Michigan Foreclosure Report by Mark Ijlal

Ignorance is not bliss. Ignorance is poverty. Ignorance is devastation. Ignorance is tragedy. Ignorance is illness. It all stems from ignorance.
- Jim Rohn

This is a concise guide to pretty much all the major real estate investing scams going in Metro Detroit area every single day, right now. Feel free to add to the comments section if you have came across of any new ones. Just click on the link at the end of the post that says Comments and type away.

The Big Change:
Here is the astonishing part of the change in the way these scams are sold that I have seen happened in the last four years:

1. They used to be focused around in Detroit, Flint, Pontiac - less expensive houses - now the ante is up to million dollar houses in affluent suburbs.

2. Typical victim used to be somebody ignorant about how real estate investing works, hungry for some extra cash and not enough brains. Now the profile is educated, white collar, have a good job and still not enough brains. Engineers for crying out aloud who should know better because they are “supposed” to be more analytical than the rest of us are falling for these every day.

3. The ones who are doing it have become bolder - radio ads (going on right now), web sites, big display ads in newspapers - nothing is off limits right now.

4. They have more organized partners now - mortgage companies, title companies and appraisers - all jumping into the bandwagon.

Why should I care??? One it is bad enough that people have insane expectations from the late night infomercials - “Well Mark I need to make $100,000 in the next 2 weeks...” or “Mark, what I really want to do is buy 30-40 rentals in the next one month. This seminar in Las Vegas I went to told me that anything less than is not worth doing.”

Then they listened to these scammers and they think that only way to make money in Michigan real estate is go with them and they do and then they end up losing their credit - worse even in court with lender fraud.

I had a call last year - lady in question come to a workshop way way back. She loved everything I said but did’nt liked the idea of doing anything. Her idea for making money in real estate was - I don't want to do anything - but can somebody write me a check anyway???

She found her knight in shining armor in the form of a gentleman in Canton who told her that buying and flipping houses is a waste of time for her. She has good credit and he can help her make some Quick Cash.

Well helped her he did - he put two houses in her name - on which the best I can estimate the he made a $100,000 profit. One of the house is in Detroit which is actually rehabbed and rented out. The other one is an affluent suburb in Oakland county.

That particular house was never fixed - the ugliest house I have ever seen and I have seen quite a few in my day under the sun.

She has a mortgage in her name for $300,000 - monthly payment of $2400 per month. She takes home $3000 from her day job. He made one payment - never fixed the house and then just like that stopped returning her calls.

The house went into foreclosures. The lender who gave her the mortgage is not very happy because it turned out that the mortgage documents that the guy used to get her the $300,000 mortgage were all fake so the lender is prosecuting her for lender fraud.

She used to have above 700 FICO now it is under 400 - all within one year. Not to mention one foreclosures reporting in her name and the threat of prosecution and legal fees.

I asked her what in God’s name prompted her to put a $300,000 house in her name knowing fully well it was not even fixed - they give her a $10,000 check.

If you don't know how to drive and don't want to spend money learning how to drive from an instructor - just may be it is good idea not to get behind the wheel of a 18 wheeler and starting cruising on I-696.

So with this sobering tale - here is what is you gotta know and learn to run when somebody is pitching you the Easy Money Way :

Seven For Seven :

My personal favorite. Let us put 7 houses in your name and we will give you $70,000 CASH back at closing. These houses are junkers - in Detroit, Flint or Pontiac mostly. The idea is that why waste time learning about real estate investing? Just put 7 houses in your name, rent them out at $600 a pop and hopefully you will break even or may be make $20 a month.

Best part about this Instant Landlord Scheme is:

1. Nobody bothers to stop and think that where would they pay for repairs, vacancies or maintenance when they occur. Remember these are old houses - things will and do go bust once in a while.

2. What about the $70,000 you got??? What about it?? That is gone so fast that you wont know you had it.

3. Majority of suckers who are signing up for this are newbies - astonishingly a large number of them are white collar professionals who should know better.

4. No experience of property management; no money left in cashflow to outsource property management, no idea how to budget - these are foreclosures just waiting to happen in 4-7 months.

The Million Dollar Flip:

This is how the pitch goes:

1. Why do 10 flips and get your hands all tired up when you just do ONE flip - and make the same money?

2. Here is a house in West Bloomfield, Bloomfield Hills, Farmington Hills, Gross Pointe, Oakland Township- some affluent, expensive suburb.

3. Lets put the house in your name - we will give you $100,000 cash back at closing. Now you will have a $1,500,000 mortgage in your name but lets not sweat about the minor details here.

4. We will find somebody who has bad credit (big chuckle here from me!) who cannot get qualified for a $1,500,000 mortgage. We will Land Contract the house to them. (Now I am just rolling on the floor laughing) and then after two years we will refinance the house in their name.

5. And just for some reason we cannot do the refinance (HINT: their credit sucks right now and some banks may, just may, be a little leery of giving them a $1,500,000 loan) we will put the house on the market for sale - 2 years from today.

6. Off course we have no clue in God’s earth to sell a million dollar house but who cares??? We will worry about that 2 years from now.

Derrick was in a room a month ago when this was being pitched to a room full of engineers, doctors and assorted idiots and he reports that the “stampede” toward the guy was a sight to behold. He was scared that they are going to run him over.

By the way if you asked them if they can produce One miserable person who has done this thing all the way - put a $2,000,000 mortgage in their name, land contracted the house for 2 years and ended up flipping the house - they would calmly tell you (with a straight face nevertheless) that they just started doing it so they don't have one.

Do you think that has ever stopped anybody to jump across the table and sign up???

The Lets Build A $3,000,000 Million Dollar House Thing:

I confess - For 2 weeks we actually researched this thing thinking that there has to be some truth to this. What we discovered was even more crazier than ever before.

This thing started in Bloomfield Hills, West Bloomfield and now it has spread to Grand Blanc, Oakland Township for what the last I have seen.

This is how it works:

1. You need to have good credit and a sizable income - preferably around $125,000 and above.

2. First you get flipped a piece of land - in an affluent suburb - at an extremely inflated price. You get paid $15,000 to $20,000 for putting lets say a $200,000 land mortgage.

3. Next if you desire so - and almost 100% of them do - you will go and get a construction loan to build a brand new house on that piece of land.

4. The builder who is hands on in this fraud along with the loan officer than gets PAID on the first draw. You get another $25,000 to $35,000 CASH.

5. The house is build - slowly - every draw that is taken is inflated. For example I have seen estimates for $100,000 in windows, $100,000 for doing three bathrooms not including fixtures, $100,000 for doing paint.

6. The house is finished in around 12 months or so. At this point the construction loan if refinanced and you end up with a 30 year mortgage of $1,500,000 to $2,00,000 in your name.

7. The mortgage payments for 2 years are escrowed somewhere. You are also supposed to have a sizable equity in the house. And then the wait begins for somebody to show up and buy this $2,500,000 house from you at which point you will get paid another $25,000.

Does it sounds good or what??? The first time I heard that it made perfect sense - build beautifully big houses in expensive suburbs and sell them to people with equity in them - everybody is happy? Right?

Here is the problem:

1. They have no plan or experience or clue to sell these million dollar homes. Contrary to what rookies think in this business - selling a million dollar house is not like selling a $150,000 house in Dearborn. Different mindset, different marketing, different financing.

2. Based on my own research on MLS - I have extremely serious doubts about the claims being made by these builders about the equity that would be there once they are done with building the house. Because if these numbers are true - than building houses is more profitable than running Google or Microsoft. But we both know that is not the case.

For example on the three deals that a good friend of my was being pitched to do - the builder claim once the said house in Blooomfield Hills was done, it would be worth $3.5 Million dollars with my friend walking in with $800,000 in equity. The mortgage would have been around $2.7 Million dollars.

I looked up and down but the highest comparable I could find in that area was - $2.4 million dollars. So actually on a good day once it is all said and done - my friend would have a had 100% mortgage in his name. Stuck in the mud for the rest of his life or till the foreclosure happened.

3. This is just priceless - despite the claims that all these builders make that their existing clientele is doctors, lawyers,high level executives for the Big Three etc. - when asked to produce ONE, just ONE reference that can vouch for being one of these deals done all the way - bought, build and flipped - the response was “look we don't have time to do all that - if you don't want to put a $2,000,000 million dollar mortgage in your name than don't worry. We have enough people just like you already begging us to do this with them who are not asking these annoying questions.”

Why should you care???

Because I get too many emails from people who somehow want to do real estate investing - without learning anything about it. It does not not matter to me personally where you go - Mark Ijlal, Russ Whitney, Carlton Sheets, Ron Legrand - but any training is better than brazen ignorance.

I find it hard and harder to find any kind of sympathy for the so called victims of these scams. 10 year ago, 15 years ago - may be. But look what age we live in?

You can go to a public library to pick up Dr. Al Lowry books, log on to Amazon, go to Borders or Barns and Nobles - both of them hundreds and hundreds books on real estate investing. Want to learn hands on - go to live bootcamps with a number of qualified people including myself who can show you the right way of doing real estate investing.

Want to get local flavor? There are real estate investment clubs you can join no matter which county you live in. Tons of web sites, blogs, forums dedicated to the topic - granted making an investing decision based on something that is being said in a chat room by a 7 yeard old kid may not be the best idea. But there are good people out there. I have read forums and found gems in the mud. Good honest people who are doing it and willing to share what they have learned in the real world.

But nevertheless any foundation of doing this is better than a plan that is based on doing this with plain dumb ignorance. Who amongst have will not mistakes running a business? But there is a heavy line become making a mistake and putting nine foreclosures around your neck just because you were too lazy and arrogant to sit through a 2 day training which could have educated you not to make these mistakes.

In July 2004 - Nora got a phone call from Troy, Michigan. Caller wanted to know if we were looking for private lenders. Nora asked him if he has ever done real estate or any kind of knowledge in this regard. Nope! He said that he has just heard about it. She told him No.

Nora then asked him if wanted to come my upcoming 1 day workshop. He said No - he does not wants to spend any money learning about this. He just wants to do it.

Nora got another phone calls in December 2005 - same person wants to come in for a private consultation with me. Asked why, turns out he just did a 7 for 7 deal - bought 7 houses in his name, three months ago - none of them are fixed to the point where they can be flipped. The company who sold them these houses has vanished.

Ignorance is NOT bliss.