Real estate group guts neighborhoods

By: CHRIS BAGLEY - Staff Writer

MURRIETA ---- A group of more than 60 upscale tract houses purchased last year with 100 percent financing is falling one by one into foreclosure, leaving lawns brown, neighbors peeved, and a handful of renters answering late-night knocks at the door.

The owners ---- individual investors who are nowhere to be found ---- began to default on their mortgages in May, triggering three-month countdowns to auction. At least five defaults have been recorded this month, bringing the total to 40 of the 67 local houses linked to Elias Ochoa, a real estate agent who ran the Corona branch of a mortgage brokerage until June.

Neighbors said several of the other houses have been empty and unkempt for months, leading them to conclude that those, too, will soon default and eventually be seized by lenders. Several of the remaining houses are owned by investors who have already defaulted on other mortgages.


The houses are concentrated near Calle del Oso Oro in western Murrieta and Hunter Road in eastern Murrieta but are spread throughout western Riverside County, a market already thick with bank-owned properties.

Connecting the houses like frayed threads are the names of Ochoa and 32 buyers, including that of Julio Zamarripa, who is listed as the owner of a house on Lincoln Avenue in Murrieta, across from Shivela Middle School. Paul Parker, who lives two doors down, said he had never seen Zamarripa and that he wondered why someone would invest in a $475,000 house with values stagnating and nearby houses renting for just $2,000 ---- half to two-thirds what a typical mortgage might be.

Zamarripa's house sat empty for all but a few weeks since he bought it in May 2006, Parker said.

Frayed neighborhoods
Zamarripa bought a house on Hickory Hill Court in French Valley and another in Hemet the same month, according to public tax records and a real estate database used by local agents. Ochoa represented him in all three deals, and all three featured 100 percent financing. Lenders have recorded notices of default on all three, and could seize all three by late October, according to foreclosureradar.com, a database of defaulted and bank-owned properties in California.

Ochoa didn't respond to repeated e-mails and phone calls last week seeking comment.

An analysis by The Californian found that at least 31 other investors bought houses through Ochoa or his brokerage in similar arrangements between May 2006 and May of this year. About half of the group, like Zamarripa, bought two or more.

"The fact that these properties are going into foreclosure is an indication that there's a problem," said John Giardinelli, a Canyon Lake attorney who represents Realtor organizations in Southwest County and the Riverside-San Bernardino area.

Lenders are seizing and selling the houses at particularly delicate time for the Murrieta area. More than 4,000 properties in Southwest County have tipped into default since early last year, according to the foreclosure database. About 1,800 of those have gone to the auction block.

With a focus on money, and not real estate, banks are becoming more willing to cut prices in order to sell off the houses they seize. That is beginning to make it harder for individual sellers to get top dollar for their own houses, even for those who are willing to wait several months. Home prices stand to take much a bigger hit if banks seize and sell houses faster than companies create jobs for new homebuyers, economists say.

So far, home prices in most local neighborhoods have declined only modestly from record highs set last year. And sale prices have actually risen slightly, on average, in the neighborhoods along Calle del Oso Oro.

But neighbors on one block of Pepperleaf Street, where five houses are linked to Ochoa, say the weeds and brown grass don't bode well. One owner is trying to persuade lenders to accept $450,000 for a house that he bought with a $645,000 mortgage late last year.

Banking on relationships
Ochoa acted as the buyers' agent on at least 58 of the houses, in several cases arranging multiple deals on the same house. In some cases, owners defaulted just months into loans, apparently making just the first couple of payments or none at all.

Loans on the 67 houses total $37 million, and several lenders who did business with Ochoa are now in dire straits. Two of Ochoa's clients stopped making their payments to New Century Financial Corp. in April alone, the same month the Irvine-based lender filed for bankruptcy. Ochoa apparently arranged four loans from Accredited Home Lending, a San Diego company that laid off 1,600 employees last week, and six from BNC Mortgage, a subprime lender whose owner, Lehman Bros., shut it down last week.

Ochoa sent 12 loans to First Franklin, part of a Merrill Lynch subsidiary that lost more than $100 million in the first six months of the year. A Merrill Lynch spokesman cited privacy concerns in declining to discuss any loans it may have issued to clients of Ochoa.

"As a general policy, if we encounter problems with a mortgage broker, we review the situation and take appropriate action up to and including termination of the broker relationship and litigation against the broker to recoup money due to us," spokesman Bill Halldin said.

Ochoa has not been accused of any criminal or civil wrongdoing.

Still, Giardinelli and several other real estate professionals who reviewed his transactions for The Californian this month said they formed a highly unusual pattern.

From early 2006 until June 2007, Ochoa was running the Corona branch office of Solco Financial Services, a Temple City-based mortgage brokerage. Solco owner Michael Soliz called Ochoa's pattern "very troubling" after reviewing it last week. Soliz said the Corona branch was largely autonomous and that he had trusted Ochoa as an agent with at least five years' experience.

"I had no idea he was doing transactions like that," said Soliz. "Sometimes you don't know what's going on in the minds of the people who work for you."

A database of local real estate transactions lists Soliz's name as the buyer's or seller's agent on five of the houses identified by The Californian as having been bought by one of the 32 investors.

It's somewhat common for a real estate agent to use the database while signed on as his or her broker, several real estate agents said. Soliz said repeatedly that he had no knowledge of the specific deals. An agent who represented the seller in one of the transactions said he remembered dealing with an agent named Mike Soliz over the phone, but that he never met the agent in person.

Ochoa suddenly closed down the Solco branch in early June, according to Soliz and the owner of another business in the same Corona office building. On June 8, Ochoa suddenly cancelled his listings for 24 of the houses, which he had been trying to sell.

Ochoa started this month as an agent with a Temecula-based real estate brokerage that specializes in selling bank-owned properties, including several in the same neighborhoods where he once operated. The California Department of Real Estate has him registered at a Murrieta house that actually belongs to one of his clients, who apparently bought it in December with 100 percent financing.

Paper profits
For the neighborhoods along Calle del Oso Oro, Ochoa's activities are the second part of a double-whammy. From late 2004 to early 2006, the area was a focus of investments by clients of Hendrix Montecastro, a Murrieta mortgage broker whose real estate license was revoked by state regulators last month.

A lawsuit brought by Montecastro's clients alleges that he and a network of his business partners squeezed tens of millions of dollars in equity out of more than 100 houses and left the clients with monthly mortgage obligations of $20,000 or more, far beyond their ability to pay.

While Montecastro's and Ochoa's investor groups are the largest two known to have resulted in mass foreclosures, several smaller groups also appear to have contributed to a local real estate bubble by buying up houses and leaving them empty, agents and appraisers said in interviews.

Ochoa and Montecastro do not appear to have any link. Still, several neighbors in the Copper Canyon neighborhood north of Calle del Oso Oro said they were all the more frustrated at not knowing exactly who owned the empty houses around them.

In interviews, a dozen neighbors of houses Ochoa brokered said the owners were never more than names they glimpsed briefly on tax records or heard in passing while walking the dog.

Renters, who now occupy perhaps a third of the houses, also said they had never met the owners. One said he had dealt with Ochoa as recently as last week.

Agents who dealt with Ochoa said they never met or spoke with the buyers he represented. An agent listing a house doesn't always do so, but it happens frequently enough at close of escrow that Ochoa's pattern stands out, the agents said.

Giardinelli, real estate agents, a title company representative, and an appraiser said it's extremely unusual for investors to buy multiple houses with 100 percent financing.

"Either they were going to live in them and plan to move a lot or they really didn't know what they were doing," Giardinelli said.

Several of the houses, too, have moved around a lot ---- from one Ochoa client to the next. Tax records show that Zamarripa owned the French Valley house for just four months, selling it on Sept. 22 to Maria Suarez, another client, for $620,000 ---- a gain of $116,000.

Suarez bought a house north of Hunter Road a week later with the aid of Ochoa and $600,000 in loans, according to the real estate listing and public tax records. In March of this year, after home values in that and most other local neighborhoods had crested, Ochoa helped yet another client buy it, this time with $700,000 in borrowed money.

On a recent morning, the grass in front of the house was dead and several advertising fliers hung from its front door. Neighbors said it has been empty for several months.

Ochoa took a commission of at least the standard 3 percent from most of the deals, according to the listings and a Chino-based broker who later hired away a real estate agent from Ochoa's Corona office.

"He just kept doing that ---- flipping, flipping, flipping until it all crashed into what you see today," said Scott Schaller of Centerpointe Lending Corp., who reviewed records of Ochoa's transactions.

Looking for deals
For all that churning, agents who dealt with Solco and others who reviewed related documents said that most of the deals, viewed individually, appeared normal.

Karen Myatt, an agent who sold the house to Zamarripa and another on Lincoln Avenue to another Ochoa client a month later, said nothing about the transactions struck her as unusual. Unlike Stonewood Consulting, which agents said had sent out hundreds of high-ball offers over the course of more than a year, most of Ochoa's offers were more or less in line with the market, according to agents who reviewed the deals for The Californian.

"His buyers said 'look at these great deals; this house is going to go up another $70,000'," Myatt mused. "The market was starting to turn, but no one realized it."

On Pepperleaf Street, where three of five mortgages linked to Ochoa are in default, one family bought a 2,900-square-foot house for $551,000 in May 2006 and had it listed under Soliz's name two months later for $645,000, all in a year when prices were leveling out in most neighborhoods; an Ochoa client, Dararoth Lam, used 100 percent financing to buy it at that price in October.

The house's current residents said a man came pounding on the door late one night in May or June, looking for Lam. Having never spoken with Lam, they didn't know how to answer. They had been sending their monthly rent checks to ABC Mortgage Realty & Property Management, a related company that shared Ochoa's office in Corona.

Juana C. Hernandez, the agent who now works for Schaller at Centerpointe, put the house back on the market for $450,000 in June.

"Short selling," or unloading a house for less than is owed, requires permission from lenders, and most refuse. Washington Mutual Bank started the foreclosure process on Lam's house earlier this month, as it has on three other Ochoa clients who defaulted on its loans. Depending on a lender's business model, a foreclosure may cause losses only to the lender or also to other financial institutions, Giardinelli noted. And they're sure to affect property values on Pepperleaf Street, he said.

"Out of 30 houses on a street, there are seven homes that are empty and have brown lawns," Giardinelli said. "When a bad loan is taken out, everybody's a victim."

Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.

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Comments On This Story

blunderbuss wrote on Aug 26, 2007 11:59 AM: " I LOT of these loans were going out to ILLEGAL ALIENS with no credit history... serves the STUPID LENDERS right for "losing their shorts". If you'll notice, this is a LOT like the S&L crisis from about 20 years ago... when people where also "flipping" properties like crazy... some ended up with huge profits (and McCain was one of the KEATING 5!). This time, we must NOT have the government bail these scammers out - otherwise, they will be back in another 10 years DEMANDING another bailout for their thievery. "

Jeffery wrote on Aug 26, 2007 12:15 PM: " This is one of the best pieces of investigative journalism to come from The Californian. I look forward to seeing what else Chris Bagley can dig up from this scandal. It is just a matter of time before Bagley turns up the smoking gun ...

San Fernando Red wrote on Aug 26, 2007 6:43 PM:

" This is real estate, "guts to open. My brother and I have bought and sold many houses this way to people that could have been illegal aliens; we hope that they were, want to give them a taste of the American dream. They bought with 100% financing and moved 3 - 5 families in each house to pay the mortgage. Real estate speculation is an old American investment format. We were completely liquid with the market leveled, having made 6 figures on each of over 40 homes that we flipped each year for several years. We do not punch a time clock and are not wage slaves. So far 6 of the 10 mortgage companies that we dumped through have gone down the toilet; we love to see them go, more will emerge... Now we are awaiting the foreclosure cycle to bottom out, and we will jump in and do it all over again. Real estate is about betting right during the cycles. And no one should give a hoot about a lender... they are the really free swimming sharks the the equation. All their money is also borrowed. Glad to see the weak ones go, their properties will be gobbled up at under market prices. Others will replace them. Since 1976 we have been doing it. The methods do not change, only the lenders do. Of course it is greed that drives real estate speculators. . . nothing wrong with it. People bet in the stock market, race horses, gold, silver, antiques, cars etc. etc. Just another commodity to be bet on. What many people have against real estate speculation is that they do not have the money or grasp of the knowledge to eat at the trough. As for this ''market adjustment'' it is just a case of ''musical chairs'' and when the music stops, some one is going to be without a chair. That is life. "

Gary wrote on Aug 26, 2007 7:04 PM: " I bought my first house in Murrieta 10 years ago and my selling price was triple of what I paid for it with 10% down. Now my second house has almost tripled in value, and I put 50% down on it from the profits from the first house. I can live with a 16% devaluation like they are predicting, but I am not so sure about my neighbors. I think I did Ok for an E-5 in the military who just used a little common sense. "

Gary wrote on Aug 26, 2007 7:37 PM:" I guess I got lucky as I bought both of my house during the slumps. I forgot to add that my present Mortgage is a conventional fixed loan at 5.0% for the life of the loan. "

San Fernando Red wrote on Aug 26, 2007 11:27 PM: " Gary, way to go! "