The Bottom Line:
Stapleton Group successfully unraveled a tangled web of investor contributions, investments in real properties and underlying documentation. We pursued an aggressive path to complete the construction of a 9-home subdivision in the San Francisco Bay Area and enforce investors’ loan positions through negotiations and litigation, resulting in a recovery to the investors.
The Business Issue:
A real estate fund founded by an inexperienced manager made bad loans to unproven, opportunistic developers to buy, renovate and flip single family homes. The fund’s CEO had been fired without a successor, leaving groups of investors pressing conflicting agendas. The properties in which the fund had invested carried first, second and third position loans from multiple investors and/or individual investors and investment funds, making it difficult to achieve consensus among deed of trust holders to sell a house or remove a lien from a loan to recoup the investors’ capital.
Genesis of Stapleton’s Engagement:
The court appointed Stapleton as receiver after several of the involved investment funds and investors sought an experienced fiduciary to clarify the fund accounting an deed positions; negotiate with borrowers, developers and lienholders; and, ultimately lead a sale and a short sale of properties.
Obstacles and Stapleton’s Solutions:
- The fund lacked leadership and a cohesive recovery plan, resulting in litigation.
- Stapleton instilled authority and created and implemented a strategic plan.
- Stapleton served as development manager for all of the borrowers, meeting and negotiating with the city and original developer.
- Stapleton placed a new developer to complete the subdivision and navigate a lien release process.
- The poorly-managed fund had commingled investor contributions, lacked adequate accounting procedures and documentation, often failed to record trust-deed paperwork to secure its investment positions, and typically made subordinated loans on homes with declining values.
- Stapleton’s initial due diligence and limited forensic accounting resulted in a list of loans and associated real property, which assets became the focus of our role as receiver and the source of recovery for the investors.
- Stapleton substantiated all of the investors’ positions, a complex process due to the lack of documentation, conflicting documentation and the commingling of funds.
- The investors wanted a recovery, but had disparate agendas.
- Stapleton sorted through deeds and worked with borrowers, lienholders, contractors and other parties involved to develop a projected recovery for each loan.
- Stapleton, with the assistance of counsel, filed lis pendens as a tactic to secure positions and a share of proceeds from certain properties, and initiated or managed litigation related to seniority and other issues with deeds on properties.
- Stapleton worked with all parties, including real estate brokers, to sustain the properties, market and sell the homes and submit demands to escrow for payoff of the investors’ liens.
- The fund’s investments included unfinished homes without completion plans.
- Stapleton assisted the project manager and developer and worked with city agencies to understand and obtain all necessary permits to complete the homes and ensure Certificates of Occupancy were issued.
- Stapleton maintained the project timeline and kept the investors informed.
- Stapleton facilitated refinancing efforts and subordination agreements when necessary to extend the borrower’s construction loans and financial obligations.
- When one property sale resulted in $200,000 in excess proceeds, numerous claimants sought remuneration.
- Stapleton hired counsel to fight off the IRS, FTB and other claimants on from the sale of one house, and prevailed in litigation to recover the majority of these funds.