Calla

From CaseyPedia

[edit] 8256 Calla Way, Sacramento, CA 95828

I was employed at Pride Industries for over a year (Since Aug 2005) making $50,000/yr salary when I applied for the Calla Way, Sacramento house in October 2006. My income was just shy of doing a full-doc loan so we had to go stated-income. The income was stated a little higher then I was really making in order to qualify. I was told this was a common and allowable industry practice.

I bought the house slightly under value ($330K) with built-in $30K of equity which I chose to cash-out right at purchase by buying at full appraisal value of $360K with 100% financing. (My FICO score was only about 630, I think). I used the money to pay off our $30K of credit cards: about 15K was from Russ Whitney RE seminars and the rest was expenses from wedding in 2004 and miscellaneous consumer debt.

After some cleaning I immediately started marketing Calla Way myself (without an agent) in order to sell it at retail quickly and pay off my loan. I ended up selling the house on January 4th for full retail value (360K+costs) and simultaneously buying the buyer’s old house - Burdett Way, Sacramento. I didn’t want to lose the buyer and didn’t want to wait for their old house to sell so I put the transaction together to where we bought each other’s houses. This allowed me to secure the $30,000 as profit which up to that point was really part of the original loan.

The truth is I was a bit desperate to sell Calla Way because I didn’t want to start making payments on it and I knew the market was starting to reverse so I had to act quickly and make the deal work. I also got a little emotionally involved when I found out the buyer is a family trying to move to a better school district and safer neighborhood for the kids. I wanted to help them out and ended up paying too much for Burdett considering its condition and location. I figured trading down to a lower mortgage amount (295K) was still a smart move because it will be easier to service the payments.

By the way, I applied for Burdett property while still being employed at Pride Industries but had to use a stated income loan again. The stated income was within reasonable parameters for my job title (Programmer/Analyst) and it was justifiable at the time based on the advice I’ve been given by the real estate professionals working with me.

After that I tried to lease option the Burdett property while looking for more deals. Since paying off my credit cards my score went up to around 680. I was ready for more action.

In early January 2006 I took a 3 week leave of absence from my job at Pride Industries and flew with some investors to Albuquerque, New Mexico, which was a hot area for investing. There I put two houses under contract (Sonora Way and Guadalajara).

I came back to my job and found myself so busy managing all these deals that it was starting to affect my programming job performance in a big way. I didn’t feel it was fair to my employer to be doing my business on company time. So I ended up resigning from my job the same week and (end of January 2006) to pursue real estate investing/flipping full time.

I also had a side business doing freelance web design, web application development and hosting. I’ve have been doing the web business on and off for the last 10 years. I used the business to qualify for all of the loans going forward. Since it was hard to verify income from the business continued to use stated-income loans.

The only loan where I didn’t state my income was the Angleridge property in Dallas. There I got a loan from a hard money lender and they normally don’t even check credit because they only lend upto 65% LTV and thus are pretty secure with just the collateral.

   … Serin has repeatedly admitted that he lied on his loan applications regarding his employment and his intention to reside in the purchased homes. To avoid lenders seeing that he had taken out multiple loans, he used several lenders for the various properties, and filled out the loan applications within a short time frame, so that the loans would not have sufficient time to appear during a credit check…

See my explanation of employment above. I did not lie about employment but I did state my income (within reason) to meet the debt-to-income ratio for each particular loan amount.

I did run each each loan as an “owner occupied property” or as a “second home” in order to qualify for 100% financing. I didn’t have any other properties at the time and I was buying all of them so fast that the credit report didn’t show all the other loans right away. This allowed me to justify the owner-occupied or second-home status. At the time this seemed OK to me and the professionals I was working with.

   … In addition, he received cash back at closing on most of the properties — for his California properties, Serin received more than California’s legal maximum rate of 3 percent of the selling price.

Yes, I got cash back at closing through different methods. Sometimes disclosed on the closing statement, sometimes not. Either way I didn’t realize this was fraudulent behavior, I just thought the lenders didn’t like it. I definitely didn’t think I was committing any kind of a crime.

Cash-back at close is a pretty common technique among the real estate investors and associates that I collaborated with at the local investment clubs. I just thought it was a great way to finance repairs and payments for the fix-n-flip investment strategy.

   The cash-back money was spent on both the mortgage payments for the houses, and on various luxuries such as a Hawaiian vacation for Serin and his wife.

Almost all of the cash-back went toward the repairs and servicing the 15-20K monthly burn-rate on 6 properties (at the peak) which includes mortgage payments, taxes, insurance, utilities, travel expenses, etc. Some of the money (about 15K, I think) went toward additional real estate seminars so I can get better and learn new techniques.

We also used the money for living expenses since this was our main business during 2006. The goal was to buy at wholesale, take some of the equity out at close, pay a few payments, fix up the properties and sell at retail and pickup an additional profit on the sale. Since I quit my programmer job I had to use some of the cash-back to live on while we wait for the houses to sell.

I never intended to commit any kind of fraud by taking the cash out and letting the property foreclose. My goal was to make a business out of it. I simply got overzealous and made some beginner mistakes. How many new business owners don’t make any mistakes?

And yes, I did take my wife for a surprise anniversary trip to Hawaii. We haven’t gone on a real vacation since we got married and I wanted to do something special for her. This was not a lavish or extravagant trip by any means. We even saved money by living with a friend for part of the week. ^[1]^[2]

At 9:09 AM, Ming the Murseless said... Rob, The condo was a separate sweet deal. It was Calla Way that was linked to Burdett. He sold the condo in 2003 and bought Calla in 2005. I love the way all of his sweet deals are never quite so sweet upon closer inspection. "I made $30k on my first flip!" "... except for the fact that I had to pay for court costs, several months of missed rent, and give the guy $3k to go away." "I successfully flipped my second house for a profit!" ".....except that I had to buy the buyer's old shitty house as part of the sweet deal, was never able to sell that one, got foreclosed on, and ate an enormous loss." "Who wants to partner with me?"^[3]

[edit] Marty Files

The relevant incredibly self-incriminating juice from Day 3:^[4]

Then I thought: oh I know, I'll buy it, and I'll structure the contract to where I can get some cash back at close, because I already saw how I can do that. I've been exposed to it on my first transaction and so I thought I can do sometimes like that again and this time get more equity out of it. Because I knew it would appraise for between 360 and 380, maybe even more, because the comps would still support that price. even though they couldn't sell it for that price, I knew it would definitely appraise for that price. [...]

They agreed to a purchase price of 330, and they would pay my closing costs. I forget what the closing costs were, about 15 grand, so really the internal purchase price was like 315. They were going to net that much, minus their share of the closing costs, which might have been, maybe, I don't know, 5 grand, just for like transfer tax and escrow fees and things like that. So I think they were netting about 310 out of it, minus whatever they owed. [...] So again, the internal purchase price was 315, plus they were paying my closing cost, which normally the borrower pays. We're talking like the fees for the loan, like points, the origination fee, things like that. So that was about 12, 15 grand. So the contract price was going to be 330, but what I was thinking of doing was talking to the sellers about raising the contract price to 360 and having them kick me back the extra 30 grand at close. [...] They were completely OK with it.

The way we structured it is the following: the purchase price was going to be 360. They were going to pay my closing costs, and that's all the contract said. And then we had a separate agreement, just between me and the sellers, that wasn't going to go into escrow, and nobody was going to see it, not the lender, nobody. The agreement was like a promissory note. It just stated that upon purchase of this house, I'm sorry, upon the sale of this house, I the seller or we the sellers agree to pay Casey Serin 30,000 dollars within, y'know, like 5 days of close of escrow. It's a really simple promissory note. [...] So it's just something on paper that shows that they have to give me a check after they close on this house, to me. So it's like giving me money under the table, basically. Because the purchase contract itself had nothing about that provision on there, it's just a contract for 360. And I knew it'll appraise for at least 360 if not 370, so I knew there's nothing shady going on there. I'm simply cashing out my equity ahead of time. [...]

The deal was awesome. A couple of days later they called me up and said we've got the money in our account, come over and we'll give you an check. So I went over to their bank and they just cut me a cashier's check right there. Thirty thousand dollars. I was really excited, I couldn't believe it. My first creative deal, pulled out thirty grand at purchase. People go to the closing table with money, I walked away from the closing table with money. [...] So I got the money, I told my wife here you go, see, I told you it was going to work, and I told her go pay off your credit cards, man. [...] Right away we logged into all of our accounts -- she actually did it because I wanted her to feel good that I came through and provided for us -- and she logged into all of our credit card accounts. And it's great, the 30,000 dollar cash-out was exactly what we needed, almost to the dollar. Like just a few dollars on top of what we needed to pay off every single penny of our debt. So we're completely debt-free except for this mortgage on Calla Way at that point. And I thought sweet, this is my first creative deal, thirty grand, paid off our credit cards, now our credit score's going to jump up higher and I can do more of these deals. [...]

But now I had this new problem: well now what do I do with this house? And so now it's time to finish this deal, because really that 30 grand wasn't profit, it was just borrowing against this equity which was in this house when I bought it. [...] My goal was simply to sell it for what I owed, 360, and then that would solidify my 30,000 dollar profit. Because I really didn't want to make the mortgage payment on it.

Casey also refers to inspecting the house with "a real-estate investor friend", who passes on the deal. He gets preapproved for a 100% mortgage by "a mortgage broker friend", a woman named "Dara" who is also used on the sale of Calla (on both sides: she brokers the loans both for the buyer's purchase of Calla, and for Casey's purchase of the buyer's old house on Burdett Way).