Update On Unraveling Virginia Real Estate Operation / Alleged Mortgage Fraud Ponzi Scheme

The Virginian-Pilot recently ran stories updating and reviewing their investigation on the Hampton Roads straw buyer financed, real estate flipping operation of Cary McEntee and CM Development. Both are now in bankruptcy court, where McEntee reportedly has testified to falsifying numerous loan documents in a flipping operation fueled largely by so-called "no-doc" mortgage loans. Excerpts from the stories:

• Financial records, experts' analysis, investor interviews and McEntee's own testimony show CM Development's business model was a prime example of a Ponzi scheme. McEntee offered investors a couple of ways in: He'd either borrow their cash for a short time at a generous interest rate or he'd pay a flat fee for using their names and their good credit to get bank loans. This money, he said, would be used to buy houses in low-income areas, renovate them and rent them out. Yet the rental income on most properties couldn't even cover the houses' mortgages. And the company's constant property sales - it sold houses repeatedly among its investors at ever higher prices to eke out every bit of equity - apparently didn't generate enough to pay the bills.

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• CM Development and its investors received more than $19 million in loans from more than 20 banks over [...] 2-1/2 years. But by March of this year, more than half of the roughly 250 properties controlled by the company sat vacant and efforts to renovate many had stalled.

According to The Virginian-Pilot, McEntee has testified that the company falsified about 80 percent of mortgage loan-related documents, representing to mortgage lenders that property buyers brought money to the real estate closings when they hadn't. Further, these loans reportedly financed CM Development's daily operations and supported McEntee's lavish lifestyle, including his $1 million Church Point home in Virginia Beach, the luxury vehicles he and his wife drove, and the condo he kept at the Oceanfront, according to the story.

According to an earlier Virginian-Pilot story, the unraveling of the flipping operation also spread its negative effects on:

1. renters, whose rent payments have not been applied to satisfy the typical landlord responsibilities, leaving them to deal with deteriorating living conditions, water shutoffs, foreclosure evictions, and unrefunded security deposits;
2. contractors and suppliers, who have been stiffed on payments due them for materials and labor, resulting in liens and legal claims against McEntee, CM Development and its investors; and
3. the surrounding neighborhoods where the flipped homes are located, resulting in code violations, demolition orders, vandalism, vagrancy, and plans to issue criminal warrants to the group’s various property owners for failing to maintain the properties.

While no criminal charges have been brought against CM Development or McEntee at this time, the FBI is reportedly looking into the company. For more, see:

• Part 1 - CM Development: The sales pitch was great, but the company fell apart,
• Part 2 - While properties crumbled, bankers looked the other way.

Go here for links to earlier Virginian-Pilot stories on CM Development.

Go here for other posts on the CM Development flipping operation.