By Ron Hill
Commerce Magazine

1988

Last year, slightly more than 2,000 individuals and families lost their homes to foreclosure in Orange County. This year another 3,000 homes are expected to be repossessed by the lenders. Along with their homestead, the former owners will also lost their credit ratings and, in most cases, their self-respect as well.

The files of mortgage lending institutions document a long list of reasons a borrower goes into default and faces foreclosure, but by far the most numerous reasons center around distress situations such as loss of the homeowner’s primary income, divorce, death or overextension of credit. Regardless of the cause, most mortgagors will work with a borrower for as long as four to six months after the loan becomes past due, trying to bring it back to current. No matter how flexible the individual attitudes, however, lending officers, loan boards and governmental policies eventually draw the line. When that happens, legal action begins and the jaws of the foreclosure ‘wolf’ begins to tighten.

A homeowner caught in this situation is trapped between the proverbial rock and a hard place. He (or she) probably has insufficient income to pay the mortgage or obtain a new one at competitive interest rates; insufficient equity in the home to interest reputable real estate agencies in trying to sell it before repossession; and insufficient time to make a worthwhile effort at selling it himself.

As those jaws close, most homeowners become frantic. Seeing nearly everything they’ve worked for about to slip through their fingers, they begin grasping at straws and become increasingly susceptible to newly uncovered confidence games and scams that seem to offer at least some salvation but actually deliver more cruel realities.

The commissioner of the Federal Housing Authority (FHA) has drafted a letter that is sent to every homeowner listed of an ‘equity skimming’ fraud scheme targeted at homeowners in distress situations.

The scheme begins with a prospective home ‘buyer’ (or investor) contacting the homeowner and offering to buy the soon-to-be-repossess home and promising to make the mortgage payments or work out an arrangement with the lender to forestall foreclosure. All the homeowner has to do to save his or her credit rating and reputation is sign a quit-claim deed and move out of the home immediately. The ‘buyer’ then, rents the house back to the homeowner or someone else, collects the rent and ignores the mortgage payments for which the homeowner is still liable. In the end, the foreclosure proceeds on time; the homeowner has lost everything, including any equity in the home, while the ‘buyer’ is richer by the amount of rent he has collected in the term.

Equity skimming is a vicious, parasitical scam that plays off the reputations and procedures of honest firms that are in the business of handling distress sales.

American Empire Management and Development of Altamonte Springs is a company with a list of satisfied clients. Opened in 1984, American Empire is the brainchild of William J. McCorkle, a 22 year-old entrepreneur who has been described as having guts, drive and ‘the balls of a brass monkey,’ by business associates and clients. McCorkle’s company, which is both a real estate and investment firm, handles only ‘distress’ sales such as foreclosures.

‘We watch the civil court postings and send letters to anyone listed in a foreclosure action in Orange, Seminole, Osceola and Lake Counties, offering to sell their homes for them,’ McCorkle says. American Empire Management and Development’s procedures appear no different than those of the equity skimmers. At that point, though, the similarity ends. McCorkle maintains a list of more than 400 investors, both first-time homebuyers and speculators, who are waiting for just the right house to come along at just the right price. ‘We try to put the distressed seller and the waiting buyer together for the mutual benefit for both,’ McCorkle explains.

Most of the clients McCorkle represents have no equity in their homes. In fact, they usually owe more than they did when they purchased the home. ‘The ‘creative’ plans, thrown together so quickly a decade or so ago to help people buy homes when mortgage interest rates were very high, are now coming home to roost,’ McCorkle says.

Many so-called ‘creative mortgages’ involved a sliding interest rate. While prevailing rates may have been as high as 14 percent to 18 percent, the creative plans loaned money to buyers at an initial 8 percent or 9 percent, but with a provision for as many as six interest hikes over the life of the mortgage.

‘What happened,’ McCorkle details, ‘is that when the first hike came due after six months or a year, the lending institution sent a letter to the homeowner, advising that the new interest on their home was now, for example, 10 percent or 11 percent.’ The mortgage terms gave the homeowner the option of increasing his monthly mortgage payment to accommodate the interest hike or, as happened in most cases, maintaining the current, lower payment and tacking the hike to the total, financed cost.

‘How many people do you know would voluntarily raise their mortgage payment from, say, $1,000 per month to $1,250?’ McCorkle asks. ‘People were becoming mired in negative amortization without really realizing it. They thought they were reducing their principle with each mortgage payment, when actually they were increasing it because the interest had gone up and they weren’t paying it.’

Now, 10 or 12 years later, a distress situation such as divorce or job loss may crop up, and the homeowners may find that their $100,000 home of a decade ago is now worth $120,000 … but they own $135,000 on it. ‘They’re dumbfounded and they’re stuck,’ McCorkle adds. ‘Who in their right mind is going to buy a $120,000 home or $135,000?’

McCorkle’s ‘buyer-clients’ are going to buy them, but not at full price.

Glenn Ricci, loan officer with American Home Funding, a mortgage lender in Orange County, has worked with McCorkle for quite some time qualifying his buyer-clients for mortgages on seller-client properties. ‘The mortgage money that lenders such as our company puts out is insured by private mortgage insurance firms (PMIs),’ says Ricci ‘When we have to foreclose a property we generally lose little or nothing on it; the PMI takes the loss.’ According to Ricci and other McCorkle works an arrangement with both the lender and the PMI that insures the loan to take an offer that’s less – and sometimes far less – than the outstanding loan balance.

‘Depending on how long the mortgage has been in effect,’ McCorkle explains, ‘we are often able to get the lenders and the PMIs to accept a sale price as much as 50 percent less than the amount actually owed.’ The PMIs absorb the loss, but in most cases that loss is minimal, since mortgage payments made during the first several years of the term go mostly to pay interest. ‘The PMIs have gotten much of their money returned up front,’ Ricci confirms. ‘In most cases they’re deliriously happy to accept a legitimate offer below market value simple to avoid have to write off the full amount of the loan.’

Barbara Baker, a mortgage underwriter for First Federal Savings and Loan of Jacksonville, was one of McCorkle’s clients. Baker found herself in the position of having to sell her home a jump or two ahead of foreclosure due to a divorce. ‘I’m very pleased with Bill’s performance in my case,’ she confirms. ‘He did what he promised to do and was always available for questions.’ Baker is so pleased with McCorkle’s operation that she has placed two of her investment properties with him for sale as well.

Frank Almeida, vice president of sales at Winter Park Memorial Hospital is also one of McCorkle’s buyer-clients. ‘I had dabbled in real estate investment in the Ocala and Winter Haven areas,’ Almeida reveals, ‘but never in the Orlando area. In the first six months after I met McCorkle he offered me a chance to buy six different homes at great savings. I now own two of them.

For many of his seller-clients, McCorkle is just about the last chance they have. ‘A firm that doesn’t specialize in this facet of the business, someone who doesn’t have the investors waiting or the necessary connections will not touch a home with negative equity,’ he says. ‘There’s no profit and quite a lot of potential liability in it.’

The sales are complicated by the pressure of time. According to a representative of a title company that does business with him, McCorkle seems to thrive on that.

‘He’s on the phone to us constantly,’ says the representative, who prefers to remain anonymous. ‘He pushes and pushes until both we and the lender are ready to tear our hair out.’

Adds Orlando attorney Steve LaBret, ‘All I can say about McCorkle is he’s a real go-getter, a real hustler.’

That comment is the one constant voiced by anyone connected with American Empire Management and Development. McCorkle’s aggressive personality and seemingly inexhaustible drive may represent a problem and possibly a nuisance to the lenders and title companies, but it is exactly what his clients need and want: action.

Several companies in the Central Florida area offer, or seem to offer, the same service supplied by American Empire Management and Development. Some may be legitimate; most are not, as indicated by the warning letter that the FHA sends to foreclosure principles. To be sure of the situation before any paperwork is signed, both McCorkle and the FHA suggest you contact your lawyer or mortgage company and get reference from anyone who offers to bail you out of financial trouble.

In the first three months of 1988, 545 foreclosures were filed in the circuit court of Orange County. If that rate continues – and it is expected to by industry experts – American Empire Management and Development and other distressed real estate firms will be very busy.

CENTRAL FLORIDA AUGUST 1988

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