HOUSING: Handful of brokers linked to glut of local foreclosures
21 real estate offices had huge rates of failure among buyers


By ZACH FOX - Staff Writer
Saturday, January 17, 2009 7:06 PM PST

San Diego County

A tiny number of real estate brokers are associated with an inordinately large number of foreclosures in North County, raising questions about how just a few salesmen could play a role in sending hundreds of families into foreclosure and causing millions of dollars in losses for lenders.

Nationwide, mammoth losses by such lenders have triggered a global financial panic, sparked the worst U.S. recession in decades, and led Congress to allocate $700 billion in taxpayer money to save the banking industry.

Certainly, no single real estate office or group of agents can be blamed for the economic meltdown.

However, great financial losses seem linked to the activities of a small number of professionals.

A North County Times investigation into thousands of foreclosure records, along with interviews with buyers, reveals a pattern that suggests some real estate agents specialized in clients ---- chiefly Latinos ---- who couldn't afford to buy homes, and helped them buy as many as possible.

Some of their customers say the agents posted fliers in low-income apartment buildings and held seminars that encouraged people to get rich by buying and selling multiple properties, usually with low or no down payments.

In North County, 6 percent of about 59,000 houses sold from Jan. 1, 2003 through Dec. 31, 2008 have slipped into foreclosure, according to county and industry data.

A typical real estate office, usually a broker and a group of affiliated agents, has seen from 2 to 4 percent of their buyers' homes go back to the lender.

But the NCT analysis found that 21 brokers have accumulated foreclosure rates of 25 to 60 percent, a figure that could go much higher because many buyers are late on mortgage payments but are not yet in foreclosure.

All of the agents in these offices had similar sales records: They appear to have specialized in finding Latino buyers, and most of the attached mortgages were from "subprime" lenders that specialized in lending to borrowers with weak credit scores.

Together, the offices represent about 2 percent of the sales activity in North County since Jan. 1, 2006.

Yet, since 2007, when the region's foreclosures began to surge, they accounted for 455 foreclosures ---- 11 percent of all foreclosures analyzed in the investigation.

Industry experts say it is nearly impossible that such high rates of failed loans could result from ordinary real estate deals.

Indeed, the probability of a broker randomly compiling such a foreclosure rate is about the same as winning the lottery.

Agents working for one real estate office in the high-foreclosure-rate group have been prosecuted and pleaded guilty to fraudulently inflating borrowers' incomes.

There is no indication the other offices or agents broke the law.

But for one industry expert, the numbers alone were shocking.

"They are doing something that is severely inappropriate in order to have this high a number of foreclosures," said Tim Sandos, president of the National Association of Hispanic Real Estate Professionals. "It just doesn't pass the smell test."

Foreclosures rare, usually

In fact, most brokers in North County saw very few of their customers go into foreclosure.

And the analysis does not show that Latino borrowers have caused more foreclosures than other ethnic groups.

Rather, it shows that the few real estate agents with unusually high foreclosure rates represented primarily Latino buyers.

Analysts such as Sandos say that relatively low foreclosure rates are prevalent among Latinos and first-time, entry-level borrowers who participated in government-backed mortgage programs.

In its investigation, the NCT combed through more than 5,800 foreclosure listings in North County provided by ForeclosureRadar, a Northern California data firm, which were then cross-referenced with mortgage data from the county's recorder office and real estate listings.

The analysis matched North County foreclosures with 973 real estate brokers who represented the buyers.

All but 21 offices had rates of foreclosures that were within the range of what a statistician would find likely.

Those brokers amassed 1,313 sales in the three years. Through December, 455 of those properties were seized by banks.

That rate of failed loans is more than six times larger than the regional average, which these figures skewed higher.

Several brokers also carried mortgage brokerage licenses, meaning they could sell a house and originate the loan ---- a legal role under California law.

Ruling out effects of low income

To reduce the likelihood that foreclosure rates were inflated simply because the 21 brokers catered to low-income borrowers, the analysis compared their figures with homes sold only in North County's most foreclosure-prone neighborhood, Oceanside's "Back Gate" near Camp Pendleton.

With foreclosure rates between 25 and 60 percent, the 21 brokers strayed from even the Back Gate's above-average foreclosure rate, which is 15 percent, by three standard deviations, a statistical measure of probability.

Such large deviations from the average are almost impossible to achieve randomly, said Jim Lackritz, a statistics professor at San Diego State University.

And of those 21, three brokers shattered the standard of impossibility, veering off the average rate by 10 standard deviations.

"It's at that point where you have to use the Jim Carrey line from 'Dumb and Dumber': 'So you're saying there's a chance?' " Lackritz said. "Yeah, but not in your lifetime or mine."

Many of the agents working for the 21 brokers sold relatively few houses, with almost all going into foreclosure.

For example, one agent sold nine houses; seven were lost to foreclosure.

But two brokers and two agents sold on a larger scale, making their foreclosure records much more abnormal:

-- About 40 percent of all the sales closed at the Century 21 Eldorado office in San Marcos have been seized by banks in foreclosure.

Two brothers who headed the office, Alejandro and Emilio Lopez, were arrested and pleaded guilty to fraud a year ago. Both have been released on parole after serving five months, prison authorities said.

The Lopezes declined to comment through their parole officers.

-- Vista real estate broker Miguel Romero has headed two offices, whose agents combined for a foreclosure rate of 48 percent.

Romero and his agents have sold 126 houses, 60 of which have ended with foreclosures.

Romero declined to comment through a lawyer.

-- The largest foreclosure rate among agents with more than 40 sales belongs to Vista agent Eduardo Ramos at 60 percent, or 35 foreclosures out of 58 sales.

Three phone numbers listed for Ramos were disconnected.

-- Escondido agent Agustin Castro sold 43 houses over the last five years ---- 20 have been lost to foreclosure, a rate of six standard deviations off the average.

'Prequalified' customers

In a phone interview, Castro said he sold houses to consumers who entered his real estate office, and that he never had involvement with the loan origination process.

Typically, his customers would "already have a prequalification. They would bring it in, we show them the house and that's about it," Castro said. "I'm not going to ask the loan officer for his qualifications."

Eighteen of Castro's foreclosures had lender data available to the NCT.

All were sold to borrowers with Latino surnames.

Of those, half of the mortgages were issued by Meritage Mortgage or New Century Mortgage ---- two relatively small subprime lenders.

And 14 of the purchases were made with no money down.

"I think it's the cycle with the economy," he said. "Unfortunately, if that's reflected on me, there's not a whole lot I could do about it. I wish things were different."

Romero's officewide foreclosure rate of 48 percent was the most of any North County real estate office with at least 100 sales during the last five years.

Some borrowers said they felt deceived by Romero's sales pitch and didn't know the mortgage payments would be as high as they were.

One such client was Maria Manzano, who faces the possibility of losing the two houses she bought through Romero in hopes of investment gains.

"Emotionally, I"m not doing very well," she said. "I'm struggling with an attorney to file for bankruptcy, but I'm trying to hold onto the properties."

Buy more, get rich

Borrowers and real estate agents who used to work with at least two of the 21 high-foreclosure-rate offices said the salesmen would target low-income Latinos, posting fliers advocating homeownership in certain apartment complexes.

Then, at seminars, the agents would propose that buying multiple homes was the key to becoming rich.

Another person who said she attended Romero's seminars was Irma Sanchez of Encinitas. She didn't buy his pitch, but kept in touch with friends who did, she said.

Soon, they were facing foreclosure.

Real estate agents and brokers who do not originate loans themselves are largely insulated from the question of loan repayment.

It is illegal to encourage homeowners to lie about their incomes. And it is the job of lenders to establish whether a buyer is likely to repay their mortgage.

Yet, the state Department of Real Estate's code of conduct says brokers are "fiduciaries of their clients," a relationship generally understood to mean that brokers must act in the best financial interests of their clients.

The obligation has been widely ignored for years, said Jim Klinge, a real estate agent in Carlsbad.

"It's mandated," he said, "but it's a fleeting thought."

Klinge has posted a relatively low foreclosure rate at 2 percent, or one foreclosure out of 53 sales.

Sanchez said she helped borrowers submit more than 40 complaints of illegality or code-of-conduct violations against Romero with the department more than a year ago.

Not seeing any action, Sanchez filed complaints with the district attorney, she said.

Michael Groch, chief of the district attorney's economic crimes division, would neither confirm nor deny whether an investigation of Romero is under way.

Romero has not been arrested, and the Department of Real Estate does not confirm or deny the existence of consumer-submitted complaints.

Therefore, Romero's license on the department's Web site shows no violations or complaints.

"Most of the people I have contacted, they just don't believe in justice," Sanchez said. "Nobody helped them, and now most of them have lost their houses."

Tracing the similarities

The sales records of Romero, the Lopez brothers, Ramos and Castro ---- the four salesmen with ultrahigh foreclosure rates ---- had several similarities:

-- Essentially all the borrowers, 99 percent, had Latino surnames.

-- The majority of mortgages issued on the sales, 93 percent, carried no down payment.

-- The list of lenders on those mortgages reads like a graveyard of failed institutions, many of them exclusively subprime lenders: Washington Mutual, Argent Mortgage, Accredited Home Lenders and Fieldstone Mortgage.

Some, though not all, of the real estate agents sold multiple houses to the same person, with all of the purchases going to foreclosure in some cases.

Still, it is unclear how much involvement the real estate agents had in the loan origination process, where any misrepresentation of income ---- and therein, any fraud ---- would occur.

The NCT was unable to perform a search of who originated each loan because such data is not publicly available, and even most real estate insiders don't have access to it.

Law enforcement officials say that in cases of mortgage or real estate fraud that involve pumped-up prices or inflated incomes, the most common perpetrators of the fraud tend to be the loan officer or the appraiser.

Neither is listed on the documents publicly filed at the county recorder's office for each real estate sale.

Inexperience in some cases

Real estate agent Rico Telles, an independent agent based in Carlsbad, sold nine houses, seven of which have gone through foreclosure.

Telles said he was brand-new to the business in 2006 after working as a car salesman.

Since the housing bust, he said he went back to selling cars until a medical condition forced him off the lot.

Now he tries to keep up with the bills with a smattering of acting jobs.

Each foreclosure had its own reasons, Telles said in a phone interview.

"I'd always ask them, 'Is this what you want? Can you afford this?' " he said. "And they all said, 'Oh, yes.' I never made anyone buy anything."

Another agent said his inexperience in real estate contributed to his high foreclosure rate.

Elias Chavez worked with the convicted Lopez brothers out of the Century 21 office in San Marcos.

Chavez, who was not charged, said the office would provide clients and handle the entire loan process.

He sold 19 homes in two years, 14 of which have either gone through foreclosure or "short sale," meaning the bank agreed to sell the property for less than the mortgage.

In total, Chavez sold $9 million in real estate.

After leaving the office following an FBI investigation, Chavez said he learned more about mortgage origination and estimates that his employers, the Lopez brothers, made $30,000 per sale on mortgage commissions.

Combined with their split of commissions, Chavez said he thinks the office might have taken in as much as $600,000 from his sales.

He said he earned about $55,000.

"I wouldn't say it was my fault for these people losing their homes," he said in a phone interview. "I just think it was unfortunate I didn't know any better."

Staff writer Edward Sifuentes contributed to this report.

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com. Read his blog, "On the Realside," at bizblogs.nctimes.com.

NORTH COUNTY TIMES