Article Courtesy of The Palm Beach Post

By KIMBERLY MILLER

Published August 30, 2010

In early 2008, with the real estate market well into meltdown, a deal to sell more than 100 condominium units in Royal Palm Beach was struck.

Considered one of South Florida's first bulk condo buys, it was called "savvy'' by market analysts and heralded as a sweetheart deal for Miami-based purchaser Kensington Trust.

The high-priced flips that the trust subsequently made to individuals, sometimes for 75 percent more than it paid, was optimistically thought to be a sign of a real estate upturn.

Two years later, 70 percent of the units at the Kensington at Royal Palm Beach are in foreclosure or were recently repossessed by lenders. The bulk of the buyers -- 36 percent -- were from the Miami area.

A Palm Beach Post analysis of bankruptcy filings, court documents and property records shows investors from throughout the country bought heavily into Kensington, including a $715-a-week Costco employee from San Diego who picked up three units in 2008 for a total of $913,000.

In the same year, an Oregon paper mill worker with an annual salary of about $42,130 bought four units from the trust for $1.2 million.

When Kensington Trust's flipping was through, about 60 percent of the condo's 167 units were owned by people with out-of-town addresses.

The practice of speculating was rampant during the boom years, which peaked in 2006.

But real estate experts say Kensington's 2008 prices, including $379,900 paid for a 1,500-square-foot unit, seem unusually high even for the time. Within nine months, that unit was in foreclosure. It sold in May for $85,000.

“For that kind of money, you'd need something that stands out, like being on the beach,'' said Brad Hunter, chief economist with MetroStudy in Palm Beach Gardens .

The oatmeal-colored complex of formulaic units was built in 2004 as apartments, then converted to condos. It's about six miles west of Florida's Turnpike off Southern Boulevard in Royal Palm Beach.

In some cases, out-of-state investors who bought units without ever seeing them said they were promised help in renting the units but were forced into bankruptcy when deals went awry.

In others, Kensington buyers were in foreclosure less than a year after sales were completed -- a signal that few, if any, mortgage payments were made.

“There's obviously something that went on at Kensington,'' said Mark Quinn, president of Banyan Property Management in West Palm Beach, which works for Kensington's homeowners association. “I smell a rat. We all do.''

But was it fraud? Michael Sichenzia, president of Dynamic Consulting Enterprises in Coral Springs, said there was a "fine line'' during real estate's heyday between legitimate flipping and unlawful activity.

“Most of these condo conversions were marketed out of state as `flip your way to wealth,' '' said Sichenzia, a former fraudster who spent time in New York state prison and now investigates suspect deals.

That's exactly what Robert Henriquez and Isaura Flores of Lawrenceville, Ga., say they were told.

Without seeing the condos, the married couple bought two units in April 2008 for a combined $580,000 after a friend said it was a good deal.

“They said they would send us the rent money and we would pay the mortgage,'' Flores said.

Flores said she's not sure who made the rental promises.

“Every time I called it was a different company, a different name, they never talked clearly,'' she said.

Messages left for Kensington Trust's managers, as listed on a state website, were not returned. A rental company that Quinn said handled leasing for condo owners also did not return phone calls.

Flores said she received spotty rental checks for about six months, then paid on the condos for several more months. In August 2009, the couple declared bankruptcy.

Their lenders, SunTrust and Wells Fargo, filed for foreclosure in February.

“It was a very big mistake to buy,'' Flores said. “They were just trying to find innocent people with good credit.''

But Sichenzia said that even in 2008, banks were willing to do "stated income loans,'' deals with little to no verification of employment or salary.

The bulk buy Kensington Trust negotiated included a stipulation for the original condo converter to hold onto each property until the trust found a buyer.

The trust made a $1 million nonrefundable escrow deposit in case it couldn't sell the units.

One of Kensington Trust's first sales was to an Ohio resident, then 36, with a post office box as his address. Jason Porterfield, who spent six months in prison in the 1990s for drug trafficking, bought five units in spring 2008 for a combined $1.6 million.

His loans, all with Bank of America, totaled $1.5 million.

According to liens filed by the homeowners association, Porterfield never paid HOA fees. By summer 2009, the bank had filed foreclosures on all of his units.

According to Porterfield's mother, he has been living in South America for two years.

“More than likely, some of these people never intended to make a mortgage payment,'' said Jack McCabe, CEO of Deerfield Beach-based McCabe Research & Consulting.

Still, Quinn, of Banyan Property Management, said some owners seemed genuinely surprised when he called seeking delinquent HOA payments.

Today, as many as 110 units -- 65 percent -- owe late fees.

“The owners would say they were guaranteed a certain percentage of return via the rent on the units for two years,'' Quinn said. ”A lot of people just said they had no idea they had to pay dues.''

That's a problem for owners living in the units. The fees pay for such things as cable, water and insurance.

Quinn said the complex also has been getting less maintenance. It was recently cited by code enforcers for having dirty roofs.

"At the end of the day, every single person in America has gotten hurt by this kind of thing,'' Sichenzia said. "The whole concept was about greed.''