FW, What makes you say fraud was committed. The bank decided that $180k was the best offer at the auction, so they took it.
It is fraud, because this is him defrauding the bank. If bank knew it was him, specifically him, buying it, they would not approve the sale. You can't just stop paying mortgage and simply buy it at a discount from the bank. So he scammed a bank by hiding through a complicated LLC chain, and consequently the taxpayers. When guys like that get caught, they get from what I remember 8 years prison term.
At the end it is all our tax dollars that go to bail out the failing system.
It's not a fraud. I'm not sure if the homeowner is smart or stupid. If he's the one that bought the property back at auction, all liens and encumbrances will re-attach to the house according to CA laws. So he would still be responsible for all the debt and liens. I know some wealthy folks bought their house back at auction under an LLC. I will have to check this with my mentor about the consequences of this.
Also, it's not a scam. The property will be sold to the highest bidder at auction. However, some homeowners don't understand the consequences of buying back their own house at auction. Kind of like novice investors buying HOA and junior liens at auction and thinking they hit a home run.
1) two parties entered a contract. I loan you the money. You put the house up as collateral.
2) if you stiff me, I can sue your ass, and you will have to pay for damages.
3) the bank chose to foreclose and auctioned the house instead.
4) $180k from his LLC is the same as $180k from you. It makes no difference to the bank.
5) because this dude is intentionally stiffing the bank, all liens and encumbrances will reattach to the house. Hiding under an LLC is a loophole. Until he gets caught, that's the system we have to deal with now.
I can't change it. Just stating the fact. If Bay Area thinks it's so cool, why is he not doing it? :)
If he has his name under the LLC in management, my guess is that it is a problem. But how are you so sure about that? My understanding is that renting to yourself under a LLC could be a problem itself.
An LLC is an entity. Unless the LLC is comingled with the members where the separately legal entity status is not recognized, the finance of E-man is separate from E-Man LLC. I'm sure the bank, as a standard practice asked who were the members of the LLC anyway.
Even if it is a single member LLC, they are still separated. The consequence are the extra cost of the tax returns and the annual minimum $800 -12K LLC fee/tax hit depending on gross receipts.
Some people are better than others about hiding behind an LLC. The keyword is comingling. :)
You can report him for that, that is actually a fraudulent transaction. Bank would be all over him for that.
He'll only get away with fraud if people like you keep quiet.
I doubt it.
I saw this happen to a house I wanted to buy in Las Vegas. The trick is the lag time between creating your LLC and when the first report of principles is due to be disclosed. In the case I was watching, it was about 9 months.
9 months after the transaction, the bank wants no part of old cans full of old worms and neither does the DA. This country has a LONG history of a corporation remaining independent regardless of who owns or controls it, and there simply isn't any money in prosecution.
It's immoral as hell but probably not illegal and either way no one cares. Just like no one cared when loans were being given to unemployed people and sold with an AAA rating. When the free market trumps everything else, this is what happens.
It is fraud, because this is him defrauding the bank. If bank knew it was him, specifically him, buying it, they would not approve the sale. You can't just stop paying mortgage and simply buy it at a discount from the bank.
OK - lets separate out the LLC aspect of the transaction for a second, because honestly, I think its simpler than that.
For starters, lets say I am the bank, and I am out 700K, and all I have is this crappy house worth say 150K. If I try to sell it, and no one is willing to give me more than 150K, EXCEPT for one guy willing to pay 180K cash, why would I not take his cash?
Also someone correct me if I am wrong (I dont practice in CA), but since he had a non-purchase money loan (i.e. HELOC) doesnt the bank have a recourse loan and presumably a judgment against this guy for the deficiency?
If so, instead of trying to pursue a judgment (i.e. wage garnishments & the like) where they fight you every step of the way, causing you to incur all sorts of legal fees, you take cash whenever you can get it. Further - given the bank now knows this dirtbag has cash, he may have more which (if the bank can find it) would be easier to sieze.
In fact, depending upon what CA law says (in terms of consumer protection laws & the like). This may be only the next step of a multi step plan by the bank to really hose this guy. Consider:
1. Guy takes out 700K loan and defaults.
2. Bank forecloses and sells the house at auction for 180K.
3. Bank then gets a deficiency judgment against this guy for the 520K balance.
4. Bank then siezes the guy's 1/2 interest in the LLC, becoming 50% owner of the house.
5. Bank as 1/2 owner of the house, petitions for judicial sale, sells the house AGAIN, and then collects 1/2 proceeds of said sale (say 90K)
6. After getting 270K from selling this house twice, Bank is still owed 430K from this dirtbag. Thus, bank then garnishes this guy's wages for the remaining deficiency (430K), collecting that over time.
Note, steps 4-5 above may or may not be possible, depending specifically on what CA law says, and what the LLC's operating agreement says about outsider's ability to sieze ownership interests to satisfy judgments. Still, dont assume this dirtbag is going to take the house and walk away scott free. No matter what, the bank still has a judgment against this guy for the deficency. Further, If he didnt set up his transaction to repurchase the house via the LLC correctly, he may end up losing the home again.