Once called dishonest and incompetent, could Tampa company be a model for real estate investors?

Two years ago, a new Tampa company called RE-710 declared bankruptcy to halt foreclosure of nearly 50 homes it was renting out for thousands of dollars.

The company was so new it didn't have employees, equipment or furniture. It had acquired most of the properties just a few days before the bankruptcy filing. It collected rent but wasn't responsible for the mortgages — those were still in the name of the original borrowers.

RE-710 "concedes to having filed this case for the sole purpose" of delaying foreclosure, a bankruptcy trustee wrote at the time. He accused the company's management of "dishonesty, incompetence and gross mismanagement."

But all 40 lenders approved RE-710's reorganization plan and now the company could soon emerge from bankruptcy court. What once was considered a "bad faith'' filing today is viewed as having been a unique, innovative way of settling legal claims, paying off debts and getting dozens of homes occupied and out of foreclosure.

Even the judge who handled the case had words of praise.

"No matter what the dynamic is, no matter what the reason is, it's bad for society to have empty houses with vandalism and mold," U.S. Bankruptcy Judge Catherine Peek McEwen said at one hearing. "This is a wonderful thing for the neighborhoods."

But whether RE-710's case can serve as a model for other real estate investors is an open question. By using the bankruptcy laws to its advantage — just as Donald Trump boasts he did — the Tampa company succeeded in getting ownership of some very nice houses at what could be considered bargain prices. But it also has taken two years and a battery of attorneys.

"There are huge legal expenses," says Kevin Byrne, a Tampa real estate broker and certified public accountant who serves as RE-710's manger. "We were fortunate because of the timing. If the market stayed flat or was going down, we would have gotten buried with legal fees."

•••

RE-710's roots lie in the homeowners association foreclosure auctions that drew hordes of deal-seekers to the Hills­borough County courthouse several years ago.

HOAs can foreclose on owners who don't pay their association dues. For just a few thousand dollars, enough to cover the delinquent dues plus attorneys fees and court costs, the winning bidder could get temporary title to a home and rent it out until the bank foreclosed. Byrne, who invests in real estate, took title to some houses that way. The big player at the auctions, though, was a man named Barry Haught, who acquired dozens of properties, some of which he was leasing out for more than $2,000 a month.

Properties obtained through HOA foreclosure auctions are not long-term investments; the rent windfall lasts only until the bank takes back the house. In order to get full ownership, the temporary title holder might have to deal with several different parties — banks, other lienholders, county tax collectors, community associations, perhaps the IRS.

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That gave Tampa lawyer Richard McIntrye an idea: bring all parties together in bankruptcy court. There, judges can strip away unsecured second mortgages. First mortgages on nonhomesteaded property can be renegotiated at terms more favorable to the bankruptcy filer.

McIntrye shared his idea with Byrne, one of his clients.

"In legal theory it should work, though it had never been done before anywhere in the country," said Byrne, who was skeptical at first. "You have to have enough properties to make it work. It wouldn't make sense with five properties because the legal fees would have been too much."

So Byrne approached Haught, who had a lot of houses and was excited about the idea. "He was a competitor,'' Byrne said, "but we had a common problem — we wanted to hold these properties long term."

In early 2014, Haught incorporated RE-710 and transferred more than 40 homes and condos to it through quit-claim deeds. On March 11 — just two weeks after it was created — the company filed a Chapter 11 bankruptcy that immediately halted all foreclosure action.

Early submissions in the case showed how lucrative the HOA auctions had become. For the month of March 2014, the company reported collecting nearly $48,000 in rent. Many of the homes had been acquired so cheaply that they paid for themselves in two or three months.

RE-710's filing listed Haught at its manager, but he was soon out of the picture — he had spent several years in federal prison for Medicare fraud. "The (bankruptcy) trustee clearly does not want Mr. Haught involved," McIntrye, one of the lawyers representing RE-710, said at the time. Byrne then became manager.

Under its reorganization plan, the company agreed to pay HOA fees, property taxes and other carrying costs while it rented out the properties and negotiated with the lenders over the next two years.

About half of the homes and condos were dropped from the case early on for various reasons. With the remaining 24, the banks had a choice on how fast they wanted to be paid — in 15 days, over 12 months or in 30 years.

RE-710 raised more than $1 million from a group of California investors to buy the 10 homes with 15-day payoffs. Financing from private Tampa Bay sources paid for the eight homes with 12-month payoffs. RE-710 is using its own money — primarily rental income — for the six with the longest payoff times.

The California investors control the company's stock, though Byrne says he might have an opportunity to buy them out. His role is currently limited to collecting commissions on the five homes that already have been sold — mostly the higher-end ones — and managing what's left.

To get to this point, he estimates, the legal fees have been "hundreds of thousands of dollars.''

•••

On a recent afternoon, Byrne stopped by two of RE-710's Hillsborough County properties.

The first was a four-bedroom pool home in Ruskin. The bank agreed to sell it for $245,000, to be paid over 30 years. RE-710 is renting it out for $1,950 a month — $600 more than the mortgage payments.

Then it was on to a 1,700-square-foot house with cathedral ceilings in Ruskin. Byrne had just gotten good news: The bank agreed to a payoff of $135,000, tens of thousands of dollars less than what comparable homes in the area are going for.

RE-710's current tenants, Chris Harger, his wife and their three children, moved in three months ago and are paying $1,250 a month. They love the home's spaciousness, though not the myriad problems.

Harger said the refrigerator was so moldy they couldn't use it, forcing them to eat out for two weeks until it was replaced. There have been plumbing issues "since day one,'' he said, including lukewarm water and a constantly running toilet. Harger himself cleaned the ancient stove, recaulked the tub and cleared a badly overgrown yard.

Such complaints are common among renters in houses still in foreclosure. Byrne, somewhat taken aback, stressed that RE-710 had fixed "all the major stuff" but conceded there was still work to be done.

"You can't spend too much money improving things until you know what the bank is doing,'' he said. "If I owned this house free and clear, the rehab would have been different."

From there, Byrne headed to Pinellas County and a two-story, 5,200-square-foot home in foreclosure in Tierra Verde. It is one of his own investment properties, not part of RE-710. The borrower, an elderly woman, deeded it to him for several thousand dollars, he says, plus help in moving.

Though waterfront and huge, the house was in such bad shape that it needed $20,000 "just to make it livable," Byrne said.

He estimates it would take $150,000 to $200,000 to bring it up to Tierra Verde standards. But he is getting $3,000 a month in rent and could potentially sell it for $1.5 million, turning a nice profit if he can negotiate with the bank and settle an IRS lien against the property.

"I'd much rather negotiate with lenders outside court than inside," he said.

So many people are moving to the Tampa Bay area that Byrne, 37, remains fairly bullish on the local real estate market. But in case there's another downturn, he's buying houses in the $70,000 to $80,000 range that are easier and more profitable to rent out than more expensive properties.

At least for now, he has also finished with the HOA foreclosure auctions that fueled RE-710 — some bidders are paying as much as $20,000 for temporary titles.

RE-710 "was a great experience," Byrne said. "It was something that had never been done anywhere in the country, and in that regard it was a neat project. But now I'm more looking to do traditional real estate."

Contact Susan Taylor Martin at smartin@tampabay.com or (727) 893-8642. Follow @susanskate.