Land fraud in Arizona started before it was even a state.
A confederate soldier from Missouri tried to claim 12 million acres that would have spanned from Phoenix to Silver City, New Mexico, in the 1880s.
And he nearly pulled it off.
“Arizona’s land fraud history goes back farther than many people might think,” said Greg Vogel, land expert and CEO of Scottsdale-based Land Advisors Organization. “What some have tried to pull off in our state is surprising and even fascinating.”
Arizona’s real estate fraud history started with the Missouri man calling himself the Baron of Arizona.
Much later, in the 1960 and 1970s, Ned Warren sold nearly worthless land in what is now Prescott Valley. Around that time, Rio Rico’s developers in southern Arizona near Nogales were sued for hundreds of millions of dollars by buyers.
In the 1980s, Charles H Keating and others involved in the savings and loan crisis cost taxpayer billions of dollars and caused property prices to plummet in Arizona.
Bad real estate deals in the early 2000s caused the collapse of Scott Cole’s Mortgage Ltd.'s $1 billion real estate empire.
And Wall Street’s shifty bet on predatory subprime loans during the housing boom of 2004-2006 led to tens of thousands of home foreclosures in Arizona, and sent prices plummeting again.
James Addison Reavis, who garnered the nickname Baron of Arizona, came to Arizona in 1885 after creating fake furlough passes for Confederate soldiers. He tried to claim 12 million acres in the Southwest under the Peralta land grant.
Reavis convinced a peasant girl she was the descendant of don Miguel de Peralta de Cortoba and married her. Reavis spent 18 years on his scheme, filing fake birth certificates and changing his name to Peralta, according to Arizona historian Marshall Trimble.
The fraudster collected more than $5 million, including money from the Southern Pacific Railroad, before a newspaper editor proved the documents were forgeries.
Reavis went to prison. Later, Vincent Price played him in a movie called "The Baron of Arizona."
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In 1961, Warren, who has served time in Sing Sing Prison for fraud, came to Arizona and began selling land.
He sold thousands of nearly worthless acres in mostly the Prescott Valley area, bribed the head of the Arizona Department of Real Estate to get a license to do it and shifted money between nearly 50 companies to avoid getting caught.
The day before his accountant Ed Lazar was going to testify in a land fraud case against Warren, he was murdered “mob style” in a central Phoenix parking garage.
Warren’s fraudulent land and fake loan deals cost investors hundreds of millions. He went to prison in 1978 and died there two year later.
Prescott Valley is now bigger than the city of Prescott.
In the early 1960s, a Florida development company known for selling swampland set out to create four cities on 5,500 Arizona acres nine miles north of Nogales.
But fraud charges for its Florida sales, including allegations it sold land underwater, slowed regulators' approval of the Rio Rico project in the 1960s.
Rio Rico stalled again in the early 1970s, when buyers sued the developer for hundreds of millions of dollars over “deceptive” sales and homes without promised amenities.
A few years later, federal regulators told developer G.A.C. to halt sales at Rio Rico. The developer went into bankruptcy in 1978.
The community’s new developer Avatar ran into water issues with Rio Rico in 1980. The last parcel in the community still hasn’t been developed.
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Changes in regulations during the 1980s allowed local savings banks to invest in high-risk real estate projects that ultimately became worthless after too much building.
Keating’s American Continental was a big Arizona player in this massive debacle that cost U.S. taxpayers more than $90 billion. His empire included such projects as the posh Phoenician Resort in Scottsdale and the huge Estrella Mountain Ranch in Goodyear.
In Arizona, Western Savings and Merabank also collapsed and several other prominent players, including former Arizona Gov. Fife Symington, went bankrupt and made deals with prosecutors.
A 1988 Barron's article labeled Phoenix a "boomtown gone bust" as the area's economy and real estate market hit the skids.
The government formed the Resolution Trust Corp. to sell many big real estate projects, including the Phoenician, for a fraction of what they cost to build.
In 2008, Arizona's largest commercial real-estate lender with almost $1 billion in loans plunged into bankruptcy after its CEO, Scott Coles, committed suicide.
Projects funded by Coles stalled — from the Centerpoint condominium towers in downtown Tempe to the Hotel Monroe in downtown Phoenix. Investors, including a few Phoenix Suns players, high-profile CEOs and small investors who lost their life savings, sued to get their money back.
One of Mortgages Ltd.'s biggest investors, Radical Bunny, led by Tom Hirsch, was ordered by regulators to pay back almost $200 million to nearly 1,000 investors because it made the deals illegally.
Real estate attorney Mark Winkleman has been working at ML Manager to untangle ownership of the Mortgages Ltd. properties and selling them for the highest prices to recoup funds for investors.
He said ML Manager has been able to obtain about $134 million in property sales for investors so far.
In December, ML Manager was awarded a $5 million judgment against Commonwealth Land Title Insurance for investors in a case related to the former Centerpoint towers.
The latest real estate scam to hit metro Phoenix began with the housing boom in 2004, when speculators spurred by rising home prices began buying multiple Valley houses with mostly subprime loans requiring little to no down payment.
During 2005, at least one of every four homes sold in the area was bought by investors, many of whom lied on loan documents about how many houses they were buying.
By 2006, home prices across Phoenix had shot up by more than 70%. When home prices started to fall in 2007, most of those speculators walked away from the houses and loans. Others couldn’t afford the rising interest rates on their subprime loans and lost them to foreclosure.
The housing crash, recession and a wave of mortgage fraud led to a record number of Arizonans losing their homes. During 2010, more than 4,000 houses were taken back by lenders every month. Valley home values plunged more than 60%.
Metro Phoenix home prices finally recovered to 2006’s boom level in May of this year.
Reach the reporter at [email protected] or 602-444-8040. Follow her on Twitter @Catherinereagor.
