In February, a new company in Tampa called RE-710 got a terrific deal. It paid $5,700 for a five-bedroom home valued at $311,000.
The same month, RE-710 acquired control of dozens of other houses and condos throughout the Tampa Bay area for just cents on the dollar. Aside from their bargain prices, the properties had something else in common. The buyers were also the sellers: three Tampa men, including convicted fraudster Barry Haught.
According to court records, Haught and his partners created RE-710 and transferred 44 rental properties to it over three weeks. A day later, RE-710 declared bankruptcy.
The move was part of an ongoing game of real estate keep-away. The company pays for a type of short-term ownership of the properties and quickly rents them out. It then shuffles properties between companies and uses bankruptcy court to keep banks and other creditors at bay. In the meantime, Haught and his associates could continue to collect thousands of dollars in rent each month.
RE-710, so new it didn't have employees or furniture, "concedes to having filed this (case) for the sole purpose'' of delaying foreclosure, the bankruptcy trustee wrote. He also accused the company's management of "dishonesty, incompetence and gross mismanagement.''
A lawyer for the new company says it has a reorganization plan that would be a "win-win'' for everybody. But complex bankruptcy cases can drag on for months or even years, while the rental income piles up.
And the tenants? Some feel entangled in a legal but controversial type of real estate venture.
"This is a game they play and it's sad,'' tenant Nicole St. Pearre said.
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During the recession, many Floridians fell behind on their payments not only to the banks but also to their homeowners associations. The HOAs, many of them struggling to keep up with maintenance and other expenses, foreclosed on thousands of homes to limit their losses. That created a lucrative opportunity for investors.
Here's how it works: After the homeowners association forecloses, the property is put up for auction. The property title goes to the highest bidder, usually for the amount of fees owed, often just a few thousand dollars. The winning bidders don't really own the houses but can rent them out until the banks finally foreclose and take the homes. The whole process is enabled by the glacially slow Florida foreclosure system, which takes an average of 935 days from start to finish.
While the investors rake in big profits, many of the homes languish in disrepair, causing more problems for the HOAs and discomfort for the tenants.
"I'm surprised the legislators haven't picked up on this,'' said Jerry Tidwell, a board member of one homeowners association frustrated by dealings with Haught and his partners.
Now 60, Haught spent 4 1/2 years in federal prison for bilking Medicare out of $14 million in fraudulent claims for hospital beds and pressurized mattresses. Released in 2008, he went to work for a friend who had discovered there was money to be made from HOA foreclosures. He did not want to comment for this article.
As the Tampa Bay Times first reported in 2011, Haught and others began bidding on homes and condos, snapping up a bayfront Apollo Beach mansion for $10,100 and a $493,000 Tampa home for $5,000. Records show that many of the properties were put into limited liability companies, or LLCs, and shuffled from one company to another as bank foreclosures loomed.
Very common in Florida, LLCs protect investors from personal liability and claims by banks and other creditors, said attorney Robert Stern, a real estate expert at the Tampa firm Trenam Kemker.
And, he added, they "also make it harder for someone to follow the trail.''
The Van Dyke Farms Homeowners Association discovered that when a five-bedroom house in the Odessa community began to fall into disrepair.
The association had foreclosed on the owner, and one of Haught's companies, Whitburn LLC, took title to the $311,000 property for $10,100. Whitburn collected $1,900 a month in rent as the roof grew dirty and the lawn turned to weeds. It then transferred the title to RE-710.
"We were trying to force them to live up to the deed restrictions and maintain the property, which they weren't doing,'' said Tidwell, the HOA board member. "Then we found that Whitburn had sold to this other entity.''
That forced Tidwell and the association to continue the fight in bankruptcy court, which will likely take more time.
Another house caught in the legal morass is the two-story, three-bedroom Tampa home that Angela Marcus and her two children moved into in November.
Marcus said she dealt with Lisa Gerhart, an associate of Haught's who has managed many of his properties. The house, which Whitburn LLC acquired for $5,400, "needed a lot of work, but I used to have a cleaning business and I said I'd keep up the pool,'' Marcus recalled.
Only after moving in did she realize a problem: "The pool pump didn't work.''
That wasn't all. The toilet leaked, the roof leaked, the refrigerator quit at Christmas.
Gerhart "never tried to fix anything'' Marcus said. Nor did Gerhart mention that on Nov. 26 the bank had foreclosed on the house, she said. The sale of the home was canceled in March after the new owner, RE-710, declared bankruptcy.
"It's been a total nightmare since we've been in that house,'' said Marcus, who quit paying her $1,050 rent and is being evicted.
Gerhart said she writes "in bold'' on a lease if a house is in foreclosure. Her tenants, she said, are well taken care of.
"I sleep very well at night,'' she said.
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While some tenants complain, filings in RE-710's bankruptcy case show how lucrative homeowners association foreclosures can be for investors.
For the month of March, the company reported collecting a total of nearly $48,000 in rent from 38 homes and condos in Hillsborough and Pinellas counties. Many of the homes were acquired so cheaply that they paid for themselves in three or four months.
A lakefront house in Lutz, bought for $7,600, rented for $2,000 a month. A $431,000 Clearwater home, acquired for $5,000, rented for $2,100 a month.
On its bankruptcy petition, RE-710 showed Haught as its manager and listed Haught's personal residence as its address.
In accusing RE-710's management of "dishonesty, incompetence and gross mismanagement,'' the Office of U.S. Trustee said it failed to adequately insure its properties and didn't pay the right amount of documentary taxes owed to the state when property is transferred.
The trustee's office also said Haught had "caused'' Gerhart to hold back $47,854 in rent that belonged to the new company.
RE-710 is owned by Haught and fellow investors Michael Shelton and Kevin Byrne, according to the company's attorney, Richard McIntyre. Haught retains his stake, but Shelton has replaced him as manager.
"The trustee clearly does not want Mr. Haught involved,'' McIntyre said, adding that Gerhart also was replaced.
Under its reorganization plan, the attorney said, RE-710 will pay homeowners association fees and taxes. The company will also try to negotiate with banks to buy the 44 properties, so the tenants won't be forced out.
"To me, it's a win-win situation,'' McIntyre said.
Attorney Stuart Levine, who represents Haught's Whitburn LLC, acknowledged some complaints about how the companies managed the properties.
But "I think you'll find a substantial majority of tenants are very happy,'' Levine said. "They are paying rent at a fair market value, in some instances, lower.''
Count Nicole St. Pearre and her fiance, Stanley Piper, among the unhappy tenants.
The couple liked the New Tampa home they found on Craigslist because the school district had excellent programs for St. Pearre's autistic son.
There was a glitch, though. The homeowners association forbids rentals unless the owner lives in the house for at least two years after buying, but Whitburn LLC had not owned the house for the two-year minimum. Piper and St. Pearre said that Gerhart told them they would have part of a 10 percent ownership in the house.
A tenant living in a different house, Demetra Nelson, told the Times that Gerhart offered her the same 10 percent ownership deal.
Gerhart would not comment on that point and referred a reporter to Levine, her attorney. Levine said some tenants have lease-purchase options, but said he hadn't "seen, drafted, or heard about'' any documents with an ownership clause.
St. Pearre and Piper moved into the house in January, after clearing out children's clothing and other items left by the previous occupants. "It looked like they were forced out in the middle of the night,'' Piper said.
The couple paid Gerhart an $800 deposit and $1,000 in rent. They said she agreed to give them a substantial break on future rent if Piper, a contractor, would repair and maintain their house and other properties.
Piper said he did thousands of dollars worth of work, but Gerhart reneged on the agreement.
On June 4, the couple got a notice from the home's new owner, RE-710. It gave them three business days to pay $1,852 in rent it claims they owe.
Times researchers Natalie Watson and Carolyn Edds contributed to this report. Susan Taylor Martin can be reached at firstname.lastname@example.org.