Sea Coast Echo story on Bay Waveland Schools buying Bay Tech building raises additional questions (UPDATED)

Earlier today I linked the Sea Coast Echo report on the Bay Waveland School Board’s purchase of the Bay Tech Building encouraging our readers to read it as reporter Geoff Belcher attempted to frame the story as a business spat between realtors.  I beg to differ and as I examined his story critically, especially the quotes from Mary Bunch, Avra O’Dwyer and School Board Attorney Ronnie Artigues, I ended up with more questions than answers.  Luckily for everyone I did some interviewing of my own so maybe I can answer some of these questions.

Belcher compartmentalizes the topic into “two major components to the controversy” but he missed a few components in the spin cycle so we need to first examine what we know and compare that to the quotes he snagged and the assertions he made.  Since I bring my day job skills to the blogging scene I’ll warn my new readers this won’t read like a newspaper guy wrote this story but I bet I can make everything understandable thus we begin with the disclosure of the people I interviewed for this post: Bill Washburn, former owner of the Bay Tech Building via his company Magnolia Group LLC, Lana Noonan with the Hancock County Alliance for Good Government, and Ms Avra O’Dwyer, owner of O’Dwyer Realty.  Before I get to their remarks I’d like to make a couple of observations so let’s quote from the end of the story, specifically the attributed remarks of School Board Attorney Ronnie Artigues with Butler Snow:

Artigues likened the process to the district’s recent purchase of two properties near Waveland Elementary to make room for road expansion there.

“We had to offer them the appraised value,” he said. “It’s no different, it doesn’t matter who the owner is.”

Mississippi is considered a non-disclosure state. Property owners are not required to reveal what theythemselves paid for the property to a prospective new buyer.

The $325,000 figure did not become public until Multiple Listing Service (MLS), a nation-wide real estate listing, added it to the Bay Tech description page.

“We got it for the lowest possible number based on the appraisal,” Artigues said, adding that the district was quite pleased with the price, at the time of the sale.

The assertion a govermnet has to offer “appraised value” in a privately negotiated real estate transaction is absurd. I’m not sure of the context of the reporters statement regarding the late date the transaction was entered into the MLS or how it fits. For instance is the reporter trying to hint at the fact the last sale of the building was not considered in the appraisal report the school district paid for after the August School Board meeting?  It simply isn’t clear.

Frankly if the last sale of the property in question was not considered in the appraisal, then it simply isn’t worth the paper it is written on given the short time elapse between the purchase and flip.  I’ll add the school district got nothing near the best price possible because that price was $325,000.  This is why that appraisal document is so important since it will answer those questions. Finally, pointing to the MLS and saying in essence, “Gee, the sale wasn’t in there, and since the seller does not have to disclose what they paid I can pretend I didn’t know” won’t cut it either because Broker Avra O’Dwyer indicated to Slabbed she personally told Mr Artigues the June 8, 2012 sales price in “mid to late July, 2012.”

Even worse Artigues is now claiming the cost of this specious transaction will be born by the local taxpayers.  This is local money that could go to teacher supplements and/or enhance education programs.  As the attorney that handled the close, his value to his client, the voters in Bay-Waveland, is in making certain nothing happened in the title chain that would place a question mark on the title the school district received. Legal observers familiar with real estate law indicate to Slabbed the question mark on the title the school district received is “written in bold red ink” and the reason for this can be found on legal website NOLO.com, specifically what they term “Short Sale Fraud”, scam #2, “Flopping”:

Short Sale Scam #2: “Flopping”
Victims: Sellers, lenders.

Perpetrators: Real estate agents, buyers.

Red Flags: Double escrows; buyer is an LLC or a fictitious entity or purchasing under a power of attorney; purchase agreement gives buyer the option to resell property.

How It Works: “Flopping” occurs when a short sale is approved based on a misrepresentation of the value of the property. In a typical flopping fraud, the fraudster is the buyer purchasing the property from the short sale seller. In some cases of flopping, the seller’s real estate agent is the buyer. The fraudster presents a low offer to purchase the property to the lender along with an artificially low valuation of the property, in order to convince the lender that the property is worth less than it really is. Meanwhile, any higher offers from bona fide buyers are withheld from the lender, since the lender would most likely reject the low offer if it knew that higher offers were on the table. Once the lender approves the short sale at the artificially low price, the fraudster contacts the bona fide buyer or markets the property at its true market value. Without the short sale lender’s knowledge, a second escrow between the fraudster (as the seller) and a bona fide buyer is then opened to close simultaneously with the first purchase, or soon afterward. The perpetrator of the fraud buys low, sells high, and keeps the difference between the two sale prices.

Flopping occurs in about two percent of all short sales and may cost lenders more than $375 million this year, according to estimates from CoreLogic Inc., a real estate data and research company. Sellers can also be hurt by flopping, because lenders may hold sellers responsible for the deficiency, or the amount of the difference between what the seller owed and the sale price. If a lender forgives a seller for the deficiency, the seller may owe taxes on the amount of debt that is forgiven.

Mr Artigues handles real estate closings in his law practice so I’m assuming he understand this. The taxpayers in Hancock County got no bargain either way.  It gets worse though.

Slabbed spoke with Mr Bill Washburn this afternoon so I could get his reaction to the Echo’s ass covering screed and he indicated the referenced “short sale” really wasn’t a classic short sale as his bank, Well Fargo retained certain collateral on the related loan and forgave none of the deficiency as he remains on the hook for the full amount of the loan.  He indicated to Slabbed that certain representations were made to Well Fargo in order to get them to release the Bay Tech building that were clearly not accurate. He indicated to Slabbed that he has notified Wells Fargo of Slabbed’s coverage of this transaction and it has been referred to their internal investigative unit.  As I stated earlier Mr Washburn, a lawyer in his own right, has also retained counsel.

As I mentioned above Slabbed spoke with Real Estate Broker Avra O’Dwyer, owner of O’Dwyer Realty.  She indicated to Slabbed that she has no dispute with Ms Bunch beyond the $255,000 liability Ms Bunch’s actions has laid at the door of her business as she is well aware that her agency will almost certainly be sued over this by the victim, Mr Washburn.   Worth noting is she is also a victim in that her business did not get a commission on the difference so she got the ol’ double pump from her former employee.  Also worth noting is that it was certainly not in Ms O’Dwyer’s self-interest that Slabbed broke this story but she was very gracious in helping me gain some insights into the chain of events.  She tells Slabbed that she feels very badly for the victim, Mr Washburn and she indicated to Slabbed she is willing to cooperate with the victim in any way possible to make this right.

Geoff Belcher cited “MLS records” that indicated negotiations began in April, 2012 between LNG Investments LLC and Magnolia Group LLC.  This is not accurate as he misread the MLS data.  Ms O’Dwyer indicated to Slabbed negotiations began in December 2011 according to her reconstructed records of the listing, such negotiations progressing for the next 6 months, the main time consumer being selling Well Fargo on the partial short sale.  Ms O’Dwyer told Slabbed she requires her agents to enter their own MLS data in lieu of hiring a secretary to perform this task enabling her to pay her agents a bit more commission than the other local real estate agencies.  She told Slabbed that on March 22, 2012, Ms Bunch withdrew the Bay Tech listing from the MLS. She further indicated there was no client permission form to withdraw the listing on file at her office and indeed Mr Washburn told Slabbed that he  “did not recall” authorizing the withdrawal of the listing.

After the sale of the property to her son, her son’ s business partner and according to secretary of State records her own LLC via LNG Investments Ms Bunch did not close out the MLS with the final sales price and indeed Ms O’Dwyer’s files do not indicate a nondisclosure agreement was obtained from Mr Washburn to preclude closing out the MLS listing with the final selling price between the June 8 close and Ms. Bunch’s departure from O’Dwyer Realty on July 7, 2012 when she moved her license to McDonald Realty in Bay St Louis.  The forms are required almost universally in the real estate agency industry here in the US.

Finally Ms O’Dwyer indicated to Slabbed that a copy of the June 8, 2012 close packet was also issued to another local businessman, Kenneth “Chip” Henry, a seafood broker now living in Fairhope Alabama that previously had an office in Bay St Louis.  Slabbed’s examination of Secretary of state records indicate Mr Henry’s registered offices in Mississippi are located in the offices of Gerald Rigby, one of the owners of LNG Investments.

Finally we must deal with the meme this is some sort of spat between realtors.  Slabbed spoke with Ms Lana Noonan with the Hancock County Alliance for Good Government, a citizens group which have become regulars at School Board meetings.  She indicated to Slabbed the AFGG advocated buying an existing building “around this time last year” and that suggestion was dismissed by School Board President Sherry Ponder.  School Board minutes reflect the district hired an architect to design a brand new building, spending close to $90,000 in fees only to flush that investment months later when the decision was made to change course and buy the Bay Tech Building.  She also told Slabbed that School Board member Mike Benvenutti publicly stated at the June school board meeting the school district was interested in purchasing the Bay Tech Building thus we gain better feel for how long this transaction had been discussed internally at the School Board.

There is still far more to this story than we have covered so please stay tuned as Slabbed will soon peel another layer off this odoriferous, rotten onion. Car 54, where are you?

Update:

Since this article was first published, the Sea Coast Echo revised their original story on this topic and used the same URL for their revision, which in turn takes the context away from my original reporting.  The Echo’s updated story can be found here and while it is an improvement on the original still does not convey the events in their totality. I have replaced the link in the first paragraph of this article with a PDF of the original story~ Doug Handshoe 10/1/12

Links to Slabbed’s previous coverage of this matter:

10 thoughts on “Sea Coast Echo story on Bay Waveland Schools buying Bay Tech building raises additional questions (UPDATED)

    1. Exactly Brian. Since that story went online at the Echo, I’ve heard from 2 people from a major metropolitan area heavily damaged by Katrina that have personal experience dealing with FEMA and public building replacement in amounts that run to the hundreds of millions of dollars that both told me that it was absolutely OK to pay less than appraised value to acquire replacement property.

      Not mentioned in my piece but also equally true and I say this as a CPA with more than a decade of experience doing OSA contract audits of K-12’s in Mississippi that a Single Audit is not designed to ferret out fraudulent real estate transactions of the type that strongly appear to have happened in this case.

      I’d like to remind the School Board that the last time Ms Bunch pulled such shenanigans she bankrupted her employer and herself – even her son Lloyd lost his house in the aftermath of that one. For the outside looking in I’m wondering how many people Typhoid Mary is going to take down wih her this time.

      Mr Artigue’s remarks on this topic, in “defense of the indefensible” to use a Whitmergateism, are very troubling.

    1. The CPA involved in this case also being a partner??? This smells bad! Maybe if the State Board looked a little closer at this individuals business dealings, they would uncover a nest of bad deals that would rock the County. Call it what you want…..fraud is fraud and that includes money laundering!

      1. I’ve heard those rumors Jimmy going back years. Dealings with a guy from metro New Orleans that is now deceased. The trash gator’s name comes up in that conversation as well.

        Straw men have a basic problem that Matthew 6:24 well sums up:

        No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. You cannot serve God and mammon.

  1. check this out…rigby is friends/business partners with kowoski. kowoski is a real estate appraiser. one wonders if kowoski’s appraisal was used in this web?

  2. rigby is a business partner of kowoski. kowoski is a real estate appraiser. one wonders if kowoski’s appraisal was used in the web ?

  3. Now you are on the right track! I don’t know the appraiser but the other deceased gentleman makes the fact that they had bad blood after a deal went bad look even worse! This is like a big ball of yarn. Once it’s pushed in the right direction it will go on until the entire thing runs out! I wonder if the people who need to folow this have the guts to see it through?

    1. Guts? You mean the local newspaper. Too funny! LOL.

      Mr Kowolski’s name does not show up in the Secretary of State database.

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