Live

Watch CBSN Live

Mortgage Fraud in Beverly Hills

It's natural, as a seller, to want to feel smart. You want to sell your home for more than you paid for it -- lots more -- and if the market doesn't co-operate, it would be nice to at least project the appearance of success.

However, inflating the price at which you've sold your house -- which may look like a victimless crime -- is actually mortgage fraud, and it's illegal. What's more, money that's lied about comes out of somebody's pocket, as a case from U.S. District Court this week shows.

Kyle Grasso, a former agent with Prudential California Realty, was found guilty on multiple counts of conspiracy, bank fraud, and loan fraud, according to an article by Peter Y. Hong in the Los Angeles Times. Also convicted was licensed appraiser Lila Rizk, who helped inflate the values of some California houses. Acquitted was Grasso's partner Joseph A. Babajian. According to the Times, Grasso and Babajian worked in exalted circles, counting as clients David Beckham and Oscar de la Hoya (who weren't part of the fraud).

Ralph Roberts at Realty Times has the best explanation of how the fraud worked, A ring basically bought homes at one price and then told lenders that they'd bought the homes at a higher price -- to pull out more mortgage money, which of course got spent. The fake higher price was entered in the Multiple Listing Service, making you feel like a chump if you checked the home on Zillow and wondered how that seller was smart enough to beat the market.

I tried to flip houses in New Jersey in 2005-2006, partly on the strength of stories like this, and nearly went broke doing it. (Dear hubby, let me just say again that I'm sorry!) At the time, I thought I was a moron for not being able to duplicate these kinds of results -- and now I feel a little bit vindicated to know that they were built on a foundation of lying, cheating, and stealing.

The real victim, though, is you. Some $142 million was borrowed from the lenders, with $40 million being lost ... the name bank here being Lehman Brothers. You know who's paying for that.