C. Fla. Real Estate 'Land Trust' Operator Cops Guilty Plea In 'Reverse Staging' Short Sale Flipping Scam; Intentionally Trashed Homes To Drive Down Appraisals Prior To Purchase, Then Flipped For Profit

From the Office of the U.S. Attorney (Orlando, Florida):

• Guerard Wallace Howard (63, Melbourne) pleaded guilty [] to one count of wire fraud, he faces a maximum penalty of 20 years in federal prison. His sentencing hearing is scheduled for January 16, 2013, before Senior U.S. District Judge G. Kendall Sharp.
  
  According to the plea agreement, between November 2007 and August 2011, Howard operated an illegal real estate short sale flipping business, Provincial Real Estate Administrative Services, Inc. (“Provincial”).(1)
  
  Using Provincial, Howard made properties appear to be in poor condition during appraisals, through a scheme known as reverse staging.
  
  Reverse staging is a process wherein someone manipulates the short sale price by intentionally downgrading a property's appearance and falsely representing the condition of a property in advance of bank appraisals. Reverse staging is done in an effort to acquire the property at below market price.
  
  In this case, it included Howard removing receptacle plates and pulling wires from the walls to falsely represent to an appraiser that the house required rewiring; falsely representing that the house needed electrical service upgrades, and repair work.
  
  In some instances it also involved spraying the house with a foul-smelling prank product, and falsely representing to an appraiser that the odor was due to mold or other potential biohazard issues that required expensive remediation costs.
  
  The reverse staging effectively caused the lender to agree to the below market offer made by Howard through Provincial. The property was then immediately resold at a profit.

For the U.S. Attorney press release, see Melbourne Man Pleads Guilty To Short Sale Mortgage Fraud.

For the factual basis and plea agreement, see U.S. v. Howard.

(1) According to the factual basis filed in this prosecution:

• Howard and Provincial, doing business as a real estate management company, approached and/or were approached by distressed sellers and negotiated a land trust agreement with the Provincial as trustee.
  
  Howard then had the seller execute a warranty deed to the trustee, Provincial. The deed effectively transfened title of the property to Provincial. However, rather than record the deed immediately, Howard waited to record it until just before closing the short sale transaction.
  
  When negotiating the short sale with the lender, Howard did not inform the lender of the land trust agreement nor provided the warranty deed to trustee, but acted under the auspices of representing the  seller. This tactic concealed from the short sale lender the fact that Howard, through Provincial, was contracting to purchase property for which he already held the title.

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• Howard scheduled both closings for the same day, or as close together as possible, and paid cash-obtained through investor funds-for the short sale purchase. Howard then resold to the end buyer who financed through one of two end buyer lenders who calculated the seasoning period in Howard's favor.