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May 19, 2008

Court Bans John Davis From Real Estate Business in Iowa

Attorney General’s lawsuit alleged consumer fraud in the sale of homes.
Court also orders Davis to pay $30,000.

Des Moines. Des Moines real estate investor John Davis has been ordered by the Polk County District Court not to sell, rent, lease, or invest in real estate property in Iowa.

The Court order resolves a consumer fraud lawsuit filed by the Attorney General’s Office in 2006 alleging that Davis committed consumer fraud and ongoing criminal conduct in the sale of homes in the Des Moines Area. The order also provided for a payment by Davis of $30,000 which the Attorney General’s office plans to use to reimburse consumers whose transactions with Davis were referenced in the lawsuit.

“We alleged that Davis and his companies repeatedly sold homes at highly-inflated prices to first-time buyers with average or below-average credit scores,” Attorney General Tom Miller said. “We alleged that, among other things, they used phantom down-payments to induce the mortgage company to make the loans.”

“All the loans we cited in the suit ended in foreclosure,” Miller said. “This harmed the buyers and damaged their credit histories, and harmed the mortgage companies because the value of the properties was much less than the loans.” [Go to lawsuit filed 10-5-06.]

The Consent Judgment and order was entered Monday e.g. by Polk County District Court Judge Joel Novak. The Defendants settling through the Consent Judgment were John J. Davis and related companies and partnerships: Primo Acquisitions I, LLC; Data International, Inc.; Tax 216; Tax Acquisitions Xtrordinaire, LC; and 3624 South Union, LLC. The lawsuit was dismissed against defendant Christine Frank, who agreed to abide by the terms of the Consent Judgment. The defendants agreed to entry of the Consent Judgment. [Go to Consent Judgment.]

The court order gives Davis one year to sell any remaining Iowa properties, regulates the method of those sales, prohibits Davis from seeking or accepting fraudulent real estate appraisals, and bars Davis from engaging in any of the other practices alleged by the Attorney General to be unlawful.


More background and details:

The Attorney General’s lawsuit alleged that Davis and his various business entities invested in properties in Polk County, and then took steps to arrange loans for buyers. “The first problem we alleged was that the properties were sold to buyers at highly-inflated prices,” Miller said. “Second, we alleged that Davis and the other defendants led the mortgage company to believe that the buyers made substantial downpayments when that was not true. But for this, the mortgage company likely would not have made these loans.”

“Phantom down-payments.” In particular, the lawsuit alleged, the defendants “repeatedly created documents to make it appear that the purchasers made sizeable down-payments, when in fact the purchasers had not done so.” The suit alleged that Davis wired and transferred his own funds to the real estate closing agent, representing that the funds were down-payments from purchasers.

The suit also spelled out how appraisals of properties were significantly overstated, most by an appraiser who since has surrendered her State of Iowa appraisal license. The lawsuit alleged that the deception induced the mortgage company to make loans to buyers -- and allowed the buyers to pay the defendants highly-inflated prices for the properties.

Example: In one case, for example, the property at 1180-13th St. in Des Moines was appraised at $85,000 for a sale on March 30, 2003 – even though the Polk County Assessor had placed a value of only $33,290 on the property just four months earlier, on January 1, 2003.

Davis sold the property at 1180-13th Street for $85,000. Davis represented that a down-payment of $13,000 had been paid by the buyers when, in fact, they made only a $300 downpayment. The mortgage company made a loan of $72,250 to the buyers – and proceeds of $64,870.07 were wired to a Davis account at the Earlham Savings Bank. Mortgage foreclosure proceedings later were initiated against the buyers.

In nine examples cited in the lawsuit, misrepresentations by Davis and the other defendants induced the mortgage company to make loans totaling nearly $700,000 -- and all of the loans ended up in foreclosure.

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