Category Archives: Lending

Senior home equity hits all-time high in Q1

Senior homeowners saw an increase in their home equity in the first quarter of 2017, according to a report from the National Reverse Mortgage Lenders Association.

The report showed homeowners aged 62 and older saw their home equity increase by 3.1% to $6.3 trillion in the first quarter. This is up from $6.13 trillion from the fourth quarter.

This growth in housing wealth for seniors was driven by an estimated 2.6%, or $199.3 billion, increase in senior home values, and was offset by a 0.6% increase in senior-held mortgage debt which totaled $9.2 billion.

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senior equity

(Source: NRMLA)

The NRMLA/RiskSpan Reverse Mortgage Market Index, a quarterly measure of home equity held by older homeowners, increased to 227.07 in the first quarter, an all-time high since the index was first published in 2000.

“Older adults who want to stay in their own homes as they age, and we know a majority do, may find that the house that was perfect for raising a family lacks the features to support aging in place,” NRMLA President and CEO Peter Bell said.

“But, instead of moving out, various modifications, such as stairless entryways and wider bathroom doorframes, can be made to accommodate new mobility and accessibility needs,” Bell said. “The housing wealth our seniors have built up in their homes over the years, their home equity, can be used to update the family house into a space for living comfortably and independently for years to come.”

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Former “We Buy Ugly Houses” franchisee admits to running real estate ponzi scheme

The former owner of a “We Buy Ugly Houses” franchise admitted in federal court this week that she mislead investors, misused investors’ money, forged investors’ signatures on deeds, and ran what amounted to a real estate ponzi scheme.

According to the U.S. Attorney’s Office for the District of Colorado, Karen McClaflin pleaded guilty to one count of wire fraud and one count of engaging in a monetary transaction in property derived from wire fraud, stemming from various acts of fraud stretching back to 2005.

Per court documents, McClaflin and a partner opened a franchise of “We Buy Ugly Houses” named Trademark Properties and Trademark Reality in Colorado Springs in 2005.

Trademark’s business involved using investor money to purchase and renovate distressed houses, and then reselling those houses at a profit. But, by 2011, Trademark had run up so much debt that McClaflin’s partner declared bankruptcy and terminated their partnership.

McClaflin chose not to declare bankruptcy herself, rather McClaflin decided to open another company using the same “fix and flip” business model.

That new company was called Homesource Partners and McClaflin took her investors with her from Trademark to Homesource.

McClaflin ran Homesource from late 2010 through early March 2017. During that time, McClaflin told investors that Homesource sought loans to finance the company’s “fix and flip” business because Homesource was not able to use traditional bank loans.

McClaflin told her investors that traditional bank loans took too long and some of the distressed homes she was interested in buying may not qualify as collateral.

Court documents showed that McClaflin told investors that Homesource would seek to buy distressed houses that were deeply discounted, stating that the plan was to purchase the houses for no more than 80% of the “as is” value of the house.

To further entice the investors into buying into the company, McClaflin told the investors that Homesource had “exit strategies” to profit from the distressed houses, including selling the houses within 30 days for an immediate profit, “fixing and flipping” the houses within 31-90 days, or fixing the houses and renting them if the houses failed to sell within 90 days.

McClaflin also told the investors that each of them would be buying a single property, secured by a Deed of Trust in first position on that property, which McClaflin would record on the investor’s behalf.

Occasionally, McClaflin also told investors their Deed of Trust would be in second position.

McClaflin also told investors that they would receive an interest rate of 6% to 15% on their investment.

But, court documents show that many of those claims were untrue.

Beginning in March 2011, McClaflin “knowingly and intentionally” started using several investors’ money to “invest” in the same property and began placing multiple Deeds of Trust on the same properties.

Additionally, in late March or April 2011, McClaflin intentionally chose not to record all of the investors’ Deeds of Trust as she had promised. But McClaflin still falsely represented to the investors that they’d receive a first Deed of Trust.

McClaflin even went so far as to forge the signatures of some investors on a release so McClaflin could remove that investor’s Deed of Trust from a property without the investor’s knowing about it.

McClaflin also occasionally neglected to tell her investors when their property sold and did not return their investment to them as promised.

On top of all of that, at some point in 2013, Homesource’s debt had grown so high and the interest payments owed to investors were so far beyond Homesource’s gross profits, that McClaflin began using new investors’ money to pay off her earlier investors.

According to court documents, an analysis of Homesource’s financial situation showed that the influx of new investor funds kept the company operating, particularly in its latter years. Without that new investor funding, Homesource would have failed years ago, court documents showed.

McClaflin is scheduled to be sentenced on one count of wire fraud and one count of engaging in a monetary transaction in property derived from wire fraud on Jan. 17, 2018.

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Starwood Capital ups its offer for Forestar as battle with D.R. Horton intensifies

There’s a battle brewing between two real estate titans as Starwood Capital Group and D.R. Horton are both angling to acquire Forestar Group, a residential and mixed-use real estate developer.

Last month, Forestar and Starwood announced that the companies reached a merger agreement, which would see Starwood acquire all of Forestar’s outstanding shares for $14.25 per share in cash.

The total purchase price would be approximately $605 million.

But, D.R. Horton attempted to swoop in with a superior offer. After the details of the Forestar-Starwood merger were announced, the homebuilder announced that it was submitting a proposal to acquire 75% of Forestar’s outstanding shares.

The difference? D.R. Horton was offering $16.25 per share, two dollars more per share than Starwood was offering.

“We believe that D.R. Horton is uniquely positioned to make Forestar the country’s leading residential land development company,” Donald Horton, D.R. Horton’s chairman of the board, said at the time. “Together, we can grow Forestar into a much more significant and valuable company for all of its stockholders.”

D.R. Horton’s offer would total somewhere in the neighborhood of $520 million.

At the time, Forestar acknowledged that it received D.R. Horton’s proposal, but said that its board continued to recommend that Forestar’s stockholders vote to accept the Starwood merger agreement.

But Thursday, Starwood upped the ante by raising its offer for Forestar.

Forestar announced Thursday that Starwood is now offering $15.50 for each of its outstanding shares, which would raise the total purchase price from $605 million to approximately $658 million.

The two companies amended their merger agreement to reflect the increased offer, but Forestar said that its board is considering D.R. Horton’s offer as well.

“Forestar’s board of directors has determined that the unsolicited, nonbinding proposal from D.R. Horton continues to be a proposal that could reasonably be expected to lead to a ‘Superior Proposal,’ as defined in Forestar’s amended merger agreement with Starwood,” Forestar said in a release.

Forestar said that its board is not taking any action related to either offer beyond considering each offer’s merits.

“Forestar’s board of directors is not modifying, withdrawing, amending or qualifying its recommendation in favor of the Starwood merger agreement and the merger contemplated thereby, or proposing to do so, and is not making any recommendation with respect to the D.R. Horton proposal,” the company said.

D.R. Horton, on the other hand, appears unwilling to acquiesce to Starwood and its increased offer.

In a separate announcement, D.R. Horton said Thursday that it still believes its offer is superior and suggests that a partnership with Forestar will allow Forestar to grow into a “leading publicly traded national land developer.”

In a statement, Donald Horton, D.R. Horton’s chairman of the board, said that the deal would present a “significant growth opportunity” for both companies.

“We are confident that our proposal is superior to the amended agreement with Starwood and remain fully committed to closing a Forestar transaction in the best interests of both companies’ shareholders,” Horton said.

“We have completed our due diligence and have submitted a fully negotiated Merger Agreement, Master Supply Agreement and Stockholder Agreement to the Forestar Board of Directors,” Horton continued. “We urge the Forestar Board to formally declare our proposal to be a ‘Superior Proposal,’ and to proceed to a definitive agreement with D.R. Horton and postpone the shareholder meeting scheduled for July 7, 2017.”

In its release, Forestar cautioned that there is no assurance that either deal will be completed.

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