Article Courtesy of The Orlando
Tracy and Mary Shanklin
December 13, 2010
complicated mortgage deal involving a crumbling Orlando condo complex has
sparked a federal investigation and could leave taxpayers on the hook for
millions of dollars.
The mess has emerged because Catalina Isles was financed well above market
prices with mortgages guaranteed by the federal government.
Many of the units were appraised at close to $200,000 apiece just two
years ago, far more than an average Orlando condo at the time. They
are worth less than a tenth of that now, and the values keep dropping.
The owners, many of whom bought the condos with the promise that they
would not make down payments or monthly mortgage payments, are elderly and
poor. Their units are falling apart, but they don't have the money to move
elsewhere — much less write a check for repairs.
|"After I got in,
I wished I hadn't," said Christine Morris, a retired
72-year-old housekeeper and resident whose roof and
sliding-glass door continually leak.
Already, one of the 89 units is boarded up and condemned, three
others have been cited by Orlando for code violations and a
dozen or more sit empty. Code-violation fines start at $25 a
The situation at Catalina Isles, which fronts Interstate 4 near
John Young Parkway, has
an investigation by the federal Department of Housing and Urban Development,
which holds more than two dozen notes worth $3.5 million at the complex.
How Catalina Isles came to be this way goes back to 2007, when South Florida
developer Angel Lage bought what was then called Lafayette Square Apartments
for $5.2 million. It was condemned in 2000 and emptied out.
Previous owners then made necessary improvements and rented the apartments,
but it was still considered low-cost housing when Lage purchased it. He
painted, made minor fixes and then started selling the apartments as
Some of the buyers were homeless or living in public housing, and most were
surviving on meager Social Security checks, food stamps or odd jobs. They
borrowed money from Lage's mortgage company to purchase the condos.
Lage then helped the buyers get what's known as reverse mortgages from HUD.
Proceeds from those federally backed home loans paid off the mortgages Lage
Lage, who paid an average of about $56,000 for each unit, typically made
$20,000 to almost $64,000 on each sale, not including transaction fees and
other related costs.
Reverse mortgages allow owners to live in their homes mortgage-free. The
notes are set up to last 80 years or more. When the owner dies or moves, the
unit or house is sold, with the proceeds paying off what remains of the
But reverse mortgages only work if the unit is worth more than the mortgage.
That is far from the case in Catalina Isles.
Lage hired appraisers in 2009 who declared the one-, two- and three-bedroom
units, all less than 1,400 square feet, to be worth $145,000 to $192,000.
Those numbers came in even though the midpoint price for all Orlando condos
was $52,900 in 2009.
Those very same Catalina Isles units now are listed as being worth $8,900 to
$15,250 on the tax rolls.
'It's a gift'
Lage no longer owns the complex; he sold it off unit by unit. He said he
made every deal strictly by the rules and, in fact, ended up losing money on
Catalina Isles when overheated real-estate prices began plummeting.
"The market dropped on us," Lage said.
Lage says the people living at Catalina Isles do not know how good they have
"It's a gift," he said of their condos. "They should thank
me. I guess they don't understand what I did for them."
He said the units could fetch monthly rents of as much as $700, while owners
there pay no more than $144 for monthly association fees because of the way
the units are financed.
Lage said the problem is that some of the Catalina Isles residents do not
understand that owning the units means they are responsible for repairs and
Among those who got a condo was Essie Mae Scott. She was 84 and suffering
from Alzheimer's, according to her legal guardian and daughter Deena.
The Scotts were living on Social Security checks of $486 a month and food
stamps when Silver Knights Investment Corp., controlled by Lage, gave the
mother a mortgage of $119,000 to buy a three-bedroom condo in 2008.
Four months after he loaned Scott the money to buy the unit, Lage connected
her with Value Financial Services. That Miami-based company approved a
HUD-backed reverse mortgage that paid off Lage for the $119,000 he
originally loaned to Scott, plus an additional $12,292 for Value Financial
and other companies that serviced the closing.
Value Financial officials did not return repeated calls from the Orlando
Alex M. Taboas, of ATO Appraisal Service in Miami, valued Scott's condo at
$192,000 for the reverse mortgage. The company was dissolved last year, and
Taboas could not be reached for comment.
The deal, repeated several times with other buyers and often employing Value
Financial Services, rested on a federally approved appraiser's certifying
that the unit was worth more than enough to pay off the original loan
provided by Lage.
Several residents said appraisers overestimated values, and that led to the
units being overleveraged by the federal government.
"Without that appraisal, nothing could be done,'' said Paula Kittrell,
who lives in a unit that had been purchased with a reverse mortgage by a
now-deceased family friend.
Sunrise Home Appraisals of Casselberry, which had an FHA-approved appraiser,
found Kittrell's unit to be worth $145,000 last year. It now has a market
value of $8,900 on the tax rolls.
Former Sunrise President Robert Ousnamer, newly retired from the now-defunct
company, said specifics about appraisals are confidential. But generally
speaking, he said, the market has been in such turmoil during the past three
years that pegging values has been difficult. Sunshine appraisers always
used comparable sales to arrive at a value, he added.
"The market was all over the place. We were all tearing our hair out
trying to stay as accurate as we could," he said. "I can tell you
this about the people in my office: We never do anything without being able
to back up what we do."
A national issue
Across the nation, HUD, which is funded by federal taxes, faces a looming
bill for reverse mortgages on property that lacked the equity needed to pay
off the note. In 2000, the agency paid $2.7 million in such reverse-mortgage
claims. By last year, that tab grew to $76 million. And, for this year, it
exceeded $129 million through September.
At Catalina Isles alone, HUD is on the hook for $3.5 million in loans for 28
condos that are worth only $317,650 on the tax rolls.
HUD is now investigating some of the sales, appraisals and mortgages at
the Orlando complex. HUD spokesman Lemar Wooley would not discuss specifics,
including whether Lage or the appraisers are a target of the probe.
When values collapse on homes that were supposed to be worth enough to
eventually repay a reverse mortgage, the FHA holds both the approved lender
and approved appraiser equally responsible "for the integrity, accuracy
and thoroughness of the appraisal," Wooley said.
"The federal government would have a number of avenues to pursue,
including prosecution, if fraud were determined," Wooley said.
Code enforcement steps in
The biggest worry for Orlando is that Catalina Isles will end up just like
it did when it was called Lafayette Square: condemned as too dangerous for
Mike Rhodes, Orlando's code-enforcement chief, was around when Lafayette
Square was shuttered in 2000 because leaky roofs virtually destroyed the
The city tries to find temporary shelter for the people who are displaced,
but the experience is traumatic for everyone, Rhodes said. Residents who
left publicly subsidized housing to move into Catalina could now spend years
on waiting lists to get back into similar apartments.
Leaky windows, plumbing and roofs are vexing the complex again.
"They [the residents] certainly aren't in the best housing conditions
that we would hope for them," Rhodes said.
His board has heard four cases from Catalina Isles, including one in which
it condemned a unit. More undoubtedly are on the way, city officials fear.
Rhodes' biggest worry is that failures in one unit — a burst pipe or
faulty electrical outlet that sparks into a fire — will harm adjoining
"The domino effect," Rhodes said, "can be pretty