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Homeowners' safety net really wasn't

For homeowners who had defaulted on their mortgages, it sounded like a great deal. "WE SAVE HOMES FROM FORECLOSURE!'' read the fliers and door hangers. "We'll reinstate your mortgage in full.'' As Gideon Rechnitz, owner of St. Petersburg's Foreclosure Prevention Corp. explained it, investors would buy the houses, bring the mortgages up to date and stop the foreclosure. The sellers could then rent back their own homes with an option to repurchase within two years.

To make sure the sellers understood everything, Rechnitz videotaped the closings.

"We were very concerned with full disclosure of what we were doing,'' he says.

In fact, critics and many home­owners say, there was a lot that Rechnitz didn't fully disclose:

• That the main investor was Rechnitz, who has acquired dozens of houses in Pinellas, Hillsborough, Pasco, Sarasota and Manatee counties since 2004 for less than their true market value.

• That homeowners who bought back their property could incur thousands of dollars in what one lawyer called "exorbitant'' charges.

• That even people who didn't repurchase their homes could still be liable for the mortgages if Rechnitz failed to make the payments.

Of the 106 people who signed up for Rechnitz's "foreclosure prevention program,'' nearly half lost their homes anyway. Many were confused by the legal documents he asked them to sign and were unable to meet the stringent rental and buyback conditions.

Among those who wish they had never joined the program is David Radtke, a Sarasota artist who has worked for Ringling Bros. and Disney on Ice. After falling behind on his payments during a long hospitalization, he deeded his house to a trust controlled by Rechnitz in 2005. He was evicted last year because he couldn't pay his rent or afford to buy back the house.

Radtke says he not only lost about $40,000 in equity in his home; he also lost many valuables including his airbrushes and a half-pound of German gold leaf "when deputies ran me off my property.''

"I thought I was signing a mortgage,'' says Radtke, 68. "Instead I signed over the house.''

A helping hand

Rechnitz' first brush with controversy came in the 1980s with his Timeshare Owners Foundation.

With the number of timeshare units for sale far exceeding demand, the company had an attractive pitch: Owners could pay $295 to have their units marketed through real estate brokers nationwide. If the unit didn't sell in a year, they would get a $1,000 government bond.

More than 22,000 owners signed up, but many complained that they never got a single inquiry, let alone found a buyer. And they discovered the bond had a current value of only $65.

The Federal Trade Commission sued Rechnitz and wife Patricia, who did not admit wrongdoing, but agreed to refund $1.25-million to customers. The Florida Real Estate Commission accused Rechnitz of fraud in connection with his timeshare dealings and revoked his real estate license in 1990.

By 2004, Rechnitz had found a new group of customers — people who had substantial equity in their homes but had defaulted on mortgage payments because of sickness, job loss or other factors.

"Don't let the bank take your home," his fliers urged.

Those who called for details got a visit from Thomas S. Cook, a Rechnitz associate and golfing buddy. Cook would outline the "program understanding.'' The owners could sell their homes at a "discount'' — meaning less than market value - and rent them back for roughly the same amount as the mortgage payment. They also had an option to buy back the house.

The next step was the videotaped closing, where Rechnitz explained the rental terms: If tenants were even a day late with the rent, they could be evicted and lose their property for good. By selling, he told them, they would lose their homestead exemption, resulting in tax increases that would make their rent go up.

The most complex — and confusing — part of the program was the transfer of ownership. Instead of simply selling to Rechnitz, the homeowner signed a warranty deed that gave title and all rights to a "family trust,'' with Rechnitz or his Garco Inc., listed as trustee. That meant Rechnitz could sell the property or do anything else he wanted with it.

Keeping the seller's name on the trust also was a major benefit to Rechnitz. The bank might not realize the property had been sold, and thus Rechnitz could make payments without triggering a due-on-sale clause, requiring the mortgage to be immediately paid in full.

"It may keep the sale off the radar,'' says Thomas M. Ramsberger, a St. Petersburg attorney who reviewed some of the deeds for the St. Petersburg Times.

Ramsberger says the family trusts were "not the norm.''

"You don't see this with property owners — especially with a homestead — putting their property in a trust and naming some unrelated person as a trustee,'' Ramsberger says. "It certainly doesn't feel very right about how they're going about this stuff.''

Rechnitz says the purpose of the trusts was not to hide anything from lenders, but rather to protect assets and provide "anon­ymity for investors.'' He said there were investors besides himself, but declined to identify them.

'A crafty . . . scheme'

The transactions had other unusual aspects.

Closing statements obtained by the Times show that the homeowners received no money from the sale, partly because they were assessed extra fees that included several thousand dollars for "preforeclosure administration'' that went to Profitmax — a company of which Rechnitz, 61, is the sole officer and director.

Sellers were also assessed a fee of as much as $3,000 that went to Cook for "foreclosure intervention.'' Cook sometimes notarized the legal documents himself even though state law forbids notary publics from notarizing transactions in which they have a financial interest.

Rechnitz said he was unaware of the law and Cook would not comment for this story. (Cook's notary license has since expired.)

And in at least one case in 2005, Cook paid a bankruptcy preparer $175 to draw up the paperwork so a St. Petersburg man whose house was due to be sold at public auction could declare Chapter 13.

The bankruptcy filing automatically stopped the sale and bought time for the homeowner, Dewey Archambault III, to transfer title to the "Archambault Family Trust'' with Rechnitz's company as trustee. But Archambault didn't pay his rent and was soon evicted.

In a letter to Rechnitz, Archambault's attorney accused him of a "crafty fraudulent foreclosure rescue scheme'' and demanded he return the title.

On the same day the letter was dated, Nov. 17, 2005, Rechnitz's company resigned as trustee. The new trustee, Kenneth Rowland, quickly sold the house for $140,000. After the mortgage payoff, the proceeds came to as much as $100,000, records show.

Rechnitz says Rowland bought the house from him, and that the transfer of trusteeship was part of the sale, not a move to avoid legal action. (Rowland would not comment.)

"We made some money,'' Rechnitz says, "and I hope Mr. Rowland made some money when he sold the house, too.''

Kicked to the curb

The Florida Bar began investigating Rechnitz in 2006, based on a complaint from an assistant Manatee County attorney who had learned that a house partly paid for with county funds had been sold to the "Williams Family Trust'' without the county's knowledge or permission.

Assistant County Attorney James Cooney also found that the buyer — Rechnitz — had prepared trust documents, filed lawsuits and taken other steps that could constitute "the unauthorized practice of law,'' Cooney told the Bar.

The Bar investigation revealed other homeowners who thought they had been duped.

Among them was 70-year-old Yolanda Rodriguez, who lived with her deaf brother in a 2,300-square-foot pool home in Englewood. So ill that she had wasted away to 70 pounds, she accepted Rechnitz' offer of help when she defaulted on her mortgage.

"I wasn't thinking straight,'' she says. "I could have gotten an equity loan because I had plenty of equity.''

Instead, she deeded her house to Rechnitz's company, and began renting it back for $1,525. A video­tape that Rechnitz gave the Bar shows him explaining the program to Rodriguez though she appears confused when told she had to give 30 days notice to buy back the house.

Rodriguez: I don't understand that. What do you mean a 30-day notice?

Rechnitz: Once you've arranged to buy the house back.

Rodriguez: Isn't that what I'm doing?

Rechnitz: No, what you're doing now, you've sold the house.

Rodriguez: Oh, okay.

Rodriguez says she stopped paying rent because Rechnitz wouldn't answer her phone calls about promised roof repairs. In 2006, he evicted brother and sister and had all their possessions, including family photos, loaded into portable storage units. Rodriguez says she was unable to retrieve her items because they were stored in Rechnitz's name. Everything was then sold at public auction.

The Rodriguezes spent the next few months in cheap hotels and a Salvation Army shelter, finally landing in a tiny one-bedroom apartment with donated furniture.

On Rodriguez's behalf, Gulfcoast Legal Services is suing Rechnitz. In a deposition, he acknowledged the house could have been worth $300,000 or more at the time, far more than the $150,000 Rodriguez owed. He tersely described his transaction with her.

"She didn't come with any money,'' he said. "She didn't leave with any money.'' Rechnitz is now renting the house to a young couple with an option to buy.

'Not the bad guy'

Rechnitz says 36 home­owners have bought back their properties. Not all were happy with the terms.

After suffering a heart attack and falling behind in his payments, Daniel Peragine, 54, sold his Hillsborough County home and rented it back. The closing statement shows he was assessed $31,415 for "reinstatement'' and $6,100 in fees to Cook and Rechnitz.

Peragine says Rechnitz failed to make some mortgage payments, thus increasing the amount he had to refinance when he bought back the house in 2006. In all, his lawyer complained to Rechnitz, repurchasing the house cost Peragine nearly $80,000 more than he had been led to believe.

"These charges are exorbitant, unjustified, illegal and fraudulent,'' attorney Jeffrey Myers wrote.

Rechnitz denies missing any payments, and says homeowners agreed to all charges listed in the closing statements.

"We're not the bad guy you'd like to paint us,'' he told the Times. "We've saved a lot of families from losing their homes. I would not do to anybody else what I would not want done to me.''

Peragine and others also say it was unclear to them that they would lose their homestead exemptions when they transferred title to a trust.

William Rae, a Largo consultant, says his property taxes had jumped so much — from $800 to $2,400 — by the time he bought back his house, he is afraid of losing it again.

"That's the thing that bugged me most — the way we understood it was, we would never lose the homestead,'' says Rae, 52. "That added to the problem I'm in right now trying to hang on to my house.''

Rechnitz acknowledges he could have stressed the loss of exemption more than he did. But he denies a deliberate attempt to mislead homeowners.

The Bar's investigation ended last year with Rechnitz signing a cease-and-desist affidavit, but admitting no wrongdoing. He provided letters from 20 homeowners praising their dealings with him; many were worded almost identically and Rechnitz acknowledges requiring some people to sign positive letters as a condition of getting their houses back.

Worse yet to come?

Rechnitz says he hasn't done any foreclosure preventions since last year "because the market just ceased to exist.''

"Most (people) have no equity in their homes,'' he says.

Rechnitz is still renting to 23 people who hope to buy back their houses. Some have been late with their rent, but "we choose to work with them and give them the opportunity to catch up,'' he says.

However, the mortgages on those 23 homes and several other houses are still in the original owner's name, meaning they would be responsible for the mortgage if Rechnitz stopped making payments.

"A lot of people think that moving title to the property absolves them of the debt obligation, but that's not true,'' says Ramsberger, the attorney who reviewed the deeds.

Homeowners might be better off giving the bank a deed in lieu of foreclosure instead of deeding title and paying rent to a third party who has no legal obligation to pay the mortgage, Ramsberger says.

"That just prolongs it,'' he says, "and then they've wasted a lot of money with him as he waits for them to default.''

Several people who deeded their homes to Rechnitz as trustee say they did not realize they could still be liable for the mortgage. Rechnitz says he told everyone that the mortgage would stay in their name, and assumed they understood that they were ultimately responsible for the debt.

To date, though, "I've never missed a payment,'' he says.

And what would happen if Rechnitz, who acknowledges his own cash flow is "not great,'' can't make the payments?

"We'll address that when it comes to that.''

Susan Taylor Martin can be contacted at susan@sptimes. Carolyn Edds can be contacted at cedds@sptimes.com.

Homeowners' safety net really wasn't 11/08/08 [Last modified: Tuesday, November 11, 2008 6:41pm]

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