Article Courtesy of The Palm Beach
August 30, 2010
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
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
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.
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
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.
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,''
said she's not sure who made the rental
“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.
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.
SunTrust and Wells Fargo, filed for foreclosure in February.
“It was a very big
mistake to buy,''
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.
Porterfield's mother, he has been living in
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 &
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
Quinn said the
complex also has been getting less maintenance. It was recently cited by
code enforcers for having dirty roofs.
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.''