Foreclosures prompt backlash from The Real Estate Co. customers

Mounting foreclosures, a rash of consumer complaints to the attorney general's office and a hostile legal standoff with a Christian County couple have made 2008 a rocky ride for The Real Estate Co. LLC.

President Scott Dasal is the first to admit that the company's business model, which flourished when home loans were easier to come by, must be restructured if The Real Estate Co. is going to survive in the credit-starved economy.

This year, The Real Estate Co. has faced foreclosures, federal tax liens and flak from peeved customers disputing the company's claim that it owns the houses they contracted to buy. Springfield Business Journal first reported about The Real Estate Co. in May 2007, when several customers complained about its business practices and the construction quality of its homes.

Dasal attributed the company's financial woes - a 30 percent revenue drop from 2007 - to customers failing to make payments or simply walking away from their contracts by moving out. He said the year began with about eight in 10 customers paying on time, but about half of the company's clients were delinquent by April.

"We're not going out of business; we're not shutting our doors; we're not going bankrupt," said Dasal, who declined to provide specific revenue figures. "But ... we are cash-challenged and have been. We're focusing on doing the best we can for the people we have contracts with, not only investors but the contracts we have with buyers."

Business model backfires

Since 2003, The Real Estate Co. has built its brand by marketing the dream of homeownership to people with poor credit through contract-for-deed financing.

So-called third-party buyers put money down - usually $3,000 or less - on area homes built specifically for The Real Estate Co. and then make monthly interest-only payments to Greenleaf Cos. LLC, a sister company that works with property investors primarily in Missouri, Colorado and Virginia.

Investors take out mortgage loans for homes in subdivisions in Greene and Christian counties and then transfer equitable title to Greenleaf through "private placement memorandums," according to company officials. Third-party buyers become an equitable title-holder when they sign a contract for deed, but investors hold legal title and their names appear on deeds of trust recorded at county courthouses.

Third-party buyers agree to make a balloon payment and pursue a conventional loan after roughly 18 to 24 months, and investors whose names are on the deeds typically receive a $10,000 fee for their part, Dasal said.

If a third-party buyer fails to make payments, though, Greenleaf - claiming to own the property - files a legal petition to evict the occupants and recover part or all of the delinquent balance. Once empty, the house is marketed to another third-party buyer.

But the recent spate of foreclosures involving Greenleaf co-owners and investors have some customers pressing for proof that the company does, in fact, own the properties. Some third-party buyers are now alleging that homes they lived in went into foreclosure even though they were making their monthly payments to Greenleaf.

Dasal acknowledged that - in some cases - Greenleaf received payments from buyers that never made it to investors, who then defaulted on their loans. He said the company is working to honor its contractual commitments to those investors.

"Some are upset, as well they should be," Dasal said, adding that investors were aware of the risks involved when they signed memos. "There are easy outs for us in this as a company. If we wanted to stick somebody with this, we could do it. That is absolutely not our intention."

Which came first?

Lenders have foreclosed on a steady stream of properties affiliated with The Real Estate Co. in Greene and Christian counties in recent months.

A total of 52 properties owned by Greenleaf investors, including company co-owners Eric Gagnepain and Robert Marti, had entered foreclosure proceedings as of early November, Dasal said, adding that the company now manages about 310 properties in the Springfield area.

Company officials said the cash flow problem began with third-party buyers who were in arrears, but two buyers told SBJ they stopped making payments to Greenleaf only after discovering the involvement of investors listed as owners on the deeds of trust. Those investors are defaulting on loans, thereby triggering foreclosure.

In November 2007, Nixa couple Tim and Marcie Thompson signed a contract for deed with Greenleaf for a 4,000-square-foot house in 14 Park Place subdivision that was valued at $366,000. They moved into the house at 859 E. Country Ridge St. in January, but by March, they were receiving mail addressed to Robert Marti from Michigan-based Flagstar Bank.

The Thompsons determined that Marti had defaulted on the loan he used to purchase their home and that the bank was foreclosing. By May, they had stopped cutting monthly checks to Westar Escrow Servicing, the New Mexico company that processes payments for Greenleaf, in protest.

Thompson began researching Greenleaf and The Real Estate Co. - and more than two dozen limited liability companies registered to the owners - as well as tracking foreclosures in Phase III of her subdivision. At last count, she said close to 60 percent of the 46 properties were in various stages of foreclosure.

The Thompsons and some of their neighbors who are equally critical of Greenleaf said the company is now playing "musical houses" by moving third-party buyers from homes in foreclosure to others still owned by its investors.

In late June, the Thompsons placed UCC-1 Financing Statements, or liens, on several of Greenleaf's properties in Greene and Christian counties via an unorthodox common law complaint filed with the secretary of state's office. About two weeks later, Greenleaf attorney J. Kaye Irwin filed a petition in Christian County Associate Circuit Court to have the couple evicted for an unpaid balance of $16,000.

Greenleaf later filed a separate suit against the Thompsons seeking a declaratory judgment that would clear the liens. That case has been consolidated with the company's rent-and-possession petition and is now before Christian County Circuit Judge Mark Orr. Irwin maintained in court records that the Thompsons have "placed a cloud on and slandered the title" of Greenleaf and its owners.

The Thompsons, who are seeking legal representation, have filed a request for production of all documents relating to their home, including contracts, purchase agreements, deeds and bank notes. The couple has openly challenged Greenleaf to prove that it owns the property as stated in court records.

"They are not wanting to produce any documents that say that they are the owner, because they don't have any," Marcie Thompson said. "And if they can't back up their claim, they've lied to the court."

Irwin said the Thompsons are mistaken.

"Greenleaf does own the property," she said. "Greenleaf has equitable title to the property and that is sufficient to bring such an action."

The Thompsons, though, aren't backing down.

"Too many people give up without fighting, without being knowledgeable," Marcie Thompson said. "My biggest thing is I don't want to lose my home."

Reinvention in the works

Dasal said The Real Estate Co. plans to work through its troubles with revenue from joint investment ventures throughout the country.

That may be easier said than done.

The Attorney General's Office is looking into at least 20 complaints into The Real Estate Co./Greenleaf, said spokesman Scott Holste, and - like the Thompsons - other third-party buyers are considering legal recourse against the companies.

Flint Banther said he also executed a contract for deed with Greenleaf and was consistently making payments when his house at 337 Old Prospect Road in Ozark went into foreclosure this summer. He said company officials had no explanation.

"If nobody's making payments (to the investor), where's my money going?" he asked.

Banther has been consulting with Springfield attorney John Waite III, of Carnahan, Evans, Cantwell & Brown PC, about filing suit to recover $23,000 he spent remodeling the home, plus his down payment. Waite said he's exploring the possibility of a class-action suit against Greenleaf.

In addition to threats of litigation, Greenleaf also is working with the Internal Revenue Service to pay off more than $730,000 in federal tax liens filed against Greenleaf IP Holdings LLC, Dasal and Gagnepain this year. Dasal said the tax debt - another down side to the company's unique model - should be paid off by year's end.

Meanwhile, Dasal said, Greenleaf's business strategy has shifted to major investments in a Section 8 housing development in Mississippi and a direct-marketing partnership aimed at reselling bank-owned condominiums in Florida.

"We're diversifying our business," he said. "We're doing apartments. There are some in Kansas City. There are some in California."

Dasal said Greenleaf stopped contracting with builders for new homes late last year. For the foreseeable future, he said, the company plans to lease vacant properties within its existing inventory.[[In-content Ad]]