An Elegant Flip, Then a Bellyflop
It's one of those obvious but still necessary tasks: Now that the Florida housing market has been revealed as one giant scam, someone had to document exactly how it happened. So that after we all get buried by debt, Pompeii-style, some future archeologists can piece together our culture, then display it in a museum so that fourth-graders on a field trip can have the wisdom that came with our failure.
So, thanks, Sarasota Herald-Tribune, for taking a whole year to sift through the wreckage. For the series that started with this article, and which is halfway to its doomsday conclusion, the paper analyzed some 19 million real estate transactions, plucking out those that had "red flags" for flipping. For all that, the reporters' dramatic pronouncement of $10 billion in fraud did not impress experts like University Missouri economics Professor Bill Black, who accused the paper of being too modest.
"It isn't even close to the bare minimum," Black said. "You have been so conservative in your technique. Just in the world of flipping fraud, it's many times that number."
Whatever the actual number, the series neatly reveals a domino effect of greed from home-builders, investors, real estate professionals, banks and government regulators, any one of whom could have steered away from disaster if only his judgment wasn't clouded by future wealth.
The Herald-Tribune's inquiry is based on the Gulf Coast, of course, but they couldn't follow the trail of flipping homes without ending up in South Florida, where reporters found Shlomo Manor, a real estate agent in Hollywood who illustrated a point about how despite the housing market's impending crash, flippers were still making big profits because, incredibly, banks allowed those borrowers to take out larger loans against their property.
That excerpt is after the jump.
Manor was one of the flippers identified by the Herald-Tribune. His deals would not be fraudulent if he disclosed to banks his relationship to those selling him property. But they do help illustrate lax lending practices by banks.
In 2004, deeds show, Manor and his investors started buying new homes and vacant buildings in St. Lucie and Lee counties. The market was so hot that Manor easily flipped the properties to willing buyers, Manor said during a telephone interview from Israel.
But he said buyers disappeared in late 2005. He and his clients were left holding 10 unsold houses and dozens of vacant lots.
Hoping the market would turn and in need of a short-term fix, Manor said he and several investors participated in a number of sales to each other. Mortgage records show those sales allowed Manor and his associates to get $1.38 million in fresh bank loans.
He said he also had his wife buy one of the properties because of pressure from an investor who was not happy that the house would not sell.
Manor eventually defaulted on six loans totaling $1.65 million. He defended the flips, saying they were necessary to protect his clients.
"When you bring in investors, you can't throw them in the garbage," Manor said. "If you are not loyal to your customers, you will lose them."
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