The Verdict - The Lombardi Law Firm Blog
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How do we know when the recession has officially hit home? How about when it hits the ultra exclusive country club in town Glenn Oaks? It’s being reported that West Bank will be taking over the club which is home to the Principal Charity Classic, a PGA Champions Tour event, by next Thursday. The board of directors decided not to oppose the foreclosure; they had hoped to raise enough money to pay off the loans, and had raised a couple millions dollars; but apparently it just wasn’t enough. Dave Milligan, the interim president of West Bank has expressed optimism the bank will be able to find a purchaser without much delay, but the question if for how much and at what loss? Glenn Oaks has seen its membership drop from 500 to around 400 or a drop of $40,000 to $50,000 in monthly revenues, causing them to miss their May and June payments on loans of $7.4 million. They are also currently due to pay $318,887 in property taxes by Wednesday. Glen Oaks is an established country club but newer courses newly developed have a whole host of problems that Glen Oaks does not. Here are a few.
"FORE' WARNING TO HOMEBUYERS IN A GOLF COURSE COMMUNITY - ASK QUESTIONS AND READ BEFORE BUYING
If you're looking for property and there is a golf course ask a lot of questions.
1. Find out who actually owns the course and ask to see the financial statements from the operation.
2. Determine where the money that is used for operating expenses is actually coming from.
3. Ask yourself the question; is this a viable business operation or one being supported by current owners of the surrounding property?
4. Stay away from dual agency.
It's interesting that most people believe a golf course is a money-maker, but in reality it's the opposite. In many instances the developer will give the golf course away; making money on the lots surrounding the course. For the past 5 years I've seen overpriced property being bought. The developers paid too much for the ground (they call it the dirt); that in turn drives up the assessed value, the taxes and insurance are too high and the surrounding homes cost PSF is way out of line with reality. As a result the developer goes belly-up.
And what happens after the lender gets the property?
The lender takes the property back. The lender sits in court calling the developers liars and challenging all of their valuation assumptions. But not too loud. The lenders get the property back. Some lent 90% or more on the inflated values. "Oops we need to get our money back or we are out of running the bank." Now the lenders want to make money; they are no longer "lenders" per se; they are now in the real estate business looking for people like yourself with plenty of money, again trying to sell a dream that doesn't exist for prices that make no sense.
These new "developers" will lie and tell you an amount "the developer has in the property", an amount that is full of nothing but hot air. The developers didn't know what they had in any one property b/c they were robbing from Peter to pay Paul. The developers had airplanes and made large campaign contributions, money taken from loan proceeds that should have been used to pay bills. Instead they simply inflated the land values and construction costs to justify more loan money, while trying to recoup and get out of trouble.
Their loan-speak was like duck legs under the water. Now the developers are gone (remember at one point they were the liars) and the lenders are using all the same inflated valuations of assets, land included, that 6 months ago when they sued the developers they said were false assumptions and lies. You can't believe land valuations or "what the developer has into the project." It's a mountain of lies and exaggerations. And even though there is a mountain in front of the property it still doesn't change the view of the balance sheet.
In some instances the lender has taken back so many properties in the same neighborhood or condo project that they don't dare tell the truth because of what it will do to the other properties they own. Golf courses are a losing proposition. Many are going under; Glen Oaks is a good example. Glen Oaks is in foreclosure proceedings as we speak.
In many communities over the last few years the developers would give the golf course away for free to anyone who would operate it and pay the taxes. They made all their money on the inflated valuations of lots surrounding the courses. After the project goes belly-up the lenders start paying the operations bills to fool the few buyers still taking the bait, into still paying inflated prices for the lots/houses/condos and then intend to unload the course onto the HOA.
And what does that mean to the HOA?
Meaning you get a triple whammy. You can't sell your house for what you paid, your taxes are out of line and now you get to pay more to operate the course; for fear if the golf course closes you will never see most of the equity in your house.
There is so much more I can't begin to cover it all, but be aware, read the documents, ask for financial statements, who really owns what and how are the operating costs being paid. What is generating the actual income to pay operating expenses? Look at cash flow statements and check with the county to see how quickly assessed values have fluctuated. The taxing body doesn't want the cat out of the bag either b/c if they lower assessed values so goes their tax base and tax dollars. The county officials won't tell you what you don't ask.
Can we trust the real estate agents?
Some yes, but most, hell no. You can't believe most of them. Especially not the agents who do this as their only source of income. They would sell you toxic assets and then say you just didn't do due diligence; it's your own fault; "Oh, but can I list it for you?" That's what I'm seeing; they sold dreams that didn't exist and now say, "Yeah we never could have guessed! But let me sell it for you (again)." And all the while they are laughing at getting to sell it again and make another commission off of one more sucker.
What is going on in this country? Where is there an honest deal?
Aside from 30 years as a civil trial lawyer I've spent the past 15 years looking, analyzing, buying and managing commercial real estate.
The lenders are the new developers. The "new developers" are just the old developers with someone else's money. Directing your attention to a mountain view is simply directing it away from overpriced ground. Dirt is dirt. And dirty lenders are no different than dirty developers. Ask a lot of questions and trust none of them when it's your money being spent.