Detecting Mortgage Scam Comps or If It's Too Good To Be True....

Hello Fans!

Although none of you have left comments, I am sure you've been screaming for my return. My absence is the result of finding the deal of a lifetime only to be crushed by the reality-check wave. My partners and I were recently alerted to a two-flat property in Inglewood, on the dicey southside of Chicago for those of you not from around here. The property was a shortsale that an investor we knew was processing for a distressed family and they were looking to us as an end buyer.

The asking price was $35,000 with $50-$55k in repairs needed, basically a total rehab. The comps were....wait for it! $300-$350 ARV! For those of you non-math geniuses out there, that means we'd be in it for $85-$90k and could sell it for $250, giving the new owner $50-$100k in equity, and we would still make a $160k profit! We were practically peeing in our pants we were so excited!

And then the balloon popped.

RS, our astute numbers guy, posed the following question: Only an investor would buy these properties so that they could cash-flow them as rentals. Why would anyone buy these at $350 when there is no possible way they could cash-flow positive at that price? And yet we had at least 6 comps within a few blocks that sold in that range in the last 6 months. It just didn't make sense!

Fortunately we are connected with other savvy investors who gave us the downlow with what's what's up in Inglewood. Unfortunately the asnwer was not thrilling. Apparently a cartel of slimy investors started buying two-flats in Ingelwood/Back of the Yards for foreclosure prices, $20-$40k, and then selling them to other investors, i.e. a trusted friend, for $300-$350 but then giving a kick-back after closing of $150-$200k to the "friend" and splitting it outside closing. This, friends, is mortgage fraud. Don't try this at home or Lisa Maddigan will eat you alive!

We were blessed to learn of the scam before getting in WAY over our heads but a little bummed that what seemed like such an amazing opporunity was in fact not. We are now investigating other REO's we located through our realtor in the western suburbs. The profit margins are not quite as large but at least they're legitimate and we won't have to risk prison time to complete the deal!

Stay tuned!