A man who says he flipped about 120 Baltimore houses over a four-year period pleaded guilty yesterday to federal fraud charges.
Carl Schulz of Baltimore pleaded guilty to two counts of wire fraud in a 21-count indictment and admitted that his scheme cost lenders as much as $1.5 million.
Schulz's plea is the first conviction in the second major illegal property flipping case brought by federal prosecutors in Baltimore.
Robert L. Beeman of Wilmington, Del., who flipped more than 100 Baltimore houses, and four people who worked with him pleaded guilty last year while a fifth was convicted at a trial. Beeman is scheduled to begin serving a three-year prison sentence this month.
As part of a plea agreement, Schulz agreed to cooperate with prosecutors. Assistant U.S. Attorneys Robert R. Harding and Virginia B. Evans would not say if they plan to have him testify at the trial of three co-defendants that begins Jan. 16.
Schulz and his co-defendants were indicted in April after a two-year FBI investigation. The co-defendants are Marcia Kirvin McNeil, who worked with Schulz, and two real estate appraisers, Guy Shaneybrook and Narade Pramuan.
Two related cases involving McNeil, Shaneybrook and three other defendants are scheduled for trial later in the year.
Judge Frederic N. Smalkin agreed to a prosecution request to delay Schulz's sentencing pending completion of his cooperation with the government.
Although the law provides a maximum sentence of 30 years in prison and a fine of $1 million, Schulz's sentence is likely to be closer to three years under federal sentencing guidelines.
Schulz would not comment after his guilty plea yesterday, except to estimate that he had flipped about 120 houses between 1996 and 1999.
He admitted in court that he set up companies through which houses were flipped.
The state Department of Assessments and Taxation says that between Jan. 1, 1996, and July 1 last year about 3,500 Baltimore houses were bought and resold within six months at a price increase of at least 100 percent.
Flipping - the purchase and quick resale of property at a substantial markup - is not by itself illegal. It becomes illegal when documents are concocted to falsely inflate property values and make borrowers appear more credit-worthy than they are.
Unlike Beeman, who flipped houses to first-time homebuyers, Schulz flipped them to buyers who would purchase more than one house because they planned to rent them to tenants.
"In essence, the idea was to acquire a large number of very cheap houses in the poorer sections of Baltimore and then sell them at greatly inflated values to purchasers who would need mortgage loans," said a statement of facts to which Schulz agreed.
It said the houses "were simply a tool to extract money from mortgage lenders usually located far away in other states."
In one case, it said, Schulz signed a contract in 1996 to buy 61 houses in Westport for an average price of $5,700.
Twenty-one of them were flipped to two buyers. Prosecutors said two of the dwellings were sold for $35,000 and $32,900.
Lenders who normally finance 70 percent of such deals were duped into financing nearly the full purchase price, Schulz admitted.
In other cases, the statement said, Schulz and McNeil made "huge purchases of blocks of houses."
Admitting "massive deception," Schulz acknowledged that he used numerous falsified documents, including phony wage statements for borrowers and sham second mortgages, to con lenders. He also made numerous misrepresentations to buyers.
Many of them ended up in bankruptcy and foreclosure.