Encino Story: Fraud in the Valley?

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ENCINO -- Real estate fraud in the Valley? Veteran broker Rick Stern says it is a significant problem that will become more apparent -- and perhaps worse -- as banks and lenders try to answer a very unpleasant question: exactly how much are these foreclosed homes really worth?

‘I think the mortgage fraud schemes that took place in the past few years are starting to surface more in the San Fernando Valley,’ he told me this morning. ‘A lot of people are in over their heads because of -- and I hate to say it -- rampant mortgage fraud. There’s more of this going on in California than people know right now.’

Stern says banks and lenders are now in the early stages of getting rid of foreclosed properties. Step one often involves hiring an experienced local broker, who provides a ‘BPO’ -- a Broker Price Opinion, a real-world estimate of what the house is really worth in the current market. It’s at this stage of the process when fraud sometimes becomes apparent -- if the bank realizes that, not only is the house is not worth anywhere near the amount that was loaned to buy the house 12 or 18 months ago, it probably was NEVER worth that much. That’s mortgage fraud.

The second stage is putting the property on the market, usually through an ‘REO broker’ -- a broker who specializes in selling foreclosed properties, which banks list on their asset sheets as ‘Real Estate, Owned,’ or, REO.

Stern, executive vice president at Pinnacle Estate Properties in Encino, worked extensively as an REO broker in the mid-90s, after the Northridge Earthquake damaged thousands of homes across the Valley. This time around, he sees opportunity in working with banks and homeowners to avoid foreclosure in the first place -- so-called ‘loss mitigation’ -- essentially renegotiating mortgages so that homeowners can make the payments and stay put.

Where is the foreclosure problem going to hit hardest? In the Valley, Stern sees the most trouble coming in Canoga Park, Reseda and Granada Hills.

So how bad is the fallout going to be? ‘We’re at a point where we don’t know what’s going to happen,’ he says. ‘The situation has to unwind. The question is, can all this bad paper work its way through the system, or does it create even more problems?’

You can Email Rick Stern at erealty@aol.com. Or you can meet him at the Starbucks on Ventura Boulevard in Encino -- buy him an apple fritter, I owe him one.