A woman who paid $65,000 for a dilapidated Forest Park house five weeks after it was acquired for $15,000 filed suit yesterday against the seller, who has made similar deals on about 80 Baltimore houses in the past three years.
Ingrid Simon, a $7-an-hour security guard and single mother of a teen-age daughter, sued River Mortgage Inc. and Chuck Famous, the firm's president, in Baltimore Circuit Court.
The suit also named the first mortgage lender, the settlement company, the appraiser and others involved in the deal, accusing them of fraud, conspiracy to defraud, violation of the Maryland Consumer Protection Act, and unfair or deceptive trade practices, among other things.
A first-time homebuyer, Simon purchased her sagging four-bedroom frame house on Barrington Road on May 6, 1998, after a newspaper ad led her to Famous, who bought the house on March 30.
Simon was featured in an article in The Sun on Aug. 1 that described a real estate phenomenon known as "flipping." Dilapidated houses are sold within weeks of their purchase -- sometimes on the same day -- for huge markups, usually with little work being done on the property.
Many sellers, using inflated appraisals, phony documentation, sham second mortgages and deceptive sales pitches, get more for their recently purchased houses than they are worth, saddling low-income buyers with high-interest mortgages that often exceed the value of the house.
The Sun examined more than 400 transactions where first-time homeowners and aspiring landlords paid prices that had increased as much as tenfold virtually overnight.
Some experts believe this is the tip of the iceberg, pointing to hundreds of other suspect deals in Baltimore identified in lawsuits and by state tax assessors.
Flipping itself isn't illegal, nor is the sale of a house to a low-income, unsophisticated, first-time buyer unfamiliar with the complexities of real estate. It can cross the line, however, when falsified documents are used to sell a house for more than it is worth and to induce a lender to make a loan in excess of the value of the house to a borrower who is not creditworthy.
Famous, who has repeatedly refused to talk to The Sun, did not respond to a phone call.
Operating through River Mortgage, the former Florida mortgage broker flipped more than 80 houses between March 1996 and the end of 1998, paying an average of $10,000 for each house and selling each for an average of $48,000.
Simon's suit was filed by attorney Andre R. Weitzman, a 2nd District City Council candidate, who has filed a half-dozen other suits on behalf of more than 100 buyers who claim they were defrauded in flipping transactions.
The suit claims that Famous promised to sell Simon the house for $39,000, though the price ended up at $65,000. She signed a $52,000 adjustable-rate mortgage with an initial interest rate of 11.5 percent. She also signed a $14,000 second mortgage held by Famous' company. She says Famous never asked for payments and wiped out the second mortgage early this year.
Simon alleges several other irregularities in the deal: The mortgage application, which she never saw, exaggerated her income and assets; and she was told to write a check at settlement for $6,257.35 -- funds she said she didn't have. Famous assured her that the check would not be cashed. Weeks later, it was returned uncashed.
Simon's suit demands cancellation of her $52,000 first mortgage and more than $5 million in compensatory and punitive damages.