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Thursday, April 17, 2008

West Oaks Mall Bankruptcy Sale: JCPenneys on the Dollar

April 17, 2008 – 10:08 pm

An update on the 1031-exchange debacle surrounding the West Oaks Mall: In March, the mysterious Edward Okun — the mall’s owner — was indicted by a Virginia grand jury on charges of mail fraud, for misappropriating $132 million invested in his 1031 exchange company, 1031 Tax Group — along with bulk cash smuggling and related charges. Days later, Okun was arrested in his home on Hibiscus Island in Miami Beach.

To the 340 investors who had trusted $150 million of their 1031-exchange funds to supposedly-qualified intermediaries controlled by Okun, this was good news. But it doesn’t necessarily mean they’ll get their money back — or find a way around the huge tax liability now associated with their failed exchanges.

The 1031-exchange investors in Okun’s 1031 Tax Group had hoped to recoup some of their missing funds by raiding Okun’s other assets — including the West Oaks Mall. But the Okun-controlled companies that owned the mall declared Chapter 11 bankruptcy in October.

Today, the Costar Group reports that the freestanding building formerly known as JCPenney at the West Oaks Mall has been put up for sale, along with a mall in Salina, Kansas. The trustee in the bankruptcy case has hired Keen Realty, the new real estate division of KPMG Corporate Finance, to market both properties.

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10:08 pm | 1 Comment | Read more about Crime, Financing, Fraud, Malls, Neighborhoods: Alief
Wednesday, December 12, 2007

Tremont Tower Video: How Construction Problems Attract Foreclosure Pileups

December 12, 2007 – 2:13 pm

You need to a flashplayer enabled browser to view this YouTube video

So the actors aren’t likely to win any awards, but this new video posted to YouTube by Tremont Tower owner-victim-gadfly Heather Mickelson is notable for it’s uh . . . stirring illustration of the connection between construction-quality complaints and foreclosure train wrecks.

The Tremont is colorfully renamed “LemonTree Tower” in the video reenactment. If you’re new to the story, you’ll find better introductions to the sordid Montrose condo tale elsewhere. But if you’ve ever wondered why foreclosures seem to gather like flies around new developments that feature questionable levels of quality (and, say, water-tightness), this will make pretty good internet theater. No, the mortgage defaults aren’t the work of the millions of mold spores and the grim reaper, who together make cameo appearances in the video; they’re the ultimate result of the surefire sales techniques employed for undesirable properties — made so much easier, of course, by the subprime-mortgage boom.

Here’s the formula: Building with bad enclosure + poor disclosure = lots of foreclosure. Or just watch the video. At just over seven minutes, it’s still a lot shorter than Glengarry Glen Ross.

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2:13 pm | Read more about Buying and Selling, Condos, Financing, Foreclosures, Fraud, Highrises, Mold, Mortgages, Neighborhoods: Montrose
Tuesday, November 27, 2007

The Mike Spear Team: Loyalty and Dedication

November 27, 2007 – 8:11 am

Here’s another example of the importance of loyalty and reputation in the Houston residential real-estate biz. The Houston Press’s Richard Connelly catches up with the ex-partner of formerly ubiquitous Houston real estate agent Mike Spear, whose ubiquity has been a bit challenged since he began serving a two-year sentence in federal prison for income-tax evasion earlier this year.

. . . even though Spear himself might be behind bars, his spirit lives on: If you’re looking to buy or sell a house here these days, you might be forgiven for thinking you’re doing business with the well-known realtor.

Before the two joined Prudential Gary Greene in 2005, Spear and Realtor Ray Allison ran Montrose mainstay AllisonSpear Realtors. Allison explains to Connelly:

There’s a group of professionals within Prudential Gary Greene that are organized as the Mike Spear Team, but it is not the official name of this company.

Huh?

Mr. Spear did work with this firm. He is no longer with this firm. The Mike Spear Team does continue. It is appropriate for it to continue . . .

There’s more: Spear’s admissions from the July 2007 plea agreement, featuring shell corporations and a Mercedes Benz.

Continue Reading This Story >

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8:11 am | Read more about Fraud, Real Estate Agents
Wednesday, November 14, 2007

From Mod Pad to Mold Pit in Four Years: The Sorry Saga of the Carousel House

November 14, 2007 – 4:04 pm

9602 Moonlight Dr., Meyerland, Houston

One detail glossed over delicately in Lisa Gray’s colorful tale of the decline of Meyerland’s Carousel House, featured in today’s Chronicle: The abandoned home’s apparent awful stench. From a few would-be visitors, posting on HAIF:

The owner told me that everyone he’s taken in there has gotten sick soon after coming out. Apparently it is REALLY nasty in there. I may swing by and get some new filters for my mask.

and

i could smell “the smell” just standing in the driveway

But hey, the interior shots from just a few short years ago make the house look super fab! Built in 1964 by owner Robert Cohen, the Modern gem merited a Texas magazine feature story in 2003. Just four years, one ultra-rich attorney, one shady personal assistant, countless hookers, umpteen heroin hazes, and a couple of dozen missing exotic cars later, the house on the corner of Moonlight Dr. and Braesheather appears headed for an almost-certain but certainly difficult demolition. (15,000 pounds of steel, anyone?)

After the jump, highlights of the home from its heyday, excerpts from the sordid and fetid tale of its fall from Modern grace, and a photo of the far more up-to-date carousel that just might be built in its place!

Continue Reading This Story >

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4:04 pm | Read more about Buying and Selling, Demolitions, Fraud, Historic Preservation, Home Design, Homebuilders, Mold, Neighborhoods: Meyerland, New Construction: Residential, Toxic Sites
Tuesday, October 16, 2007

West Oaks Mall: Your Exchanges Are No Good Here

October 16, 2007 – 8:03 am

Food Court at the West Oaks Mall, Houston, Texas

So much excitement at the West Oaks Mall! Don’t worry, it likely won’t be foreclosed on—because the owners of the super-regional mall at Westheimer and Highway 6 have now declared bankruptcy. This is bad news for about 340 investors who were hoping to recoup 1031-exchange funds that went missing in the middle of their transactions. They’ll likely lose more than $150 million dollars . . . and possibly be required to pay taxes on the gains they made (and were hoping to shield with the 1031 exchange) . . . before they lost them.

Their money was to be held in escrow accounts for when they came back to conclude the back-end purchase of their tax-free exchange. When that time came, the money was gone.

Now, one of the largest of those assets that creditors had hoped could be used to recoup some of their money is untouchable.

IPofA West Oaks Mall LP, IPofA West Oaks LeaseCo LP and IPofA WOM Master LeaseCo LP (collectively, the “West Oaks Debtors”), filed voluntary petitions under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division, last week.

The West Oaks Debtors are directly and/or indirectly owned and/or controlled by Edward H. Okun, a controversial investor who also controls several 1031 qualified intermediaries under the umbrella firm of The 1031 Tax Group LLC that are also currently tied up in bankruptcy proceedings.

Shopping’s still good, though!

1031 exchange investors: watch where your money goes.

Photo: West Oaks Mall

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8:03 am | Read more about Financing, Foreclosures, Fraud, Malls, Neighborhoods: Alief
Tuesday, July 24, 2007

Where the Real Estate Market Got Too Hot

July 24, 2007 – 10:22 pm

Burned Shell of 7802 Links Crossing Lane in SpringFor months, the giant, burned-out shell of a home has been sitting on an acre lot at the corner of Links Crossing Lane and Augusta Pines Parkway in Spring, less than half a mile from the baby Bermuda grass fairways of the Augusta Pines Golf Course and its 100,000-sf “southern style” clubhouse. But now Harris County Fire Marshal investigators are reporting that the fire that destroyed the 7000-sf McMansion in February was a poorly concealed arson. While owner Michael Macomber was vacationing in the Bahamas, a man named Adnan Aquil filled the home with 25 five-gallon cans of gasoline he had purchased over several days from Wal-Mart and arranged them so they would ignite spectacularly.

According to investigators, Macomber has now confessed that he paid Aquil $10,000 for his handiwork, before filing a $1.2 million insurance claim.

What made Macomber do it? Was he tired of being overextended on an overmortgaged, overpriced, and oversized home in an overmarketed subdivision in Northwest Houston?

“He was holding on to everything,” [Harris County Senior Arson Investigator Dustin] Deutsch said. “His credit score was getting impacted, payments were getting impacted. The county probably didn’t appreciate him bouncing his tax check. . . .”

Of course there’s more to the story:

“After further scrutiny of the closing paperwork, investigators determined that the residence’s value was grossly overvalued by a local real estate appraiser,” Harris County Arson Investigations officials stated in a media address. “It was also learned that Macomber grossly inflated his stated income to the mortgage company. This embellishment included forged financial documents and other misleading credentials.”

In return for paying an inflated price for the Augusta Pines McMansion in March 2006, Macomber allegedly received a $171,000 kickback from the seller. In all, seven people, including a neighbor couple, have been charged in fraud related to this home. According to KHOU, every house on the street has been foreclosed on.

Yes, it’s a short street.

Photo of 7802 Links Crossing Ln.: KHOU

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10:22 pm | Read more about Financing, Fraud, Insurance, Neighborhoods: Augusta Pines, Neighborhoods: Spring
Monday, July 23, 2007

The Dirty Little Secret Behind the Montrose Foreclosure Hump

July 23, 2007 – 7:38 pm

Tremont Tower in Montrose

Twenty-five Montrose homes were foreclosed on this month, reports the Houston Business Journal. That’s a huge increase from last July.

[Mike] Weaster, a Realtor with Century 21 Excel Realty, currently has about 45 foreclosed homes in the Montrose area listed for sale.

“There’s been a big time increase — I’ve never seen anything like this,” he says. “It’s something that is so unique to Houston that I can’t even tell my buyers what’s happening.”

What could be the problem? In Houston overall, there was no increase in mortgage foreclosures: 2,090 last July; 2,085 this month. So what is it with Montrose?

Well, here’s a clue:

Many of the foreclosed homes in Montrose have never even been occupied by the homeowner and were instead purchased by investors who apparently weren’t able to sell them, according to Weaster, who says he comes across first-payment defaults in Montrose at least once a week.

Weaster believes speculation investors and bad loans have taken a toll on the trendy neighborhood.

Still stumped? What if you learned that twelve of this month’s foreclosures alone were at the same address? And what if you discovered that the building at that address was the Tremont Tower?

Yeah, that Tremont Tower, at Yupon and Westheimer. The one featured in an article called “Contractors from Hell” in People magazine in 2005. And in the Houston Press. The one the Lemon Lady used to picket.

Does that help explain?

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7:38 pm | Read more about Financing, Fraud, Highrises, Homebuilders, Mortgages, Neighborhoods: Montrose
Tuesday, June 19, 2007

Avoiding Capital Gains Taxes with 1031 Exchanges: How To Check Up on Your Qualified Intermediary

June 19, 2007 – 11:24 am

The 1031 Exchange industry grew enormously during the recent nationwide real-estate boom, as unwitting owners of suddenly high-priced real estate discovered that selling their properties would trigger substantial capital-gains tax bills. Real-estate owners hoping to defer capital-gains taxes when they sell their investment properties have regularly turned to firms touting their services as qualified intermediaries to help them get the benefits of the tax-free 1031 exchange.

1031 Exchange accommodators can help investors navigate the somewhat tricky process more flexibly, but the industry is largely unregulated. And now two of them have gone bankrupt or been accused of absconding with funds investors have placed with them between transactions:

Mr. McGhan and his companies allegedly misappropriated more than $95 million of customers’ proceeds to fund other business and personal activities, according to a lawsuit brought earlier this year by several aggrieved investors and now in federal court in Los Angeles.

The lawsuit alleges that Southwest was a Ponzi scheme in which Mr. McGhan allegedly took QI funds belonging to more than 130 clients, in part to finance investments in a company that manufactures silicone-breast implants.

Well, there’s another growth industry. But, says the Wall Street Journal,

a QI can do virtually anything with the funds in its possession, subject to its agreement with the taxpayer. “There isn’t any kind of prohibition in the tax code that says where those dollars can be placed,” says John King, senior vice president at a subsidiary of Fidelity National Financial Inc. in Jacksonville, Fla. that serves as a qualified intermediary.

Misappropriated investments are one thing; presumably the double whammy for investors whose funds have gone missing is that their exchanges will likely fail too, and they’ll end up having to pay a tax bill on gains they no longer have.

Some advice, then:

you must make sure your 1031 intermediary places your money in a segregated account (and “segregated” means only your money is in that account). You should also insist on a method to check on the account yourself to see that your funds stay put.

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11:24 am | Read more about Financing, Fraud