SUNDAY, SEPTEMBER 26, 2010
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C5 Lawsuits allege fraud in failed Carolina land investments fraud from C1
praisals and phony sales — a va- cant lot increased in value by $190,000 during one week in 2006 — to deal out risky loans to people who couldn’t afford them, resulting in “pervasive foreclo- sures on over-valued property,” the buyers allege in the biggest suit, involving 285 plaintiffs in North Carolina.
Windowon themeltdown As the housing market strug-
gles to rebound from the national foreclosure crisis,what happened in these never-built subdivisions near the North Carolina water- front—just inland of the Topsail and Emerald Island beaches — offers insight into fraudulent practices that were widespread on the eve of the financial melt- down. Attorneys for the buyers ac- knowledge that their clients nev- er visited the lots they boughtand intended to flip them for profit as soon as they could. But they also saythecaseisaperfectexampleof how the banks’ giddy willingness to extend far too much credit to people whocouldn’t afford it con- tributed to the nation’s real estate crash. “The banks did not actually
ever speak to the buyers,” said S. Jill Pisner, attorney for 129 D.C. area customers, and no one was rejected for a loan, although ap- plicants had mortgages on their homes and worked in jobs with modest incomes. The land buyers allege that the promoters of the investment of- fer, Dain andMark Jalajel of Total Realty Management (TRM) in Woodbridge, pulled in more than $70 million in revenue from sales inNorth and South Carolina over three years. Lawyers pursuing Dain in bankruptcy court allege that he has hidden more than $12 million and Jalajel more than $2 million. According to court records,
when Dain was looking for more projects to sell in 2007, he wrote an e-mail to developers that said: “Don’t make me go 6 months without $15,000,000 income. Don’t youknowIamtrying to buy a mansion in Kawaii [sic] Ha- waii?” Meanwhile, the buyers deal
with ruined credit, crushed dreams and an annoying stream of collection calls from the banks they claim ripped them off in the first place. “Everything that I worked for
has been spent on legal fees or trying to protect myself from bankruptcy,” said Renee Beer- man, a science teacher at Hern- don High School and a single parent, who fears losing her houseandwhoseapplication fora credit card was recently rejected. “I am now working three or four additional jobs to make ends meet, recoverfromthe losses,and putmysonthroughcollege. Ihave experienced sleepless nights with these financial setbacks, and I worry about what might happen next.”
Beerman learned of the invest-
ment offer after Dain askedMeier ifhewouldtell his success story— “Danny’s Story” — at sales semi- nars.Meier agreed. The seminars were held at hotels in Fair Lakes and Leesburg, in conference rooms stocked with free food and drink and equipped with high- tech video.Bankers stoodreadyto provide large loans. Dain began paying Meier for
his testimonials, and then he paid his old coach “referral fees,” $10,000 or more, every time one of Meier’s friends bought a lot. Meier said he never asked for money. “I didn’tknowI was going to be
paid” forthetestimonialsorrefer- rals, Meier said. “I was trying to do right by people, to help family members and friends. And it all went south. I would never know- ingly be involved with anything illegal, unethical or immoral.” Beerman said she went to a
seminar and heard “Danny’s Sto- ry” told by a “person who I have a remarkable amount of respect and trust for.” “We’re all close with the
Meiers,” she said, referring to the approximately 40 plaintiffs from the Fairfax school system. “That’s why so many of us are involved in this.” TheMeiers said they were vic-
timized, too, perhaps more than most. Danny and his brother, en- couraged by their early successes, went on to invest and lose more than $350,000 each. Still, Danny Meier is a defendant in the main Virginia lawsuit. “I bought two of the most ex-
pensive lots,” Danny Meier said. “If I knew it was a scam, why would I do that?” Both brothers were forced into bankruptcy. Danny Meier doesn’t want to
believe that his former player misled him and his family. “If I was used by Mark Dain, I’ll be heartbroken,” he said. Dain did not respond to nu-
CHUCK LIDDY/THE NEWS & OBSERVER The clubhouse at Cannonsgate in Carteret County,N.C., is surrounded by empty lots, whose value plunged in the national foreclosure crisis.
courts in Virginia andNorth Car- olinaandin federal courts in both states. The schools employees, part of a 129-plaintiff group that sued in federal court in Alexan- dria, reached a settlement with R.A.Northandstipulated that the Allens did not engage in any wrongdoing. U.S. District Judge Gerald
Bruce Lee threw out the banks as defendants last year, saying that allegations “that the banks and [R.A.North] were in cahoots with TRM” were “simply implausible.” Lee said the lot buyers had failed to explain “how the banks enter- ing into a scheme to make under- collateralized loans would be in their self-interest.” Attorneys for the banks
promptly took Lee’s ruling to North Carolina and suggested that the judge hearing a case there with 285 plaintiffs apply the samelogicandthrowthe case out. The case is still pending. Bank of America spokeswom-
an Shirley Norton said the bank denied any wrongdoing. She not- ed that the customers called themselves “investment purchas- ers” and said they were simply trying toblamethebanksbecause their investments failed in the collapsed economy. BB&T denied any affiliation
with TRM. SpokeswomanMerrie Tolbert said that BB&T “had no role in pricing the lots” and that “the borrowers made their pur- chase decisionsandsigned a sales agreement with the developer be- fore there were any discussions with BB&T about financing the sale.” Officials for SunTrust and Car-
olina First declined to comment. But after Lee dismissed the
banks from the Virginia federal case, lawyers in North Carolina uncovered e-mails between a Bank of America loan officer,R.A. North official Mace Watts and TRM’s Dain. In the e-mails, the loan officer discussed theneedfor “recovery appraisals” because the initial property appraisals were too low, court filings show. Binkley, the North Carolina
plaintiffs’ attorney, said the de- fendants were seeking “second, third and fourth opinions until they found an appraiser who would agree to put the figure where the bank and the seller wanted it.” In an e-mail to R.A. North’s
Watts in February 2007, a Bank of America loan officer asked about upcoming business and re- marked, “Iamway on board.”The loan officer informed Watts that she “made Platinum Club here at Bank of America and it was my BEST year ever.” Ane-mail from a Carolina First
CHUCK LIDDY/THE NEWS & OBSERVER Alone boat sits in the marina at Cannonsgate, one of theNorth Carolina developments caught up in investors’ allegations of fraud.
They then connected with R.A. North and began targeting the Washington area for sales. According to customers, at
sales seminars in Northern Vir- ginia, Dain and Jalajel said they bought lots in bulk, enabling them to sell to investors for the “low, low” price of $279,000—or more. Way more. In fact, the plaintiffs say, the agents had no inventory of lots. Instead, TRM would buy individual lots from R.A. North for $150,000 or less and then resell them within min- utes for two or three times as much, a practice known in the banking business as “table fi- nancing,” said David Binkley, an attorney for 285 plaintiffs in North Carolina. Other agents, such as Hernan-
SHAWN ROCCO/THE NEWS & OBSERVER Gary Allen ownsR.A.North Development with his brother Randy.
merous phone and text messages seeking comment. Jalajel denied any wrongdoing and said he nev- er instructed anyTRMemployees to do anything improper. The extent of the scheme — in
which at least 1,500 investors lost hundreds of thousands of dollars each and the foreclosing banks lost tens of millions — attracted the interest of the FBI. InJuly,one of TRM’s top officials, Cari V. Deuterman, 32, pleaded guilty in federal court in Alexandria to conspiracy to commit bank and mail fraud in connection with falsified loan applications. He is cooperating with the investiga- tion, court records show. In May, Aaron V. Hernandez,
41, a former TRM employee who wentonto start hisowncompany, pleaded guilty to the same con- spiracy charge, and he also is cooperating.Hernandez was sen- tenced last month to five years in prison, a relatively long sentence for a financial crime. In North Carolina, Ruffin
Poole,whowaschief of staffwhen DemocratMike Easley was gover- nor, was indicted this year on 57 counts of corruption, and he pleaded guilty in April to income tax evasion in connection with unreported income from a Wilm-
ington lawyer who was the devel- opers’ financier. Poole had received alleged
bribe payments from the lawyer, who helped the developers buy andprepare twomajor properties that were divided up and sold to the Northern Virginia investors, court records in North Carolina show.
Themajor characters Here’s a roster of the key play-
ers: lThe developers: Randy Allen
and his brother Gary Allen, both ofNorth Carolina, are the owners of R.A. North Development, which has been developing resi- dential and resort properties in the Carolinas and elsewhere for 30 years. They say they had no knowledge of how TRM was sell- ing lots to Northern Virginia cus- tomers, although they knewTRM was often selling at double the price that R.A. North was offer- ing. lThe agents: Dain, 30, and
Jalajel, 42, formerly worked to- gether at a Northern Virginia mortgagecompany.The plaintiffs say that after Dain and Jalajel attended seminars by “no money down” real estate guru Ron LeGrand, the two formed TRM.
dez, broke off from TRM to form their own companies and are ac- cused of the same practices. lThe banks: Bank of America,
BB&T, Carolina First and Sun- Trust often had loan officers at TRM’s sales seminars, and Bank of America in particular handled many of the loans. E-mails from a Bank of America loan officer in Charlotte show that she was in regular contact with Dain and was having lots reappraised if initial appraisals were not high enough to justify the loans. Bank of America says it did nothing improper. lThe buyers: About 40 Fairfax
schools employees bought lots through TRM. From 500 to 1,000 other people purchased lots in North Carolina through TRM or other agents or directly fromR.A. North, according to buyers’ law- suits.
TRM customers were people employees knewfrom other busi- ness deals, from their social lives or through friends of friends. Sev- eral worked in the Pentagon, said Pisner, their attorney.Therewasa firefighter. People in the comput- er business. Average citizens, hoping for a financial lift. “How do we do this? We’re
schoolteachers,” Beerman said she asked Dain at one of the seminars.He told her,“Don’t wor- ry, schoolteachers’ credit is great.”
Many school employees were told that, Pisner said. Beerman said she was concerned about taking ona$300,000interest-onlymort- gage—with a balloon payment at the end—when she already had a mortgage on her house. “Don’t worry,” she said Dain
told her. “It’ll be flipped before you have to make your first pay- ment.” Her property never sold. She
bought it for $279,000, one of the cheapest lots available. It is now assessed at $20,000.
Alleged distortions The Meiers, and many others,
said they relied on assurances from TRM: That they had an inventory of lots to sell, so they could sell them cheaply (not true); that then-Gov. Easley had bought an expensive corner lot (true); that basketball star Mi- chael Jordanhadboughtalot (not true); that this “turnkey invest- ment” would yield a profit (not true).
What the customers in North-
ern Virginia didn’t know, the plaintiffs allege, is that they could have bought a lot directly from R.A. North for $150,000 or so, as TRM was doing. And they didn’t know that the inflated prices they were paying toTRMwere helping to drive up the real estate assess- ments of properties deemed of “comparable value.” In other cases, a property was
sold back and forth between TRM, its employees and others to push up the value. According to tax records, one lot sold six times in about a year, with TRM as either the buyer or seller each time, according to a report in the RaleighNews and Observer.TRM boughtthe lotfromR.A.North for $180,000 and sold it to an em- ployee thesameday for $250,000. He sold it back to TRM. The lot was later sold to Deuterman’s fa- ther for $310,000, and he, too, sold it back to TRM. TRM ulti- mately sold the lot to a Centreville couple for $354,000. Beginningin 2008, the custom-
ers sued TRM, R.A. North, the banks and the appraisers, in state
loan officer to a top TRM official said the bank’s appraiser “has an issue with the value at 380K” on a lot and “felt comfortable coming in at 275K.Needless to say we are getting a different appraiser to do it.” The e-mail was forwarded from Dain toWatts. The e-mails were not given to
the Virginia plaintiffs before their case against the banks was thrown out, the plaintiffs say. Last month, the Virginia plain-
tiffs asked Lee to reconsider the case in light of the e-mails, Pisner said. She also produced docu- ments showing that Bank of America obtained mortgage in- surance on some of the loans and that the insurance was canceled because of “misrepresentation.” Bank of America declined to comment on specifics of the case but pointed to a court filing in which the bank argued that “a lender has no duty to investigate or disclose the improvidence of a debtor’s proposed investment.” WilliamD. Dolan III, a Virginia
lawyer representing the Allens and R.A. North, said the develop- ers “were absolutely not involved in any relationship with TRM, aside from an arm’s-length sale of lots, at a fair market value.” He said the developers knew that TRM was “flipping” the proper- ties and that Watts was monitor- ing the process to ensure that the properties, withTRMserving as a middleman, were sold. Dolan said R.A. North didn’t
increase its price for lots, even as TRM was reselling for two or three times as much. He said that R.A.North had no knowledge of the terms of the sales by TRM or to what degree the banks were involved and that suing R.A. North was simply part of the “all-out search for a deep pocket.” Jalajel’s attorney, Martin J.A.
Yeager, said Jalajel “denies thathe instructed or permitted any of TRM’s employees or salespeople to take any improper actions.”He said Jalajel “has also been finan- cially devastated by the collapse of the real estate and lending markets, which collapse is the true cause of his losses and the losses incurred by the investors.” The criminal investigation is
continuing, federal authorities said.
jackmant@washpost.com
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