At long last the trial has begun for the perpetrators of the so-called Stonewood Scam in Southwest Riverside County. Long time readers are acquainted with the basics of this story from my years-long chronicle of events. Our local association tried to bring this to the attention of law enforcement beginning in late 2004 but were unsuccessful in catching anybody’s ear until the scam had nearly run its course and started to collapse under its own weight.
The real estate part of it consisted of representatives from Stonewood Financial buying homes at significant premiums over asking price. As this was at a time our housing market was appreciating 20% – 30% a year, the fact that someone would pay a 25% or 30% premium on a home purchase was not enough to warrant investigation by the authorities. Homes listed at $500,000 were routinely selling for $600,000 or more. Targeting specific neighborhoods, after the first two or three sales were obtained with fraudulent appraisals, it became a self-feeding scheme since subsequent appraisals were now based on actual sales, albeit fraudulent. Turns out many of the buyers were either made of straw, or people talked into buying multiple properties they couldn’t begin to afford. Naturally other buyers into those neighborhoods also became victims since selling prices became predicated on fraudulently inflated values. In addition to the 200+ documented cases, many more innocent victims lost their homes when prices tumbled by more than 2/3 in some cases.
How did they do it? Well, partially through affinity fraud – many of the buyers were either members of the same ethnicity as the perpetrators or were nurses at the same facility where one of the perpetrators worked. They were also promised that the properties could be rented, that any shortage between the rental income and the mortgage payment would be paid for them, and that the $100,000+ overage collected by Stonewood or a related entity, would be paid to an investment account with the promise of even greater dividends to come.
Naturally there was no investment account to produce income, after a month or two the promised rental offset payments dried up and houses started going into foreclosure by tens, then by hundreds. When we became aware that something smelled bad here, we documented about 60 homes and about $40 million dollars in potential scams. By the time authorities finally acted on it the result was over 200 homes with the perpetrators indicated for over $120 million dollars. Our local District Attorney did not see fit to take action until the SEC, FBI and US Attorneys Office had finally acted, then he stood up on the podium all puffed up taking the credit. I like to hope in some small way it was part of the reason he was soundly defeated in his recent re-election campaign by a relative unknown.
Anyway, in addition to our local real estate fraud task force, reporters Chris Bagley from the Californian and Leslie Berkman from the Press Enterprise payed significant roles in shining the spotlight on these nefarious activities and our own attorney John Giardinelli and an attorney for some of the plaintiffs Richard Ackerman were pivotal in keeping the focus on.
It took too damn long and cost too many people – not to mention the damage done to entire neighborhoods and our cities – but as they say – sometimes the wheels of justice grind slowly. Let’s hope in this case they also grind exceedingly fine.
You can read the whole story and related elements here.