Indictments issued in HUD scam

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A Florida man was indicted Thursday of defrauding the U.S. Department of Housing and Urban Development through his real estate company after 4 of his employees pleaded guilty. Eugene McReath of Panama City,Fl. owns Southern Construction and Investments, a Birmingham,Al. based company that buys,renovates and sales houses for a profit. According to the indictment. Many of the houses that McReath sold were financed with HUD loans. McReath is accused of paying his buyers down payments,then falsely telling HUD that the down payments came from relatives of the home buyers. The prosecutors say McReath lied to HUD to get around the department's policy of not insuring home loans when a seller make a down payment.

Comments(12)

  • hibby7620th April, 2004

    Could you post a source for this news article?

  • KeithBender20th April, 2004

    I am amazed that one would have to falsify those DP's as a gift when all you got to do is look at the Governments web site to learn how to do the exact same thing legally!!!!



    YES!! Legal 100%, maybe some regulation prohibits repeated Donations that further a business enterprise's use of this technique,but they recognize the use of a 501 c3 tax exempt charitable organization to act as a conduit that gets around their very own regulations.



    Thats the other half of this story . And once again we have proof that ignorance costs dearly. Proves the worth of this web site for learning purposes alone.



    Wannabe's will focus on the negatives, thinking that investing has its shadow world of criminal activity, fraud and deception.



    When it's really a perfect example of Dumb and Dumber trying figure out how to get on the bus.Stubborn hard heads should not be confused with persistance and determination that are essential components of a serious entreprenuer's character.



    Invest in yourself first and live your return on investment. Education is not optional, if you stick around long enough, you pay for it anyway, but we call it growth.



    Okay, I'm off my soap box, thanks.

    • joel22nd April, 2004 Reply

      So your saying that you need to create a charitably organization to give away the seller down payment?

      • KeithBender22nd April, 2004 Reply

        Could, but look at the HUD web site first,and see what they say. Keith

      • CaseyEllsworth23rd April, 2004 Reply

        You don't need to create a charitable organization to do this. There are several programs that "launder" down payments for lack of a better word. Neighborhood Gold, Nehamiah, etc. All you need is one form, usually available on the organization's website. This becomes part of the contract and your title/ closing company should be able to handle the rest. One of the most important aspects to real estate investing especially when it comes to "flipping" properties, is that you make your property easier to get into than any other on the market. This is easily acheived by offering a down payment grant. It also provides you with a tax deduction -- perfect for off-setting your capital gains tax on the property!

        Best of Luck,

        Casey Ellsworth, Broker/ Owner

        SourceOne Realty Sales & Investments LLC

    • charles8822nd April, 2004 Reply

      Hey ,

      So does that mean that if we get a chance to buy a property and the seller will offer the downpayment as a seller second we need to open a charitable enttity to do the deal ? Thanks in advance. Just a new investor trying to apbsorb what I can?



      P.S. I have read a lot on re investing . Anything particular that you recommend ? Again many thanks in advance ......

      • CaseyEllsworth24th April, 2004 Reply

        If the owner is carrying the second, no. If the owner is "gifting" you a down payment - and you are not paying it back - I recommend using a program like Neighborhood Gold. The agents, lenders, and title company should be familiar with the process and it's a lot less work for you.

  • MrREI21st April, 2004

    "The prosecutors say McReath lied to HUD to get around the department's policy of not insuring home loans when a seller make a down payment"



    Am I misreading this? should it read when a seller DOES not make a down payment?

    • MichaelChandler21st April, 2004 Reply

      On a HUD insured loan the seller is not allowed to gift the down payment to the buyer. What they indicted him on was fraud for lying on the loan documents.

  • MrREI21st April, 2004

    IOW why would they not want to insure it if the seller made the down payment? That's the part I don't understand

    • coz22nd April, 2004 Reply

      one common thread hud has found when studying why people go into fcl. is that they had little or no personal investment in the www.property.this fact makes it easier for the borrower to just walk away when times get tough rather than fight and claw to keep their loan current.

      • Lufos22nd April, 2004 Reply

        Huds problem like all semi government organizations is they fail to realize that when a fraud is going on, a person becomes a householder has no stake in the property. One little upset and he is gone. This can be solved by proper instruction to the Brokers in the area, the Escrow Officers handling transaction and a proper oversite from the local office staff. Get out on the street and check what is coming down. Most of these scams are really Nobrainers.



        Where HUD has to get active is to require that all insured transactions set up a form of counseling which interjects prior to the actual beginning of the foreclosure. I suggest on the 60 day delinq. point. No legal action has been started, the homeowner is only two payments behind.



        At that point a Loss Mitigator or REO Officer makes a home visit. Sits down and nine times out of ten solves the problem. Give them the authority to bring notes current and put missed payments on the back of the loan. Or play with payment methods, slip to a weekly in house accumulator. Thats where the home owner makes a weekly small payment from his Friday Night pay check. It is held until due period and then in it goes. The Homeowner is current.



        This person must also keep the Homeowner informed of his increase in equity especialy on a Spike like today. I know people who are holding down second night time jobs, just so they can make the payments cause they have a equity for the first time in their life.



        You have to play the game. If we here in TCI can do it surely some corporate office type in a Lending Institution can also play the same game. My god as Saint John of Locke says, "We all put our pants on one leg at a time."



        In 1973 I went to Chicago and with two employees cleaned up the whole portfolio of a Savings and Loan. Brought the REO department to zero properties. Brought all Loans current and laid off bad paper which was now good paper into the secondary market and they started lending like crazy.



        Now I am no genius. Nor were my goof off employees. But we did it and if we can any body can.



        Besides it was fun and the Polish Dele Food to die for.



        Cheers Lucius

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