No Wonder the 1031 Advance Fiasco is Littered with “Dead Financial” Bodies!

In what has to be either the most naive statement I have ever heard or the worst omission of basic information attributable to a public official, California Democratic Senator Mike Machado summed up the recent 1031 Advance San Jose fiasco as follows:

“It appears the consumers are not protected. . . This is unforgivable. We’re looking at how best to address that.” Ah ok everyone all together now: Duhhhhhhhhhhhhhhhhh What did he say?

“Machado said he was “appalled” to learn that investors who sell property in popular transactions known as 1031 exchanges entrust their money to so-called qualified intermediaries but are left vulnerable to loss because the intermediaries are not regulated by law.”

Now here is why I find this statement so utterly irresponsible: Mike Machado “chairs” the Senate’s Banking, Finance, and Insurance Committee.

Are you &%#$*@ kidding me? This man is on one of the most important committees for the Banking-Finance-Insurance industries and he is NOT aware of the lack of regulation in the 1031 Exchange industry?

Maybe if Senator Machado had read Pat Kitano’s fine piece “1031 Exchange Companies are not Regulated.” He could have saved himself from “himself.”

Of course there are very reputable 1031 exchange companies with the proper insurance and bonding in place. But frankly my message to consumers is it’s best to either “lawyer up” or have someone else do the proper due diligence.

To those folks out there ready to pounce on me with “the Qualified Intermediaries police themselves or Qualified Intermediaries have regulations in place” save it-please. Tell that to the people that have yet to find out where their collective $151,000,000 worth of assets now reside.

Machado went on to say that he hoped to have “something to talk about” regarding consumer protection by month’s end (May). When visiting Machado’s website the most prominent piece of information is a youtube video regarding: Preservation of the Delta Waterways. I guess he is still working on something?

“United States Rep. Zoe Lofgren, D-San Jose, said she will raise the issue with the appropriate committees in Congress.” Yet when searching Lofgren’s website, nothing is mentioned in her press releases (5 in all) since May 15, 2007 regarding the lack of 1031 regulations.

In a wonderfully obvious statement Lofgren continued: “It’s terrible that innocent people have lost their money to an intermediary.”

Maybe it’s time for Californians to send a message to these public officials ?

Co Star Group Commercial Realtors’ One Stop Shop

Mark Heschmeyer, of the Co Star Group, sheds more light on Edward Okun’s troubles in one of the best and most succinct articles written to date. While reading Heschmeyer’s investigation, I inadvertently stumbled on another find: CoStarGroup.com.

Co Star allows commercial Real Estate industry professionals “online databases of real estate information” which helps them to “gain a complete picture of opportunities available across a variety of markets.” In addition industry professionals can access “the industry’s most comprehensive digital library” as well as post one of their own listings.

Other real estate information services provided by Co Star:

  • “The industry’s most comprehensive commercial real estate database with more than 2 million properties representing more than 38 billion square feet of inventory and over 760,000 for-sale and for-lease property listings in the United States, the United Kingdom and France.
  • The largest independent network of researchers and analysts, employing over 1,000 highly trained professionals who canvass the country, interview owners and brokers, inspect properties and examine public records to build accurate, up-to-the-minute information you need.
  • The most extensive commercial real estate photo library, over 3 million high-resolution photographs of buildings, lobbies and aerial views.
  • Flexible suite of reporting analytic and presentation tools, featuring verified sales comparables, tenant contacts and lease expiration dates — carefully compiled and specifically tailored to meet the needs of brokers, investors, property managers, landlords and appraisers.

Russian Child Smoking a Cigarette: Child Abuse comes in Many Forms!

I have seen some bad things in a full lifetime. I witnessed in full technicolor a stabbing, I have been robbed at gun point, watched a number of horrific accidents, participated in an intervention, performed the heimlich maneuver to save a friend’s life, and I have worked in some challenging environments. . .

But I don’t think I have ever seen something as horrific as the film clip of this Russian child smoking. The idea of an innocent baby being force fed a cigarette, in what appears to be an impoverished setting, really got to me !

So please let me share with you the good news. We don’t have to allow this sort of tragedy to go unanswered in our lifetime. The following is a list of watchdog agencies and charities-please consider contributing as you see fit:

1. Child Molestation Research and Prevention Institute: www.childmolestationprevention.org

2. Save the Children: www.savethechildren.org

3.Child Abuse Prevention: www.child-abuse.com

Please consider giving to one of these organizations or to one of your choosing. . .

May 23, 2007 Silicon Valley Association of Realtors Los Gatos Marketing Meeting: Documentation is the Key to Preventing Problems

Brian Crane, Intero Real Estate services and Chairman SILVAR’s Los Gatos meeting, brings in a variety of guests with important information. The May 23 meeting followed in the same vein with David Hamerslough as the keynote speaker.

Hamerslough is a Real Estate attorney and Partner at the law firm of Rossi, Hamerslough, Reischl and Chuck in San Jose, California.

According to the RHRC website: “RHRC specializes in commercial and residential real property and business litigation and in negotiating complex real estate transactions. Consequently David Hamerslough’s message was clear: document all forms of communication in order to insulate yourself and your business from the actions of your service providers and your own good intentions.” Forms of communication may include most any type of communication during the real estate transaction. It is always best to save everything.

In addition a nice pictorial of the 2007 Silvar Affiliates “Finance Committee” Los Gatos-Saratoga District was included in our morning packets. The following is the committee:

Ann Timmoney Opes Advisors, Co-Chair; Byron Harkey Innovest Corp., Co-Chair; Katheryn Agarpao First Horizon Home Loans; Judy Bettencourt, Countrywide Home Loans; Ericka Brown, Private Mortgage Advisors; Kathy Brown, Washington Mutual; Sharon Butler, Indymac Bank; Stan Carnekie, LG Loan Group; Joyce Conlin, Diversified Capital; Mark Falcone, Countrywide Home Loans; Judy Hamilton, Bankers Network Corp; Jayne Harter, First Horizon Home Loans; Laurie Klatt, Amerimac First Mortgage; Scott Larson, Princeton Capital; Terry Leary, Empire Equity Group, Inc.; Celeste Martino, Indymac Bank; Neil Reid, Wells Fargo Home Mortgage; Nancy Soule, GMAC Mortgage; John Tripp, Foundation Trust; Eric Cutting, Westside Mortgage; Steve Smith, Diversified Capital Funding; and Dave Eshelman, Finet of Saratoga.

The most unusual property listing today ? Craig Gorman’s listing at 14225 Lora Dr. #38. This is a 2bd-2bath condo that was completely remodeled in 2002. The price is $465,000 and that makes it a bargain.

“Back In the Day”: Your Rear View Mirror of Life. . .


Six months ago as I prepared to subject myself to another ( in a long line of the bizarre) internet date, courtesy of Yahooooooooooooo, I began to reminisce about the old days. You know the “back in the day” memories a long playing and never ending reminder of what was and will never be ? It was the “Old School” hour, circa 1970’s, brought on by the fact that my ensuing date was with a woman 17 years south of my age. This girl, who claimed to have posed for Playboy, was so far in the rear view mirror of life, I began to wonder if I should “card” her just to be safe. . . I mean for god sake she was in her late 20s and I was tippin the scales at a robust 40 something!

Then it hit me: what the “*$#@” was I going to talk about with her ? This thought triggered my memories. . . with the soundtrack of my life provided by Tower of Power slammin in the background.

*Gratuitous Disclaimer: Mom if you are reading this-now is the time to cover your eyes! If you are not at least 40yrs old don’t bother to read this–you would never understand because you never lived it!

“Back in the Day” guys had girl length hair but no piercings. Tatooes and goatees were signs of a true outlaw and to be worn only by your friendly neighborhood Hell’s Angel, sailor on shore leave, or anyone incarcerated.

Girls did not have tatooes unless they wished to be considered from another planet, they had “wings”, wore butterfingers and candies, and girls never considered professional boxing a career move.

Men’s fashions were in a word tight and I don’t mean cool. Tight pants suction cupped onto your gluteus, airplane strength materials spray painted onto your torso with multi color outdoor landscape scenes unbuttoned down to your zipper, and platform shoes that made even Chili Eye Charlie a tall man. Yup you were truckin down the road lickin in life. . . and what a different life it was back in the day.

No internet, no answering machines or voicemail, no microwave ovens, no cell phones, no vcr or dvd players, no cable tv, no home video games, no remote controls (I was my father’s human remote placed strategically next to the tube to turn the channel when commanded), and no cordless phones were just a few of the technological differences.

Then there was the subject of sex and drugs (bye bye mom). There was NO AIDS epidemic. I repeat there was NO disease which could take your life and the life of your beloved friends. The worse case scenario was something painful, something unpleasant, and a gift that kept on giving without taking your life. . . What am I trying to say here? Yup people were doin it and doin it as often as possible “back in the day. . .”

And that drug thing. . . well on any given day you could be riding down 101 South heading into the city glance to the right of you and a VW bug would be engulfed in what looked like a car fire. No sight of passengers, just a white smoke filled cabin that would have made Spicoli proud! Turn to view the other lane and you might catch a glimpse of a group of people sardine’d into a muscle car passing a bottle of J.D. and a doobie in rotation at 70 mph. MADD were not yet in existence and neither were intelligent choices but that was what it was like “back in the day.”

That date 6 months ago went as I knew it would. . . it limped through dinner like a dog lost in the desert on it’s last leg, wobbled afterward like your oh so embarrassing drunk uncle, and it finally died a whimpering death after a grand total of 1 hour and 12 minutes of pure torture. Thank God!

Today I have a beautiful and age appropriate (for me) girlfriend Susan rescuing me from that torturous existence. I love today’s internet and all technological breakthroughs. My clothes are looser, my hair thinner, my muscles bigger, and my attitude very grateful. Spirituality in place of materialism is a wonderful place to be. . .

What was it like “back in the day” for you?

Southwest Exchange: “Uh, Uhm. . . uh. . .” $100,000,000 Reasons to Perform Due Diligence on Your 1031 Exchange Company

In one of the biggest 1031 swindles in Real Estate history, Southwest Exchange of Las Vegas, Nevada was charged with pilfering $100,000,000 of investors money. According to the Las Vegas Business Press, the principles of Southwest Exchange, CEO Donald McGhan and Shirley McGhan (his wife) face a massive civil lawsuit. According to LVBP in their May 18, 2007 edition:
“The couple is accused of one of the largest, most brazen frauds ever alleged against a Las Vegas financial institution. Along with daughter Nikki Pomeroy, son Jim, longtime investment broker Peter DeMarigney, plus a number of insurance companies, brokerage firms, a local bank and related business associates, the couple are named as defendants in a consolidated civil case. The suit alleges more than two-dozen acts of malfeasance affecting victims in Missouri, California, Idaho, Arizona, Nevada and elsewhere”

In addition, the FBI is investigating. “So too are state agencies that failed to detect the chicanery until more than 130 victims had lost more than $100 million. Those victims are all landowners who placed the proceeds from real estate sales into escrow accounts at the now-infamous Southwest Exchange in Henderson, which abruptly shut its doors in January. Instead of avoiding an IRS tax bill by parking their money in a supposedly safe, bonded institution for 180 days, these victims lost between $25,000 and $22 million each, some of which they will never recover.”

In a phone call dubbed “The Answering Machine Call” made regionally famous by Las Vegas’s Channel 8 CBS affiliate “Eye Witness News” , Donald McGhan attempts to lie to one of his clients who is desperate for answers:

“Uh, the wire for your transaction today was all set up, but uh, it didn’t end up going because of some screw up,. . . uh, with,. . . uhm, the coordination between the, uh, electronic wire transfer, uh, instructions over to, uh. . . , our bank and, uh we’re all set up to do that Monday morning. . . ”

The stumbling excuse filled excerpt continues: “So we recognize that you. . . you, uh, want, you know. . . feel. . . feel, uh, violated and want to do something, uhm, but if, if we get, if we get, uhm, uhm, people involved, uh, it is going to screw up going Monday morning. So let’s not–let’s just be patient for it.”

So it’s up to you to perform your own investigation and due diligence into any independent 1031 Exchange company. Do not allow these painful mistakes made by well meaning people, become your own personal nightmare !

 

   

1031 Advance New Developments: What Really Happened or More Rumors?

The ongoing mess that is 1031 Advance has turned into a Chapter 11 reorganization. The Huron Consulting Group and Van Prooyen-Greenfield LLP are heading up the “cleanup” of both the financial mess and public relations train wreck. So what really happened to $151,000,000 of client monies? Where did it go, who took it or “placed it”, and why???

As with my first posts on this saga, I wish to reiterate that rumor, gossip, and innuendo are “unsubstantiated” forms of communication. Are they fact? In some cases they are and in many cases they are not fact.

Pat Kitano in his article “1031 Exchange Companies are not Regulated” succinctly outlines the tragic lack of regulations and enforcement in place in this industry. It is truly a “Buyer Beware” climate.

With this idea in mind, I received a phone call from my original source who tipped me to the 1031 Advance “closing.” My east coast source had some new news; so take it with a grain of salt or follow it up as you see fit. Here it is. . .

According to my attorney friend, the culprits behind the mess are the people who originally left the company–those responsible for running the 1031 Advance San Jose show. The rumor is that these people “placed” the client funds, in question, into non liquid assets. Those assets are rumored to be Real estate.

In laymen terms, the group responsible for holding their clients’ funds used those funds as their own personal investment slush fund. Again the speculation via rumor is that these people felt they could invest client monies in real estate, hold the real estate for a short time, then quickly sell off these holdings for a profit before the money came up missing. It appears to be a lesson in “other people’s money” investing where the “investor” (1031 Advance personnel) risks someone else’s money not their own. Again this is unsubstantiated rumor from a source claiming to be close to the industry and business. . . take from it what you will.

Because of the amount of interest I have received on this case, I am going to do a follow up piece describing the recent Southwest Exchange rip off in Las Vegas, Nevada.

In addition, with the help of industry experts, I will be compiling information and questions potential 1031 exchange clients need to ask when investigating companies to perform their exchange.