How has one of the largest real estate schemes in Florida affected you as a tax deed investor? Though the scheme took place in 2003-2006 its affects are still being felt today throughout Florida's tax deed investment community. In the wake of this scam there were title agents, underwriters, investors, mortgage holders, speculators, land owners, retirees, developers and contractors bilted of an estimated $200-$300 million dollars.
Title insurance underwriters are now very reluctant to issue title insurance when a tax deed is found in the chain of title even if a suit to quiet the title has been granted.
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Who can blame the title insurance underwriters? With the typical value of property being less than $15,000 and the underwriters typically receiving $30 per $1000 of insured value it equates to little money for them with an increased risk. The perceived risk is in large part due to the happenings of 2003.
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In 2003 Sky Development Group LLC turned the real estate world upside down, executing one of the largest Florida real estate scams with diligence and authority.
The charges brought against them read like a Steven Spielberg movie script born of international fraudsters who ultimately have not been incarcerated for their estimated $200 million dollar real estate scam and who returned to their native country unscathed. In the wake of their business practices there have been a large number of property owners, commercial lenders, title underwriters and investors holding the remnants of what we believed to be a secure system of checks and balances.
Sky Development Group, LLC began recording fraudulent deeds for vacant subdivision lots in Citrus Springs in or about 2003. With conveyances of up to 500 lots on a single deed and with some legitimately conveyed to them, it really did not throw up red flags as some of the lots were also scheduled for the auction block at the tax deed sales.
Once the deeds were recorded the properties were mortgaged. In fact, Kennedy Funding Group mortgaged hundreds of lots which they began foreclosure proceedings on and ultimately sold their interest in the lots to Citrus Ventures LLC. Citrus Ventures being owned in part by a Kennedy Funding executive, the interest was conveyed by assignment of bid prior to the foreclosure auction occurring. These parcels are still listed as being for sale on the Kennedy Funding website, accurate as of January 2010.
Upon Sky Development mortgaging the property, there were very large ad campaigns promoting their homes and preconstruction pricing. Partnerships were formed with legitimate developers who were equally unsuspicious.
To further hide the real estate scam an unlicensed title agency was opened by the executors of Sky Development which allowed them to further stretch their ability by issuing unenforceable title insurance and creating less scrutiny over funds held in trust while selling parcels over and over again. Deposits were taken for pre construction of homes, funds were placed in escrow by buyers of vacant parcels and homes, payments were being received, additional mortgages were obtained against Sky receivables and, of course, these escrowed funds were held by their title agency. Thus, a funnel was created whereby thousands of fraudulent deeds were poured in and huge profits were the product created.
While the Sky Development Managing Member and his wife enjoyed the fruits of their real estate scam by entertaining in their Palm Beach ocean front mansion or cruising in their yacht, the real estate world of checks and balances became a legal tangle of who owns what.
Many who purchased lots from Sky but obtained construction mortgages elsewhere found themselves in dept without relief as they did not legally own the parcels on which the mortgage secured. The true property owners were required to file a quiet title action to nullify the mortgage and interest of Sky or risk the loss of the property due to foreclosure. Legitimate title companies were required to honor the insurance they had issued and in many cases had to reimburse debunked land purchasers, as many of the lots were resold by investors and Sky. Deposits were lost, escrowed funds were disbursed, contractors were unpaid, mortgage companies were foreclosing on property not owned by Sky, title underwriters were forced to shell out money, and partnering corporations had losses.
Where legal status of ownership was completely disemboweled, the lots were changed in zoning from SFR (single family residential) to DRA (drainage retention area) as to make the property undesirable and unbuildable. I believe this occurred in fewer than 20 parcels and this came to my attention through my tax deed research.
In 2008 many lots previously having been conveyed by Sky were auctioned at the tax deed sale. In the research it was discovered that most of these lots were in disputes over ownership as Sky had conveyed them to more than one party, there were mortgages encumbering the property, and the original owner could not be located. Without original owner verification, the deed to Sky could not be authenticated. This was occurring at a time when the properties value had plummeted from $35,000 to $8,000. So, in those few instances where severed ownership would need be granted and the original owner unfound, the zoning was changed and the property tax deed auctioned. This would create a single entity in ownership of the property, the county or a tax deed investor.
Inevitably, some of the parcels though being zoned DRA were still purchased by unaware tax deed investors who had looked at the prior years zoning, finding the property value at $15,000. The actual value of a SFR zoned lot at the time was $8,000 and being further hindered by DRA zoning the lot was valued at a few hundred dollars. Most of these lots sold at auction for $2,400.
And while unfolding, the Sky Development members sat upon an international flight with raised vodka in hand and fraudulent passports providing safe passage to a non extradition country.
How did these individuals acquire such in depth knowledge of our system in order to manipulate it? In just 3-4 short years they were not only able to open businesses; they were able to operate illegal operations which are government licensed. They had to have great knowledge of lending practices, development and construction, legal principals, business law/accounting and our tax system. I’m no conspiracy theorist, but it does seem unlikely that they did this on their own.
In respect to tax deed investors, it has universally made it more difficult to obtain title insurance on tax deed property after completion of the quiet title action. But, if all of your motions and pleadings are in order and with all defendants properly named and notified, the insurance will typically be issued. It is unnerving to get to the end of the process with buyer in hand to find title insurance issuance is the stalling point. With a little patience, some questioning and diligence these issues can be resolved. Unfortunately it does not always happen before the buyer walks, leaving you no choice but to relist the property. Aggravating and time consuming to tax deed investor, yes it is.
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