Democratic U.S. Senate candidate Jeff Greene says he had nothing to do with creating the subprime mortgage mess that made him fabulously wealthy.
He was simply a savvy investor who "could see that the housing market was imploding" and lucky enough to make more than $500 million by betting against it.
But he wasn't just a spectator to the housing collapse. Four years ago, Greene was party to precisely the kind of deal that decimated the market.
Greene insists he did nothing wrong. Yet the way he handled the deal left an opening for massive fraud and put him uncomfortably close to a man now under federal indictment.
The setting: this remote desert town at the edge of Death Valley. At a project called La Mirage, Greene converted 1950s-era military housing from apartments to 300 condos. In the summer of 2006, justas he was starting to make his bets against the sub-prime housing market, records show that Greene's company unloaded the units, some for as much as $165,000. The buyers turned out to be people who never intended to own the properties or pay back the loans.
Local residents, who referred to the complex of single-story duplexes and triplexes as "Criminal Gardens," were stunned at the sale prices. Even in the midst of real estate hysteria, they seemed over the top.
Within 18 months, all of the La Mirage buyers defaulted on their loans and every condo was in foreclosure. Low-income tenants, still paying rent and unaware their apartments had been sold, found themselves on the street. Lenders recouped about $25,000 per unit when the properties went up for auction. Banks - and ultimately U.S. taxpayers who bailed out the banks - were left holding the bag on nearly $34 million of worthless paper.
Now James Delbert McConville, Greene's counterpartin the transaction, is in jail facing criminal charges of conspiracy and money laundering stemming in part from the La Mirage transaction. The assistant U.S. attorney says the FBI is still trying to put a dollar figure on McConville's alleged fraud, and is ramping up its investigation of the La Mirage deal.
Greene, 55, is in a tight race with U.S. Rep. Kendrick Meek in the Democratic U.S. Senate primary. The election is Aug. 24.
In an interview Friday with the Times, Greene strenuously denied any responsibility for the failed loans at La Mirage.
He said his broker simply brought him a buyer, McConville, who wanted to buy all 300 condos for about $21 million, or $70,000 a unit.
Greene said he never met McConville. He said his only direct involvement was signing blank deeds and sending them to his escrow company - a practice he calls common but which one expert says is risky at best. By signing blank deeds, longtime appraiser Richard Hagar said, Greene effectively enabled the fraud.
Greene said he was unaware that the blank deeds were recorded showing him getting as much as $165,000 a unit from individual investors who turned out to be straw buyers.
"I'm always signing blank deeds. That's how an escrow company works," Greene said. "If he (McConville) put the deeds in other people's names, that's his business. All I care about is that I get my money."
While he thinks it's terrible that all the La Mirage loans defaulted, Greene insisted that he couldn't be expected to know his buyer or keep track of what happened after he signed the deeds.
"I sold through an arm's-length transaction," Greene said. "What he did after that is unfortunate, but I had no involvement."
He blames lenders who signed off on unrealistically high loans for the La Mirage condos.
"Obviously to me, it's the failure of Washington to regulate the lenders," he said. "That's why I want to get into the Senate."
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Within a few short months, the La Mirage sale turned dilapidated duplexes on sun-scorched earth into millions of dollars of free cash from mortgages. Documents show that everybody - from the sellers to the brokers to the appraisers to the initial lenders - made money on the transaction. According to the federal indictment handed down in May, none of the straw buyers - private investors who thought they were only "renting" their identities by signing mortgage documents - had any intention of repaying the loans.
Greene had owned the 300 units in Ridgecrest since December 2003 under the corporate name of 1402 Alta Vista Partners LLC.
McConville, 59, created a company in June 2006 called La Mirage HA.
Documents show Greene's corporation sold about two-thirds of the units to individuals for $145,000 to $165,000 in a flurry of deals in July and August 2006.
The records also show that Greene sold the remaining condos to McConville's corporation on Aug. 15, 2006, for $7.1 million, or about $65,000 a unit. McConville quickly flipped the condos to 28 individuals for the same prices Greene had received: $145,000 to $165,000 each.
That wasn't the only similarity: Half of McConville's buyers were the same people who had purchased units from Greene.
One woman, a notary whose stamp appears on many of the sales, bought seven condos from Greene and five from McConville, while her twin sister picked up three more, including two Greene properties. Total purchase price of the 15 properties acquired by Agnes Kantere, 47, and her twin: $2.3 million.
But Greene and his broker said it didn't happen that way at all, regardless of what the public records show. Greene sold all the units to McConville, they say, and it was McConville alone who immediately flipped them for more than double the price to straw buyers.
Jeff Louks, Greene's agent who handled the deal, said Greene made $20.95 million on it "and not a penny more."
"We probably do 40 to 50 deals a year and this is one deal where the buyer allegedly was doing things which were unscrupulous," Louks said. "It's unfortunate but Jeff Greene is very ethical and he had no way of knowing."
Louks said he checked McConville's references but didn't do a criminal check, which would have shown McConville pleaded guilty to insurance fraud in 1998.
"We wanted to make sure he wasn't a flake," Louks said. "He said all the right things, that he had a pool of investors and had planned to sell the units off to individuals, then rent them out and own them for 30 years. It sounded like a good plan."
To Greene, it was just one more deal. "The guy paid a fair price," he said. "If he does something crooked after he buys it, I can't help it."
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Angela Spangler never met Greene. She said she can't imagine why anyone would invest in property in Ridgecrest, a town of 30,000 in the middle of the Mohave Desert, about 150 miles northeast of Los Angeles.
Yet according to records, Spangler bought five condos in La Mirage from Greene for a total of about $765,000 in July 2006. About a month later, she bought two more units, at $155,000 each, from McConville.
Spangler, a 40-year-old divorcee who sells commercial real estate in the San Francisco area, said McConville approached her and dozens of other investors in mid 2006 with a business proposition: make money fast by renting your identity.
"I was looking for a way to make money," said Spangler, who ended up signing for more than $1 million worth of mortgages without spending a penny. "Jim thought he could help."
The federal indictment alleges that McConville recruited straw buyers like Spangler, offering between $5,000 to $10,000 for use of their names and credit on mortgage applications. They would not have to make any payments and the properties would be switched to McConville's name after the mortgages were processed, the indictment says.
"He said he was a developer who couldn't get good interest rates from the banks, so he needed to use us to get the mortgages," said Spangler, who suspected McConville wanted to date her. "He called me his star client."
Jack Thomas, lead foreman for McConville from 2005 until 2009, was drawn into the easy-money trap. Records show he bought 10 condos at La Mirage from Greene. Thomas, 44, said that he never met Greene and that all the paperwork was mass-produced by McConville.
"Jim does all the paperwork and sends it to different lenders all in one day, so one lender doesn't know about all the other properties people are buying," Thomas said of his former boss. "He'd been using straw buyers for years, but I don't think he'd ever done anything on as grand a scale as Ridgecrest before."
For the La Mirage deal, Thomas and Spangler said a group of about 30 people gathered in a conference room at an office south of Oakland on a Saturday in spring 2006. McConville passed around reams of documents for signatures. Nobody was told what they were buying; nobody asked.
"There was so much paperwork, it was just 'Sign here, sign here, sign here,'" Spangler said. "There were Asians, Indians, pretty girls and nice-looking guys there; it was really a happy occasion."
Spangler was unaware that loan papers on at least two properties included her guarantee that each condo would be her primary residence. "I didn't read them or get copies because Jim seemed like such a nice, genuine, honest guy," she said.
Neither Spangler nor Thomas will say how much they got for helping McConville, who assured them the transactions were perfectly legal. Both say it was less than he had promised. With the federal prosecutors indicting McConville and five of his subordinates, Spangler and Thomas are hopeful that low-level players like themselves will avoid prosecution. They say they're paying in other ways.
Thomas can't renew his California contractor's license because his credit score is so low he can't afford the required bond. "I'm still getting calls from banks," said Thomas, who works in an apartment complex in San Jose.
Spangler's credit score plummeted from the 700s to the 400s, pumping up the interest rate on a recent new car loan. While admitting her role in the straw sales, Spangler feels betrayed by McConville, a burly, balding guy who wore his stringy gray hair in a ponytail and owned several Lamborghinis.
"Jim strung along a lot of people," she said. "I'm just hoping all this goes away."
In late May, one of the condos that Spangler bought from Greene for $145,000 four years earlier was sold at auction.
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Paperwork from the La Mirage transactions, once in McConville's possession and now stored in a warehouse outside San Francisco, shows that the names of McConville's and Greene's corporations were used interchangeably on documents at a time when the properties were officially owned by Greene.
Greene strongly denied any relationship between the companies and said he never knows how deeds will be filled out after he signs the blank forms.
"I sign it blank and they fill it in later," he said of the deeds. "I don't follow a property after the sale."
Louks, Greene's broker, said there were signs of trouble with the La Mirage deal. Weeks before the bulk sale to McConville was scheduled to close in August 2006, Louks learned that McConville was already selling the units using the deeds Greene had signed. The money from mortgages had started flowing, and it was going to McConville.
"He (McConville) apparently had ties with the escrow company that were not scrupulous," Louks said. "Usually you feel pretty secure when you're using an escrow company."
Louks said Greene could have sued for McConville's fraudulent sales but opted not to do so. "Instead we just seized the proceeds of closings and told escrow not to close another deal until Jeff got all his money," he said.
The trail of McConville's manipulation of the La Mirage sales is seen in numerous loans officially deeded by Greene, but directing the proceeds to McConville. Greene said he had no knowledge of these actions.
- In dozens of loans, the HUD-1, a standard form that tracks who gets paid, and other closing documents listed La Mirage HA and McConville as the seller. But the property was officially owned by Greene at the time and he was the one who signed the sale deed. Real estate experts say this shows "common equitable ownership" and undisclosed financial ties between McConville's and Greene's corporations. Greene says it was McConville acting alone.
- On several loan documents, a person using the name "Del Delano" signed purchase agreements and other papers identifying himself as owner of 1402 Alta Vista Partners, Greene's corporation. The federal indictment alleges that McConville frequently uses the alias "Del," and a public records search shows no Social Security number attached to the name Del Delano. In unrelated documents, Del Delano signed as landlord of properties owned by McConville. Greene said he never heard of Del Delano.
- In cases where Greene sold the unit to an individual, that person's file often contained another deed - never signed or recorded - that would have transferred ownership from the buyer to McConville. Buyers said they were assured this transfer would happen soon after the sale, freeing them of all liability. The transfers never happened.
- Loan documents for Greene's buyers show that some of them supposedly worked for a corporation owned by McConville. The federal indictment charges McConville and his real estate broker, Jason A. Piette, with creating fake employment documents for straw buyers. Piette, whose parents bought 18 La Mirage units from Greene and McConville, is also identified as the broker on numerous condos sold by Greene.
Despite his concerns about the La Mirage deal, Greene continued his business relationship with McConville. Greene's corporation still owns the common areas at La Mirage, including a swimming pool that is now drained and littered with lounge chairs, and a trash-spattered tennis court that has no net. Greene and his broker said they were unaware of his continued ownership.
"That's complete news to me," Greene said. "I'm not interested in owning a bunch of driveways."
In 2008, Greene hired McConville's property management company to run an adjacent property owned by 1402 Alta Vista Partners. The Oasis has 189 rental units and was built in the mid 1940s to house military members working at nearby China Lake Naval Weapons Station. In March 2008, there was a proposal filed with the state of California to convert the Oasis to condos. The developer? A McConville corporation.
Greene said McConville wanted to buy Oasis for $8 million, but the sale was never consummated. He's now suing McConville to recover a $250,000 deposit. "He defaulted," said Greene, who intends to serve McConville in jail. "He owes it to us."
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Richard Hagar is an appraiser in Seattle who has trained state and federal law enforcement officials in the intricacies of mortgage fraud.
When Greene put his signature on a deed, as he did on nearly 200 sales to individuals, Hagar said, he was attesting to the accuracy of the underlying documents. By signing the deed, Hagar said, "Greene is admitting to responsibility. He has to look at that HUD-1 and say this is a true and accurate accounting of the money flow."
Frank San Pedro was a fraud investigator for the lender Countrywide from 2004 until 2008 and is now a consultant. Told that Greene said he signed blank deeds on the La Mirage deal, which allowed McConville to play games with the documents, San Pedro said: "If you're in business, you are mindful of what you sign because there are consequences for what you do. It's almost like saying you don't care what happens, you just did what you needed to do."
Greene unabashedly admits he made money betting against bad loans. But he refutes any suggestion that he profited on the losses at La Mirage.
"There's no possible way," he said. "Most of what I invested in was the ABX index, which has nothing to do with any particular mortgages."
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Anybody who bought insurance on the La Mirage loans would have profited. The sales were doomed to collapse.
Oma and Zheyan Haidarzada bought 11 La Mirage condos from Greene and three from McConville for a total sale price of $2.15 million. By the end of 2008, they had filed for bankruptcy to erase their debts. The Haidarzadas, who live in Fremont, Calif., did not return calls seeking comment.
Another couple that proved unable to handle their La Mirage mortgages were Fatlinda and Agron Astafa from Santa Clara., Calif. They bought 12 properties in two months from Greene and McConville in 2006. Total mortgage debt for the couple, who had just emerged from bankruptcy in 1999: $1.5 million. The couple, whose phone has been disconnected, could not be reached for comment.
Chris Christopher, a retired detective with the Los Angeles County sheriff's department, spent seven years investigating real estate fraud during the boom years.
"There were more safeguards in getting a $3,000 credit card than in getting a $600,000 loan," he said. "But nothing has really changed; all the old frauds still work. You just reverse the tricks and they work in a downward market."
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At La Mirage, a new owner has acquired 180 of the 300 foreclosed units at about $25,000 each. Stanley Kirst, G8 Capital's vice president, said the company is trying to take over the abandoned swimming pool and tennis court which he said are still owned by Greene.
"We'd like to take control of the homeowner's association so we can start collecting assessments and pave the streets, water the grass and put water in the pool," he said.
A 30-year veteran of the real estate business, Kirst had this response to the hyper-inflated sale prices La Mirage commanded four years ago: "You've got to be freaking kidding me. It was nonsense. It was fraud."
Pat Flannery is an accountant and real estate agent with more than 32 years of experience in the San Diego area. In March, he began writing about the links between McConville and Greene on his blog (blogofsandiego.com) after following McConville's use of straw buyers in two San Diego projects.
"I saw Greene on MSNBC saying he wasn't a developer, he was just an investor, but when you're the principal in a condo conversion, you're a developer," Flannery said. "And the Ridgecrest property was great because I could trace it from where Greene bought it to the end product, which was tens of millions of dollars of phony loans."
From Flannery's point of view, the only benefit of Greene's candidacy is that it has exposed the La Mirage deal to wider scrutiny.
"It would never have gone farther than my blog" otherwise, Flannery said.
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On July 30, McConville appeared at a detention hearing in U.S. District Court in Oakland dressed in a yellow uniform with Alameda County Jail on the back. Federal prosecutors have opposed his release on bail, calling him a flight risk. McConville was apprehended in late June in a small town outside Bakersfield, more than a month after the indictment, with "three large rolls of cash in his pocket," according to a court filing. Found in his storage locker were papers suggesting he had money stashed in accounts in Switzerland, Sweden and Cyprus and had also purchased large quantities of gold, silver, Iraqi dinar and Vietnamese dong.
Assistant U.S. Attorney Keslie Stewart told the judge the FBI was still trying to calculate the scope of McConville's alleged fraud, which she said had pulled more than $11 million from the two San Diego projects.
"We're just beginning to look at Ridgecrest," she said.
Greene said he has not been questioned by the FBI about his dealings with McConville.
"I was happy to sell the property and shocked to find out about it (the collapse)," he said. "But I resent the suggestion I did anything unethical. I wouldn't know him (McConville) if I saw him."
Kris Hundley can be reached at firstname.lastname@example.org or (727) 892-2996.
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Who owned 428 Palm Drive?
In an interview with the Times, Jeff Greene said he sold all 300 units at La Mirage in a bulk sale to James McConville on Aug. 15, 2006. But the loan documents for 428 Palm Drive show a much different transaction, with both Greene's and McConville's companies claiming ownership of the same property. The same discrepancy occurs on dozens of other units. Greene and his company, 1402 Alta Vista Partners LLC, signed the deedon this La Mirage condo sold to Fatlinda Astafa for $155,000. It was officially recorded on July 14, 2006. But James McConville's company, La Mirage HA, claimed it was the seller of 428 Palm Drive on several supporting documents, including the standard form used to give an accurate accounting of the money flow in all real estate transactions. Greene said he signed blank deeds for the units and he was unaware of how McConville was using them. "It didn't occur to me he was doing something sleazy," Greene said. By signing the deed, right, Greene attested to the accuracy of documents. Astafa, a Santa Clara woman, bought five La Mirage condos from Greene in July 2006; all have gone into foreclosure for nonpayment. McConville is in jail facing criminal charges of conspiracy and money laundering stemming in part from La Mirage.
Homeowner's association certification letter
This notice to buyers identified the developer as Greene's company, 1402 Alta Vista Partners LLC. The document was signed by Del Delano, who identified himself as "owner" of the property on May 9, 2006, two months before the deed signed by Greene was recorded. Del Delano, or D.D., is an alias used by McConville.
This standard form is filled out by the settlement agent and shows charges to the borrower, Astafa, and cash to the seller of 428 Palm Drive, identified as La Mirage HA, McConville's company. It notes the same settlement date as the deed signed by Greene, July 14, 2006.
On May 15, 2006, Chicago Title verified that 428 Palm Drive was owned by 1402 Alta Vista Partners LLC, Greene's company. This document gave Greene the right to deed the property to Astafa, but also made him responsible for the accuracy of all the loan paperwork. Greene said of McConville, "I thought I was dealing with a reputable person. If he does something crooked, I can't help it."