A weekend topic starting with the Tribune in California. “Convicted fraudster and former Atascadero Citizen of the Year Kelly Gearhart was released from federal prison Wednesday. Gearhart, a former real estate developer in San Luis Obispo County, pleaded guilty to two counts of wire fraud and one count of money laundering in a Los Angeles federal court in 2014 after scamming investors out of up to $20 million. Kelly Christensen, a Los Osos victim, told the Tribune in 2014 that the financial loss ‘destroyed my life.’ He lost $73,000 after investing nearly all his savings with Atascadero hard-money lender Jay Hurst Miller, who worked as a middle-man between Gearhart and investors. Miller was sentenced to seven years in federal prison in 2015 for his role in the ponzi scheme.”
The Philadelphia Inquirer in Pennsylvania. “Brandon Mendenhall, who is based in Southern California, has described Philadelphia as the biggest market for RAD, a firm founded in Florida that specializes in buying distressed real estate then renting it out. But RAD’s official disclosures tell a more doleful story than its online ads. During the first six months of last year, the most recent period covered in RAD’s latest investment circular, filed with the U.S. Securities and Exchange Commission in January, the company’s real estate business lost $1.12 million, although the firm had relatively little debt compared with the stated value of its assets.”
“The company also disclosed that it may use new investors’ money to pay dividends to existing ones. Experts say it can be risky for an investment fund to operate this way, since it may require ever more participants to be brought on board, rather than making money from its business.”
The Real Deal. “An Idaho real estate agent stands accused of running an $82 million Ponzi scheme that preyed on devout Christian families, promising returns from Arizona property as high as 25 percent. A trial date will be set April 14 for Bradley R. Heinrichs, 41, after he pleaded not guilty to four felony counts of fraudulent schemes and artifices, illegal control of an enterprise, theft and conspiracy, the Idaho Statesman reported. He was indicted a year ago.”
“Heinrichs, who works at Anthology, a Boise real estate firm, was accused along with business partner Stephen Hatch of creating more than 30 business entities while managing 17 sets of books to buy 13 properties between January 2005 and December 2014, according to the newspaper. Prosecutors said they ran a racketeering enterprise involving the sale of real estate and promised double-digit returns to more than 110 investors.”
“A dermatologist in Boise, Dr. Richard Blickenstaff, initially invested $227,800 with Heinrichs, according to a letter to a judge from the Arizona attorney general’s office. He ponied up $100,000 more in June 2014. Five months after Blickenstaff provided Heinrichs with the $100,000, the letter said Heinrichs told Blickenstaff that Hatch had misappropriated money from the investments. When Blickenstaff asked him how he could have taken the money knowing there were red flags with regard to fraud, he said, ‘That is something I am struggling with,’ according to the letter.”
The Associated Press. “An Indiana man pleaded guilty Tuesday to running a real estate fraud scheme that persuaded investors to buy rental properties, then lied to them about the properties’ condition and whether they were even being rented. Herbert Whalen pleaded guilty by videoconference before a federal judge in New Jersey to one count of conspiracy to commit wire fraud. He had also been charged in a 2019 indictment with separate counts of wire fraud.”
“According to prosecutors, the 47-year-old Indianapolis resident scammed investors out of millions of dollars from 2016 to 2018 by disguising the poor condition of the rental properties and, with a co-conspirator at his company, Oceanpointe, drafting fake leases to make it look as though the properties were being rented. Investors who expressed concerns about the properties were paid in part to silence them, according to the U.S. attorney’s office.”
The Pioneer Press in Minnesota. “Chicago developer John E. Thomas was only a few months out of federal prison when he and his business partner Daniel Olswang purchased the former Ecolab University Center in downtown St. Paul at a foreclosure auction. He promised to convert the vacant 17-story office tower into ‘The Nicole,’ luxury apartments and office suites over a 10,000-square-foot grocery store and wine bar.”
“The grocery, Jet Express, never opened. Neither did the mezzanine-level wine bar, or any of the apartments and offices. Freedom Development Group’s promotional website for ‘The Nicole’ is still up and running, but the advertised phone number for the real estate company — of which Thomas is the chief executive officer — is not in service.”
“In December, Ramsey County District Judge Robert Awsumb appointed a receiver, the Lighthouse Management Group of New Brighton, to oversee the 1970s-era Wabasha Street property after lenders and city officials became alarmed that $472,000 in insurance and basic utilities like heating, water and electricity had gone unpaid. Those utilities had been turned off in the dead of winter, and key services like fire alarms were not in operation, according to court documents.”
“Work did indeed get underway during the pandemic, but unpaid contractors walked off the job a year ago and filed upward of $2.5 million in mechanic’s liens seeking restitution. Court documents filed in Ramsey County show at least 20 vendors are involved in the legal dispute, in addition to Westridge Lending Real Estate Investment Trust, which is trying to get back $11.7 million it lent the project in February 2020.”
“Jeremy Grabow, of Grabow Painting Services of Chisago City, said he believes his small company was one of the first to notice that the checks hadn’t arrived after a month’s labor and call it quits last February. Grabow Painting is out an estimated $120,000. Despite the lien he’s filed, he has few hopes that he’ll ever see that cash. ‘Two people in front of me are owed a lot more money than me,’ Grabow said. ‘The bank gets their money back first on any kind of sale that might happen. I’ll be lucky if I see anything. It doesn’t sound good.’”
From ABC Action News. “Realtor Laura Bohannon-Myers said many people are moving to Florida from other parts of the country, like the Northeast, with cash to spend which prices locals out of the market. ‘Instead of waiting and selling your home get a HELOC, get a Home Equity Line of Credit, pull some money out of your house as much as you can,’ Bohannon-Myers said. ‘So, you can have more cash when you’re going to buy the next house. So it’s something that if you’re not in a position where you can’t carry two mortgages, it’s a great cheat to be able to buy a better house.’”
From Realty Biz News. “More people are buying more homes ‘sight unseen’ and that has prompted some real estate agents to be much more honest in their descriptions of listings. Real estate agents are somewhat notorious for their tendency to sugarcoat everything, Colorado-based agent Jamie Eklund told the Wall Street Journal. ‘If a house is old and rundown and small, we say ‘It’s cozy and has lots of character.’ But everything has its bad side and I want to be as honest with people as I can,’ he said.”
“So while Eklund might highlight features such as the cloudless skies and sights of the snow-capped Rocky Mountains in his videos of homes around Greely, Colo., he’ll also make admissions such as ‘it smells like a farm town,’ and pan the camera to show surrounding cattle ranches. ‘If it is something that might bother you, you might want to reconsider,’ he admits in one of his videos.”
“For those relocating from city to the country, real estate pros say they want prospects to have an honest idea of what to expect from the area, as the adjustment can be tough for some. ‘A lot of times they think they’re Davy Crockett, but when they get here they’re really Betty Crocker,’ Billy Milliken, a Maine-based real estate broker, told the Journal.”
“While Milliken’s clients may fall in love with the waterfront homes in fishing villages, he’ll remind them that the beautiful lobster boat they’re admiring out on the sea can make a lot of noise at 4 o’clock in the morning.”