Loan Fraud, Lease-Options and a Lawsuit

A three-month long investigation by television station KCRA 3 out of Sacramento, California has uncovered millions of dollars of fraud.

A retired Sacramento woman, along with seven others is accusing VFM Investing Group, Freedom Capital Mortgage and real estate agent Jennifer Huang into duping them into buying home, which they could in turn lease options.

The plaintiffs were to purchase homes and the defendants would then provide the "pre-screened and pre-qualified" tenants. The plaintiffs were told that the tenants would give them a deposit of up to $10,000 and in addition they could take advantage of a 20% appreciation of the home once the tenant would exercise the option.

The defendants allegedly failed to provide tenants and the plaintiffs eventually went onto foreclosure. I won't go into all the sordid details, but there was mortgage fraud involved. You can read the entire story here.

Assuming all the allegations are true, I still cannot put the blame entirely on the defendants. The real estate speculators are also responsible for their fate.

First and foremost they must have not paid attention to their market and assumed that a 10% appreciation per year was still happening. Second, they signed loan documents whose monthly payments would in the $3000 per month range. They must have been greedy in order to miss the fact that if their tenant/buyers could not qualify for a home purchase themselves, how in the world would they make a lease payment of $3000? They obviously did not do their homework.

What gets me is that they are putting lease-options in a bad light. Granted though lease-options are not always appropriate, they do work in the right situation. If the situation is appropriate, lease-options could mean the difference between you losing your listing or earning your commission.