for Realtors and happiness for new homeowners. But behind the bricks and lumber is a downside.
A Houston-area woman who did not want to be identified has multiple mortgages on properties she purchased to make a profit.
"I don't have that money. You know, it's going to be like $5,000, $6,000 that I don't have," she said.
She owns a home in Spring, a town home near Memorial Park and a two-story house in League City. Combined, she's saddled with more than $1 million in mortgage loans.
"If I could just get out of one of them, it would be a blessing. If I could just get somebody to just take it, you know," she said.
She does not want her identity revealed because she is embarrassed that she was duped into debt.
She thought the homes were investment properties that would be resold.
The woman said the so-called real estate experts who roped her into a scam told her the homes would only be in her name for a matter of months, and that she would make money and not lose it.
"Everybody loses in mortgage fraud," investigator Mike Kelly said.
Kelly said Houston is losing big -- ranked No. 10 in the U.S. for mortgage fraud.
"People are having to file for bankruptcy. Their credit's ruined. It ruins people's lives," Kelly said.
Here's how it works. Investigators said the fraud ringleader, sometimes a mortgage broker, recruits an innocent investor called a straw buyer to invest in a short-term real estate deal.
An appraiser, who is often in on the deal, over-inflates the price of the property.
So, the ringleader can get a loan in the straw buyer's name for the inflated amount.
Now, follow the money.
The seller gets paid at closing and then gives the extra cash to the ringleader.
He typically gives a cut to everyone involved and then disappears.
That leaves the straw buyer with a loan much more than the home is worth and no way to pay the mortgage.
"Of course, it's all on me because it's all in my name and I don't have the money to pay," the woman said.
Another woman was also duped.
"I thought it was just an investment, you know, that this was totally what people were doing," she said.
But her three-story investment is now vacant.
She signed her name to closing documents for a town home thinking it would be quickly resold for a profit. Five months later, she's stuck with a $650,000 mortgage.
That loan is based on an appraisal signed by Jay Westrick.
In it, his renderings show the home is close to 3,400 square feet, putting the market value at $650,000.
But, when the Troubleshooters got an independent appraiser to look at the property, his measurements show the home is the nowhere near that size. It's actually about a third smaller.
"A 1,200-foot difference is a huge difference," the appraiser said.
The real value of the home, according to the station's appraiser, is $445,000 -- more than $200,000 less than her mortgage.
The Troubleshooters stopped by the appraiser's north Houston office, but he slipped out a back door, leaving employees to answer questions.
"A deal that came out of this office cost a woman $200,000. Don't you feel like your company is responsible for that?" Troubleshooter Amy Davis said.
"No, I'm sorry," an employee said.
"There is no way for the straw buyer to recover financially out of these situations," Kelly said.
FBI agents said most of the homes fall into foreclosure turning otherwise nice neighborhoods into eyesores.
Fraudulent appraisals threaten to send neighbor's tax evaluations soaring.
"Once the fraudsters hit a neighborhood, they'll try to buy every house that they can in that neighborhood because they have other fraudulent appraisals in that neighborhood," Kelly said.
The crime is so rampant that the FBI said it is shifting all of its resources from investigating corporate fraud, such as Enron Corp., to investigating mortgage fraud.
Westrick is under investigation by the state for allegedly inflating the value of another home.
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