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Market leaves housing flippers flopping

Real estate investor Mark Lepzinski bought this Madeira Beach duplex in 2004 for about $153,000 and sold it months later for $409,900.

SUSAN TAYLOR MARTIN | Times

Real estate investor Mark Lepzinski bought this Madeira Beach duplex in 2004 for about $153,000 and sold it months later for $409,900.

At the peak of the real estate boom, they inspired TV shows, how-to Web sites and the envy of friends and neighbors.

Then the tumbling economy snagged "house flippers'' like Mark Lepzinski of Clearwater.

After 36 whirlwind months buying and selling dozens of homes throughout the Tampa Bay area, Lepzinski, 50, declared bankruptcy this year. Debts: $1.55-million.

But, as Lepzinski puts it, "when you fall off the horse, you get back up.'' He's still pitching property and urging others to invest in real estate. And as a former employee of Merrill Lynch, he's also touting his experience as a "private financial adviser.''

Would anyone want advice from a person who lost several houses to foreclosure and ended up in bankruptcy court?

"Yes and no,'' says James E. Dean, 79, who loaned Lepzinski $82,660 and hasn't gotten a dime back. "He can tell you what not to do. Or how to be really careful about doing it.''

In 2004, Lepzinski left his $112,000-a-year position with Merrill Lynch in Tampa and started buying houses, fixing them up and reselling them.

One of his earliest deals showed the addictive appeal of "flipping'' that lured thousands of investors and speculators into Florida's then-torrid real estate market. In June 2004, Lepzinski bought a duplex in Madeira Beach for about $153,000. Less than three months later, he sold it for $409,900.

Other lucrative transactions followed: A small condo in Clearwater, bought for $109,000, sold for $190,000. A house in Largo bought for $135,000 quickly sold for $184,000.

"This makes us look to repeat over and over," Lepzinski wrote in a discount properties news­letter in mid 2005. "Tampa Bay is a hot market!''

Nationwide, flipping became such a frenzy that it spawned cable TV shows like Flip That House and Flipping Out. Rapid turnover of properties contributed to record run ups in price in many areas.

"I think speculators played a fairly significant role, but I don't think they were the sole driver of the real estate market,'' says Sean Snaith, a University of Central Florida economist. "There was pretty lax lending going on, a lot of the (no-documentation)-type loans and other exotic mortgages played into this as well.''

As the market began to cool in 2006, it became harder to flip houses, and questionable transactions began to surface. Lepzinski and his wife Peggy, 49, sold several houses to the elderly father of a St. Petersburg loan officer who had done prison time for fraud and theft. The father, who lives in New York, said he knew nothing about the transactions or how his name ended up on high-interest mortgages that required no down payment.

Last summer, a Lepzinski-owned home in St. Petersburg that had sat vacant for months with no buyers suddenly sold for $630,000 — far more than comparable sales — to an 82-year-old retired trucker living on Social Security. Lepzinski declined to talk about that or other transactions.

Despite the sale, the tide had turned. With the real estate market swooning in 2007, fore­closure notices began to pour in on other properties.

"If you had a lot of homes, they went down in value,'' Lepzinski says. "I wish I didn't have that many houses before the fall.''

'I'm the victim'

On Feb, 23, the Lepzinskis filed a Chapter 7 liquidation bankruptcy. Their petition listed nine properties on which the lenders had foreclosed, repossessed or taken the deed in lieu of foreclosure.

Contrary to the image Lepzinski cultivated of successful real estate investor, his petition showed no income for 2007 and negative income of $151,577 in 2006. Even at the peak of the boom in 2005, his income was minus $218,320.

In all, the Lepzinskis owed $1,547,705, including nearly $190,000 in credit card debt to American Express, Target, Home Depot and others. Among their individual creditors was a neighbor who had loaned them $97,800.

"You make me out to be evil and I'm the victim — am I not the one who went into bankruptcy?'' Lepzinski asks a reporter.

On May 30, U.S. Judge Paul Knox granted the Lepzinskis a discharge, meaning they were released from their legal obligation to repay credit card bills and certain other debts. Under Florida law, they were able to keep their Largo home — which has a market value of $332,000 — and pension and profit-sharing plans totalling $271,800.

Lepzinski, who got his Florida real estate license last fall, went to work for a Tampa real estate firm. He has also organized a meeting for investors interested in "short sales,'' those in which the lender agrees to sell a house for less than what's owed on the mortgage.

"Our clients make money on the BUY'' he says on his Web site, which touts his "affinity for structuring profitable transactions'' and "value-oriented approach to real estate wealth management.''

As for Dean, he says he has only himself to blame for loaning Lepzinski more than $80,000 to buy a house and a condo in Redington Shores that later went into foreclosure. And he harbors no ill will against Lepzinski.

"We can still be friends,'' Dean says, "but I'm not going to loan him any more money.''

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

Market leaves housing flippers flopping 07/05/08 [Last modified: Friday, July 11, 2008 8:21pm]
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