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Deadbeat, defaulting Dem’s fishy deal with WaMu

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By Michelle Malkin  •  June 11, 2008 08:37 AM

I have yet to hear a single member of Congress question the ongoing financial and ethics scandal involving deadbeat, defaulting Democrat Rep. Laura Richardson. How much more dirt has to be dug up before the “most ethical House” ever takes action on this corruptocrat?

To recap: A local Sacramento paper first reported three weeks ago that Richardson had walked away from a half-million-dollar-plus, second-home mortgage, “letting the house slip into foreclosure and disrepair less than two years after she bought it with no money down.” Meanwhile, she was loaning herself money for her congressional campaign and accepting state per diem housing allowance money as her utility and tax bills piled up. Next, it was revealed that she had defaulted on three home loans, not just one. The total rose to six, then eight defaults on three properties. Unpaid car bills got tossed into the mix. Ethics experts have criticized her pattern cashing out her homes to fill her campaign coffers and failing to disclose the massive mortgage debt.

And now this:

The real estate broker who bought Rep. Laura Richardson’s house at a foreclosure sale last month is accusing her of receiving preferential treatment because her lender has issued a notice to rescind the sale.

James York, owner of Red Rock Mortgage, said he would file a lawsuit against Richardson and her lender, Washington Mutual, by the end of the week, and has every intention of keeping the house.

“I’m just amazed they’ve done this,” York said. “They never would have done this for anybody else.”

York bought the Sacramento home at a foreclosure auction on May 7 for $388,000. Richardson had not been making payments on the property for nearly a year, and had also gone into default on her two other houses in Long Beach and San Pedro.

Richardson, D-Long Beach, has said that the auction should never have been held, because she had worked out a loan modification agreement with her lender beforehand and had begun making payments.

Richardson left nearly $9,000 in unpaid property taxes on the home, which she bought in January 2007 for $535,000, shortly after being elected to the Assembly.

Washington Mutual has declined to comment on the specifics of Richardson’s case because she has not waived her privacy rights…

…York said an ordinary person would be unlikely to get the kind of consideration that Richardson has received from her bank.

“They wouldn’t even get a phone call back,” he said. “They would laugh at somebody who would call and say, `We had some kind of agreement.’ They wouldn’t give you 10 cents’ worth of time.”

Leo Nordine, a Hermosa Beach real estate broker who specializes in foreclosed homes, agreed that the rescission was out of the ordinary.

“It’s extremely unusual,” he said. “Unless (the borrower) filed bankruptcy beforehand, they’d never do it.”

Richardson’s staff did not return a call on Monday.

Calculated Risk has excellent questions:

This smells terrible, indeed. Perhaps reporters could simply ask some general questions of WaMu about its foreclosure workout policies. Like:

* How often are modifications or repayment plans offered to owners of vacant investment properties with no or negative equity that have never been listed or rented?
* How often are modifications offered to borrowers with two other properties currently in foreclosure?
* How often are modifications arranged in the week before the scheduled trustee’s sale, following nearly a year of no contact?
* Does WaMu’s policy on modifications make any reference to requiring a “commitment to homeownership” on the borrower’s part? How, normally, is that established?
* Does WaMu’s policy on modifications make any reference to establishing that the borrower does not display a “disregard for debt obligations”? How, normally, is that established?

If, for instance, we had some evidence that stiffing creditors and getting the taxpayers to subsidize her financial imprudence was, like, a pattern of Richardson’s long before the house payments went into default, would that, like, indicate that her mortgage problems may not have much to do with “extenuating circumstances”?

Richardson refuses to answer media calls. Perhaps a call from one of her own colleagues will yield results.

***

Related: The “buy-and-bail” phenomenon is catching on.

Next month, Michelle Augustine plans to walk away from her four-bedroom house in a Sacramento, Calif., subdivision and let the property fall into foreclosure. But before doing so, she hopes to lock in the purchase of another home nearby.

“I can find the same exact house as what I live in right now for half the price,” says Ms. Augustine, 44 years old, who runs a child-care service out of her home. She says she soon will be unable to afford her monthly payments, which will jump to $4,000 from $3,300 in August, and she doesn’t want to continue to own a home that is now worth $200,000 less than what she paid for it two years ago.

In markets hit hardest by falling home prices and rising foreclosures, lenders and brokers are discovering a new phenomenon: the “buy and bail,” in which borrowers with good credit buy a new home — often at a much lower price — then bail out of the “upside down” mortgage on their first home.

Homeowners are able to pull off this gambit — which some lenders and real-estate agents call mortgage fraud — by taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold. And with the lending industry in disarray as it tries to restructure millions of mortgages, some boast they are able to pull off the strategy with ease.

In some cases, homeowners are coached through the buy-and-bail process by real-estate agents and brokers who see nothing wrong with it. Some blame the phenomenon in part on lenders’ unwillingness to cut deals or restructure loans made when home prices were inflated. “It’s just a business decision,” says Linda Caoili, a Sacramento real-estate agent who is working with Ms. Augustine and others who are considering walking away from their mortgages. “If you’re upside-down $250,000, why would you keep it? It just doesn’t make sense.”

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