David Richard Sparks is going to prison. I first wrote about this realtor last June in Orange County realtor lied to clients, stole their money, and admitted to massive Ponzi scheme. According to his confession, he forged bank documents, used non-existent escrow companies, provided bogus status updates and falsely reported significant profits. Victims said if they did not want to reinvest their money with him, Sparks made up excuses for why he could not give it back. He’s quite a piece of work.
Mr. Sparks embodies the character and ethics many have come to expect from realtors. The following is from his Active Rain profile:
I have been a full-time, professional REALTOR® since 1987 specializing in the sales and marketing of homes in Orange County, Long Beach and Coastal San Diego County. As a licensed broker, I am the owner of Sparks Realty, Inc.
Honest and full of integrity, I work to achieve a win/win situation in my transactions. While always keeping my clients’ best interests in the forefront, I know that a truly successful transaction is one in which everyone feels as though they were treated fairly. As an excellent and open communicator, I owe much of my success to the fact that my clients always know exactly what is happening with their sale or purchase. By keeping everyone fully informed at every step, I makes the real estate process easy and stress-free. My constant accessibility as well as my knowledge of the industry and its affiliated services makes me the perfect choice for the real estate consumer interested in total service.
If you are seeking an honest real estate professional who is committed to your satisfaction and peace of mind, call Dave Sparks today.
The bold text is not added by me for emphasis. That was from Mr. Sparks. His honesty and integrity are beyond reproach since he is a realtor.
“We look forward to serving screwing you, your friends and your family for many years to come.”
For as much as I enjoy bashing realtors for its own sake, there is another valuable lesson David Sparks can teach us. The series of bad decisions leading to Mr. Sparks downfall all come from one very important, very bad decision: he speculated on appreciation rather than invested for cashflow. If his real estate acquisitions had been cashflow positive, he would not have needed more money to cover the negative cashflow, and his entire Ponzi scheme would have been unnecessary. This fool is going to jail because he let one catastrophic error in judgment balloon out of control.
Irvine realtor sentenced in $4.3 million real estate fraud
By BRIAN MARTINEZ / THE ORANGE COUNTY REGISTER — May 7, 2012
Sex, pride and booze were among the factors that drove an Irvine real estate broker to cheat 34 of his friends, family and acquaintances out of their life savings, retirement accounts, inheritances and college-education funds.
That’s according to comments made by attorneys, victims and the judge at the man’s sentencing hearing Monday.
In the end, Judge Cormac J. Carney sentenced David Richard Sparks – a former Irvine Planning Commissioner who resigned that position when the FBI started investigating him – to six and a half years in federal prison.
Apparently the judge took a very dim view of this man’s behavior, and he should. Those investors would never have given their money to this guy if they knew he was going to spend it on himself, his debauchery, and his family’s entitlements.
The sentence was 15 months longer than the government prosecutor recommended and argued in favor of under a plea agreement Sparks had made. It was the longest term possible under federal sentencing guidelines. He pleaded guilty in July to one count of felony interstate wire fraud, and he technically faced a maximum of 20 years in federal prison.
Sparks was ordered to pay back the $4.3 million he swindled by paying at least 10 percent of his income after he is released from prison. Authorities say Sparks no longer has the money he stole, a notion his victims don’t fully believe.
It doesn’t seem very likely this guy will make $43 million after he gets out of jail to make his investors whole with a 10% wage garnishment. As a realtor, he will likely find a way to take money under the table to avoid paying anything. 
That $4.3 million figure does not include taxes victims paid on false profits, costs incurred in the ordeal or interest payments and late fees promised in investment agreements.
“This is not a white collar criminal ripping off investors, this is a guy who destroyed the lives of his family and friends,” victim Debra Parent told the court. She knew Sparks from kindergarten.
“I hope you rot in hell,” one victim said directly to Sparks before the judge asked that all comments be directed at him.
Wow! This guy really pissed people off. I suppose if I were ripped off by a friend from kindergarten, I would be pissed off too.
Several victims spoke, telling the court about broken marriages, retirement plans destroyed, personal homes in foreclosure, ravished credit scores and health issues resulting from Sparks’ fraud and their lost money. Most of the victims were middle class families who personally knew Sparks, did their due diligence in considering the investment and could not afford to lose their principal investment amounts.
If they really did their due diligence, they should have known their investment was at risk. However, they didn’t think they were at risk of this guy stealing their money.
Court records paint a picture of Sparks as a charming man and talented liar who claimed to be buying, rehabbing and selling foreclosed or pre-foreclosure homes that he never actually purchased. He forged bank documents, used non-existent escrow companies, provided bogus status updates and falsely reported significant profits. If the investors did not want to reinvest their money with him, Sparks gave them “lulling payments” or just made up excuses for why he could not give it back.
He went to extremes to cover his crime. He should get a stiff sentence for that kind of behavior.
In calculating the sentencing guideline, the judge added aggravating points for what he said was Sparks’ abusing a position of trust and using “special skill” in knowing how real estate and its related documentation worked.
Testimony at the hearing indicated that Spark’s was under distress when he started cheating people. That stress included having lost his own money and that of his wife and children, having serious marital problems, having a child out of wedlock, health challenges and alcoholism.
I hope this guy finds religion in jail. He has few redeeming qualities at this point.
Prosecutors said they believed Sparks was not motivated out of greed but rather out of his ego, not wanting to own up to losing his friends and families’ money when the real estate bubble crashed. Before that, he had much success in investing others’ money, and he was looked at with admiration.
Sparks started speculative real estate investing in the late 1980s and in 2005 he believed that real property in Utah’s Cedar City was likely to see a dramatic increase in value, so he used his own funds and investor cash to buy 35 properties for about $7 million in Utah and California. That’s according to the plea agreement Sparks signed.
By 2007, the rents Sparks was collecting from the properties were no longer sufficient to cover the debt service. Sparks began soliciting cash from investors to cover the debts – deliberately lying to them by telling them the funds would be used to buy new properties. To back up his lies to investors, Sparks created false paperwork.
This is the educational part of this story. The root of all his problems wasn’t the crash in resale values, it was the negative cashflow. If he had positively cashflowing real estate, the loss of resale value may have been unsettling, but with positive cashflow, it wouldn’t have been a catastrophe. Declining values and a cashflow drain is an investment death sentence, and it was the cause of all of Mr. Sparks troubles.
DON’T BUY PROPERTIES WITH A NEGATIVE CASHFLOW.
… The judge on Monday ordered that Sparks surrender himself to U.S. Marshalls no later than noon on June 11, 2012, to begin his prison sentence. After he is released, he must also serve three years of probation.
Everyone who speculated on real estate during the bubble paid a price. The price paid by David Sparks investors was quite high, and thanks to a thoughtful judge, the price paid by David Sparks himself will be even higher.
David Sparks Ponzi scheme might have worked if lenders had allowed him to borrow against the ever-increasing value of his holdings to supplement the negative cashflow. Unfortunately, borrowing money to service debt is the essence of a Ponzi scheme certain to fall apart once lenders stop the music.
Ordinary citizens were just as involved in running Ponzi schemes as David Sparks, although most didn’t go to such extreme lengths to cover it up. In many cases, the results were just as lucrative. For example, the owners of today’s featured property paid $830,000 back on 1/29/2002, but only $83,000 of that money was their own down payment — money that likely came from a previous sale. They parlayed that $83,000 into $653,000 in HELOC booty in just over four years. To make it an even better deal, the lender allowed them to squat for about 18 months.
Corona Del Mar Overview
Median home price is $1,283,000. Based on a rental parity value of $965,000, this market is over valued.
Monthly payment affordability has been improving over the last 3 month(s). Momentum suggests improving affordability.
Resale prices on a $/SF basis increased to $711/SF to $747/SF.
Resale prices have been weak for 2 month(s). Price momentum suggests unchanging prices over the next three months.
Median rental rates increased $248 last month from $3,800 to $4,048.
Rents have been rising for 12 month(s). Price momentum suggests rising rents over the next three months.
Market rating = 1
Proprietary OC Housing News home purchase analysis 
712 K THANGA Dr Corona Del Mar, CA 92625
$1,399,900 …….. Asking Price
$830,000 ………. Purchase Price
1/29/2002 ………. Purchase Date
$569,900 ………. Gross Gain (Loss)
($66,400) ………… Commissions and Costs at 8%
============================================
$503,500 ………. Net Gain (Loss)
============================================
68.7% ………. Gross Percent Change
60.7% ………. Net Percent Change
5.0% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$1,399,900 …….. Asking Price
$279,980 ………… 20% Down Conventional
4.30% …………. Mortgage Interest Rate
30 ……………… Number of Years
$1,119,920 …….. Mortgage
$276,596 ………. Income Requirement
$5,542 ………… Monthly Mortgage Payment
$1,213 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$350 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$40 ………… Homeowners Association Fees
============================================
$7,145 ………. Monthly Cash Outlays
($1,343) ………. Tax Savings
($1,529) ………. Equity Hidden in Payment
$436 ………….. Lost Income to Down Payment
$195 ………….. Maintenance and Replacement Reserves
============================================
$4,904 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$15,499 ………… Furnishing and Move In at 1% + $1,500
$15,499 ………… Closing Costs at 1% + $1,500
$11,199 ………… Interest Points
$279,980 ………… Down Payment
============================================
$322,177 ………. Total Cash Costs
$75,100 ………. Emergency Cash Reserves
============================================
$397,277 ………. Total Savings Needed
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..
We're sorry, but we couldn't find MLS # T12056000 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$3,400,000 341 East BAY FRONT |
0.24 miles 4 bd / 1.75 ba 1,645 Sq. Ft. |
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$2,588,000 1520 ABALONE Pl |
0.29 miles 5 bd / 4 ba 2,090 Sq. Ft. |
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$2,395,000 126 ABALONE Ave |
0.42 miles 4 bd / 2.25 ba 2,220 Sq. Ft. |
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$1,850,000 303 SAPPHIRE |
0.44 miles 4 bd / 3.5 ba 2,000 Sq. Ft. |
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$1,395,000 213 TOPAZ Ave |
0.56 miles 4 bd / 2.75 ba 1,778 Sq. Ft. |
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$4,695,000 804 South BAYFRONT |
0.59 miles 3 bd / 2.5 ba 2,100 Sq. Ft. |
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$1,950,000 214 PEARL Ave |
0.59 miles 2 bd / 2.5 ba 2,185 Sq. Ft. |
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$4,599,000 508 SOUTH BAY FRONT |
0.71 miles 3 bd / 2 ba - Sq. Ft. |
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$1,150,000 1425 SEA RIDGE Dr |
0.75 miles 3 bd / 2.25 ba 2,460 Sq. Ft. |
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$1,595,000 1602 East BALBOA Blvd |
0.86 miles 4 bd / 2.75 ba 2,500 Sq. Ft. |
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Be wary anytime someone says “it’s different this time.”
Stabilization in prices this spring is “different” from previous years
When including distressed sales, home prices rose month-over-month by the same percentage point as they dropped year-over-year. CoreLogic reported Tuesday in its March Home Price Index (HPI) that compared to a year ago, prices declined 0.6 percent in March, while prices rose 0.6 percent compared to the month before in February. The monthly gain when including distressed sales is the first time since July 2011.
Distressed sales include short sales and REO transactions.
When excluding distressed sales, month-over-month prices went up for the third consecutive month, while year-over-year prices increased by 0.9 percent in March 2012 compared to the same month a year ago, according to CoreLogic’s HPI.
Mark Fleming, chief economist for CoreLogic, explained why the stabilization in prices this spring is different from previous years.
“Although this has been the case in each of the last two years, the difference this year is that stabilization is occurring without the support of tax credits and in spite of a declining share of REO sales,” said Fleming.
Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 57 saw year-over-year price declines in March, which is eight fewer compared to February.
The CBSAs that saw the great drop in value when including distressed sales were Chicago, Illinois (-8.8 percent); Atlanta, Georgia (-8.1 percent); and Riverside, California (-3.2 percent).
The CBSAs with the greatest increase in value were Phoenix, Arizona (+7.7 percent); New York (+2 percent), and Dallas, Texas (+1.1 percent).
When excluding distressed sales, the CBSAs with the great decrease in prices were the same, with Chicago seeing a decrease of 2.7 percent, Atlanta 2.1 percent, and Riverside 1.2 percent. When looking at CBSAs with an increase in value after excluding distressed sales, the order was Houston, Texas (4.1 percent), with both Dallas and Phoenix closed behind at 4 percent.
When including distressed sales, the five states that experienced the greatest increase in home prices were Wyoming (+5.9 percent), West Virginia (+5.3 percent), Arizona (+5.1 percent), North Dakota (+4.7 percent) and Florida (+4.5 percent).
The five states with the greatest depreciation when including distressed sales were Delaware (-10.6 percent), Illinois (-8.3 percent), Alabama (-8.0 percent), Georgia (-7.3 percent) and Nevada (-5.8 percent).
When excluding distressed sales, Idaho took the lead at 5.4 percent, closely followed by North Dakota (+5.1 percent), South Carolina (+4.7 percent), Montana (+3.5 percent), and Kansas (+3.4 percent).
States that had the greatest decrease in value when excluding distressed sales were Delaware (-7.6 percent), Alabama (-4.1 percent), Nevada (-3.9 percent), Vermont (-3.9 percent) and Rhode Island (-2.9 percent).
Even with price gains above 5 percent for leading states and CBSAs, Capital Economics said in response to the CoreLogic report that over the year, prices are more likely to stabilize rather than make a dramatic climb.
“There are fears in some quarters, triggered by recent disappointing GDP and payrolls data, of a sharp slowdown in economic growth which could derail the fledgling improvement in the housing market,” said Paul Diggle, property economist for Capital Economics. “While we do not expect the economy to be strong enough to generate rapid house price gains, we do think that prices are either very close to, or already through, their trough.”
This aint rocket science…
lower rates = higher cost basis
higher rates = lower cost basis
30yr FRM money
May 7 2010: 5.00
May 6 2011: 4.71
May 6 2012: 3.84
LOL
tic…tic…tic….
Have you seen the US 10-year Treasury Note yield this morning? It’s approaching 1.80%. At some point in the future the rubber band has to snap back.
I can’t even imagine the carnage in housing if/when the 30Y mortgage rate moves 100 bps, then another 100 bps, etc… What if the 30Y rate in 2013 for the best-qualified borrowers is 6.5%, just like it was in mid-2007? That home selling for $750K in a 4% market will approach $550K in a 6.5% market! Does anyone really understand this (outside of housing blog enthusiasts)?
“Does anyone really understand this (outside of housing blog enthusiasts)?”
No, I don’t think they do. And those that understand it probably assume the federal reserve will hold rates down forever, or at least until incomes make up the difference.
The snapback, or opposite side of the market pendulum, will make 1980s interest rates look like a 6 week paid vacation. Run the affordability numbers at 15%,20%,25% interest rates and tell me prices have bottomed, good luck. Real estate is going to its cash value. The kicker is trying to guess nominal (priced in US dollars) future values because double digit interest rates will declare the US government bankrupt and render the US dollar worthless. The upside is everyone will be paying off 30year paper with worthless paper. Inflation benefits debtors.
Don’t underestimate the Federal Reserve’s ability to keep rates low for long periods of time. Japan has had a nearly 20 year run of ZIRP (zero interest rate policy), though I acknowledge there are significant differences between 1990s Japan and the US. Everyone thinks that rates “have to” go up, but I say the Fed continues ZIRP until the currency finally collapses. My guess is we have currency failure before interest rates hit double digits.
The way I see it, continued currency devaluation is almost guaranteed. Borrowing money for 30 years at an effective interest rate of 0% (actually less than that if you were to take real inflation and not the bald-faced lies that the BLS publishes) purchasing a house with little down (if possible) is a good long-term bet against the dollar.
Unaffordable international (and some national) RE:
http://www.ritholtz.com/blog/2012/05/global-real-estate-bubble/
I think we will be hearing cases like this. For example, REO listings that to automatically to Pending and were never listed before the pending sale.
In a market with tight supply, listing agents make a fortune by double-ending transactions to favored clients.
Can you please explain to a layman how that works?
When the buyers agent and the listing agent are the same people, they get 6% of the final sales price.
Much like this short sale property:
http://www.redfin.com/CA/Villa-Park/18001-Brynmar-Ln-92861/home/4341186
Listing agent: Jack Ryan
Buyers agent: Jack Ryan
It’s just like zubs says. The listing agent gets 3% from each side of the transaction by representing both the buyer and the seller.
It would help – barely – to make RE licenses renewable every 24 months with 8 hours of ethics and finance training required. It would force some bad actors out quickly while increasing fee income to the California DRE.
I’m also reminded of your OCAR troubles a while back: Talk about realtors, get a summons, do harm as a realtor, crickets.
Self policing isn’t. If the realtors want a better image, they need an independent review board and real penalties for bad behavior.
My .02c
Soylent Green Is People.
From this week’s Economist:
The great realtor rip-off
Why is it so expensive to buy or sell a house in America?
IN BRITAIN, if you want to sell your home, an estate agent will list the property, find a buyer, help you negotiate a deal and guide you through the transaction, all for a commission of 2-3% of the sale price. In America, realtors provide the same services for roughly double the fee.
Are they worth it? The shouty realtors in David Mamet’s film Glengarry Glen Ross (pictured) certainly think so. (“[My] watch costs more than your car…that’s who I am.”) Others disagree. Chang-Tai Hsieh of the University of Chicago finds that American property brokers cause “social waste” of $8 billion a year via overcharging and inefficiency.
Economists are baffled. The internet has squelched inefficient middlemen in other industries, from insurance brokers to travel agents. Why not American realtors? Although scores of discount brokers and for-sale-by-owner websites have sprouted up, traditional full-service realtors have somehow maintained their market share of 80% without reducing fees.
The business used to operate like a series of local cartels. In a typical area, a handful of brokers controlled a shared database of available homes, and limited their cheaper rivals’ access to those listings. In 2008 in the United States and 2010 in Canada, regulators struck deals with realtors to open up these databases. Yet since then the average commission has actually risen, from 5.0% in 2005 to 5.4% in 2011, according to REAL Trends, a research firm.
Why are high fees so persistent? One counterintuitive theory is that America’s housing bust has buoyed them. Selling a home is easy when prices are rising. But when financing dries up and volumes dip, sellers may need an agent’s expertise and energetic marketing to find a buyer.
Never give a sucker an even break
Another theory is that clients are suckers. Agents routinely tell buyers not to worry about the fat commission because “the seller pays it.” Meanwhile, they tell sellers not to worry because they will jack up the price of the home to cover it. According to Steve Murray of REAL Trends, two-thirds of clients choose an agent because of a prior personal relationship or referral. They may be reluctant to haggle with realtors to whom they have social ties.
A third theory is that the industry is less competitive than it looks. In most areas a few big brokers handle most transactions. They set high fees, which lure ever more people into the profession: between 1998 and 2005 the number of members of America’s National Association of Realtors grew by 67%. These agents waste time competing with each other for the exclusive right to sell each home, sapping productivity. According to Norm Miller of the University of San Diego, an average agent in Britain closes 40-50 deals a year, compared with just seven in America.
Cynics say the industry has captured its regulators. The property commissions of American states are usually made up of brokers. Perhaps this is why many states have banned commission rebates—a form of discounting—or set up “minimum-service” standards that stop brokers offering fewer services for less money.
The biggest cause, however, is probably the interdependent nature of the business. Since both the buyer and seller are represented by agents in most transactions, brokers must collaborate to close deals at the same time as they compete for listings. Buyers’ agents have an incentive only to show their clients homes whose sellers offer them a standard 3% commission.
To solve this problem, many sellers’ agents offer to cut their own fee while still offering the full price to the buyer’s agent. Alas, word soon spreads that they are giving rebates. That makes many buyers’ agents steer their clients elsewhere—either in solidarity with full-service brokers or because they fear a discounter will leave them with the lion’s share of the work.
Such stealth discrimination is hard to prove: buyers’ agents can always say they ignored a listing because it did not meet their client’s needs. But Colby Sambrotto, the founder of ForSaleByOwner.com and USRealty.com, a discount broker, says that after trying to sell his own home in New York by himself, he was forced to hire an agent to get it shown to potential buyers.
Such retaliation is hardly universal: Mr Sambrotto says it was a “regular exception rather than the rule” for his firm’s clients in most markets. But because discounters need to make up for lower commissions with higher volumes, even a small amount of discrimination is often enough to drive them out of business. The demise of the 6% commission may still be inevitable. But for now, it seems a long way off.
Why is it so expensive to buy or sell a house in America?
Simple!
NAr likes it that way. #8 on the TOP SPENDER list:
lobbying expenditures have exceeded $184million (1998-2012)
Also, if you take a look at who is ahead of NAr on the big spenders list, it will completely clarify the parabolic rise in healthcare costs.
http://www.opensecrets.org/lobby/top.php?indexType=s
Why I can’t stand Europeans and European politics:
“As has happened so often in the euro crisis, the fate of the European enterprise seemed to hinge on the political machinations of one of the union’s smallest members.
At first, Mr. Papandreou was said to have offered to resign before the confidence vote on Friday. By late afternoon, however, the Greek news media reported during the cabinet meeting that he not only was refusing to resign but was in fact calling off the referendum. ”
Greek Leader Calls Off Referendum on Bailout Plan
I still can’t believe that the euro ever traded higher than the US dollar. I believe it’s simply a matter of prejudice by Europeans.
I wonder when Greece leaves the European Union and starts printing its own currency again. It’s only a matter of time. They will pick inflation over austerity.
If he is who I remember him to be, Sparks owned a house in the Port Streets. He ran out of money midway through the construction and just stopped building…but kept living in it. For several years, he lived in a completed guest suite on the second floor, while the bulk of the home’s footprint was still in foundation. Not surprisingly, the HOA took issue with this and the dispute dragged on for months. Finally, he agreed to sell the property, but wanted some ridiculous price for it. There were actually a number of offers on it, including ours. We offered lot value — it was a great location on the inner loop and a reasonably large lot for the neighborhood. We got outbid, which was fine. It ultimately sold for less than the asking price, but more than I thought it was worth. The buyers have completed construction and it looks nice. I drove by it a few weeks ago. I remember Googling him at the time we were looking at the lot — it was the fact that he was a former Irvine planning commissioner that triggered my memory — and thinking that there was something fishy about this guy. Karma’s a bitch.
Thanks for your comment. I didn’t realize he had leveraged himself into an expensive home. i wonder how much of his investors funds went into that house?