More proof of Lennar lies

Could things get much worse for Lennar (NYSE:LEN)? Of course they could. Especially as long as the company continues to lie in order to cover up for the red flags of fraud that Barry Minkow and Fraud Discovery Institute released in a report two weeks ago.

Here’s the latest… Minkow originally raised questions about a $5 million third mortgage on Lennar COO Jon Jaffe’s house, which puts the total debt on the house at over $10 million. What’s so interesting about that? The house is likely not worth much more than $5 million, putting this property squarely under water and raising questions about whether the $5 million Jaffe received via this “loan” is a disguised payment of some other sort.

Lennar shot back with statements that the house is actually worth $18 million, thinking this would squash the story. And it otherwise might, except that’s completely false.

Here’s what Lennar represented:

At the time of the loan, the house was appraised at $18 million by an independent appraiser on behalf of the lender. The first mortgage was for $3 million; the second mortgage was a line of credit for $2.1 million. Together with the $5 million loan, the total equaled $10 million, a loan-to-value ratio of 55%.

But the house isn’t worth $18 million and it’s clear that the “independent appraisal” by Richard Creed was completely false, and not even close to being reasonable. (And maybe not so “independent” after all?)

George Hatch, a certified real estate appraiser lays out why the $18 million value can’t possibly be true in a report for Minkow.  Here are the highlights:

• The original appraiser used a “Sales Comparison Approach” which cited 4 closed sales and 2 active listings. Normally an appraiser would give the active listings little consideration because the asking price on a property often indicates “the extreme upper limit of value.”
• Of the closed sales that were used in this approach, two (#1 and #2) aren’t even close to being comparable to Jaffe’s property. The appraiser says they’re comparable, but this appraiser says that they’re actually obviously superior and shouldn’t be used.
• Two other sales used in this analysis (#3 and #4) are “are mischaracterized as being much more inferior than they are, and adjusted using obviously exaggerated and unsupportable adjustments amounting to $6,500,000 – in effect doubling the adjusted prices of both properties so as to make them appear more similar in price to the unadjusted Sales #1 and #2.
• The “Cost Approach” used by the original appraiser is also severely flawed. The Jaffe site value (the land) is listed at $15 million, which is completely unsupported. This is the part of the report that is responsible for the inflation of the total value of Jaffe’s home and property to $18 million. The absolute maximum that Mr. Hatch says the land could be worth is $9 million or $10 million, and that’s only if you stretch the data absolutely as far as it will go.

You can read the whole report for more details, but it’s clear that the Jaffe home wasn’t worth $18 million when that $5 million loan was made. The bottom line? Mr. Hatch says the appraisal of the Jaffe home is not credible and can’t be relied upon in any way.

The report by Richard Creed shows a fee of $1,000 for this bogus appraisal. I hope he got more under the table. $1,000 doesn’t seem to be enough for creation of fiction such as this….

And isn’t it curious that the $5 million loan was done June 12, 2008, but not actually recorded (standard procedure with any mortgage) until January 9, 2009? The mortgage company has little chance of collecting on a mortgage if it’s not recorded. The mortgage goes unrecorded until two days after Minkow’s original report which questions the loan.

So here we have a bogus appraisal, a false report of value on a house, a “loan” of $5 million which puts the house under water if you consider its true value, and the loan is not recorded… It’s not much of a leap to suggest that this “loan” was a payment of some other sort that wasn’t going to be repaid.

Related Posts

1. Lennar Corporation (NYSE:LEN) confirms fraud allegations; debunks own lies
2. New Lennar Analysis: 72% chance of bankruptcy
3. Lennar Corporation: Fraud in progress?
4. The effect of inflated home appraisals
5. Have you been taken by mortgage fraud?