Thursday, April 23, 2009 | In the last several years, Jim McConville has orchestrated a number of real estate deals around the state that have gone askew for dozens of people who loaned him money, worked with him or allowed him to buy properties in their names. Now, many of those people are seeking redress.
But some damaged investors clamoring to be paid haven’t been able to track him down to even serve him with lawsuits.
Notice of one suit in Marin County was published in the newspaper because McConville could not be found to be served. On another suit filed in Contra Costa County, someone at McConville’s residence was served on his behalf, according to an attorney involved.
The buyers on the projects were straw buyers, individuals who agreed to rent McConville their identities and good credit scores so that his team could obtain mortgages in their names. He promised to pay them $10,000 per condo but he didn’t pay them or keep up the payments on their loans for very long, the investigation revealed. Sales documents from the project’s developers say McConville’s team pulled more than $12.5 million from the deals.
Those North County projects are not the only deals gone bad in McConville’s real estate empire. The allegations contained in a Contra Costa County lawsuit reveal some similarities to McConville’s scheme here in San Diego County. The suit alleges that McConville orchestrated fraudulent loan applications in 2006 for more than a dozen buyers in a 300-unit development in Ridgecrest, in Kern County.
The fallout in Ridgecrest, a town of about 25,000, parallels that in North County, too. Mortgage payments have stopped, homes are falling into foreclosure, and at least one lender is scrambling to recoup its losses.
A separate lawsuit filed in Marin County last year claims that McConville conned two investors out of $475,000 in a different real estate deal.
And as pieces of McConville’s real estate empire cascade around the state, others involved in his projects have begun to make complaints to law enforcement and attract media attention to their stories.
The Ridgecrest development, called La Mirage, is made up of renovated duplexes and condos built initially in the 1950s and previously used as military housing. At least half of its homes are now in some stage of foreclosure, according to Kern County public records.
One in a string of lawsuits related to the project claims that McConville and several of the buyers concealed the fact that they were obtaining other loans at the same time, and that they acted in conspiracy to provide false information to the lender.
The suit, filed by Najarian Loans, which lent at least 30 mortgages to McConville’s buyers in the project, echoes the claims of two lenders from the Escondido and San Marcos deals: That they had no idea the buyers were taking out numerous loans from different lenders at once.
The suit names more than a dozen borrowers of the loans, including Jack Thomas, McConville’s former employee, and Donna Piette, whose name is also on title for one of the defaulting units in Escondido.
The Ridgecrest development ups the mystery in McConville’s operation. Unlike in the North County projects, where buyers said the mortgage payments McConville promised to make ceased after just a few months, the payments on the Ridgecrest mortgages were still being made nearly two years into the life of the loan.
It didn’t make sense that someone perpetrating a scam would keep making the payments for as long as two years, said David Harris, attorney for Najarian. “It didn’t have the earmarks of any fraud to us,” he said. “From our standpoint, the loans were performing, which is generally inconsistent with some type of scheme.”
Najarian wasn’t the first party to sue over the project — it had been sued first by SunTrust Mortgage Inc., the company further up the lending chain that bought the loans from Najarian. SunTrust claimed in 2007 that it found “incomplete, false, inaccurate or misleading information” in the applications, and that it had been “severely damaged” by its inability to sell the loans on.
At that time, the payments were still being made on the mortgages.
Najarian settled with SunTrust and the terms are confidential, but the company continues to seek damages from McConville and the buyers. Harris said McConville acted like he was willing to settle the matter last year. Now, that doesn’t appear likely.
“He’s more or less disappeared, so we’ve had to restart those efforts,” Harris said.
Thomas, one of the defendants, worked for McConville for several years, renovating and maintaining units around the state. He said in an interview with voiceofsandiego.org that he allowed McConville to use his identity to get loans on seven properties in Ridgecrest.
When Thomas was served with the Najarian lawsuit last year, he said McConville told him he’d take care of it. Since then, Thomas has fallen out of touch with his former boss.
Edward F. Cullen, a Silicon Valley attorney, has been approached about representing some of the buyers. He said that Najarian has a better chance at getting any sizable restitution from McConville than it does from the buyers.
He also questioned the bank’s scrutiny of the loan applications in the first place, because many of the buyers earned far less than enough to afford the payments on these loans.
“It’s really a sad situation — these people were pawns,” he said. “Were there mistakes in judgment? I think that’s probably a good guess.”
Despite the problems at Ridgecrest, McConville used the project to bolster his credentials when trying to get the Escondido deals done. In a 2008 letter to the developers of the Escondido complexes, he noted that, “The last 2 years have been very interesting in this marketplace. In order to be successful we had to be innovative in our selling techniques and creative in our financial placements in loans.”
McConville is targeted in another lawsuit brought in December in Marin County by two investors who claim they were conned out of $475,000.
The lawsuit claims that McConville borrowed money from two investors using two Bay Area properties as collateral on the loans in 2004. McConville then convinced the investors he needed them to drop their claims against the properties temporarily so that he could get them refinanced, according to the suit.
When the investors removed their claims to the properties, McConville refinanced the properties, but then sold one to a third party, and kept the other, the suit says. The investors were never paid their money back and have lost any claim they had to the property, the lawsuit claims.
The suit also names Jim’s daughter, Nicole, and Sapphire Park House Corp., a company partly owned and run by both McConvilles, as defendants.
McConville’s operation seems to have evolved to fit the changing real estate landscape of the last few years.
In the Escondido and San Marcos complexes, McConville’s buyers had excellent credit and good jobs. In their names, McConville’s team obtained 30-year fixed-rate loans with 20 percent down payments. McConville made the payments on those loans for a couple of months in the cases of at least six of the borrowers.
But the buyers in Ridgecrest three years ago used loans that epitomize the housing bust — loans that didn’t require verification of incomes or assets, according to Harris, Najarian’s attorney.
Moreover, when the Ridgecrest loans were made in 2006, the mortgage securitization business — the kind of loan buying and packaging that Najarian and SunTrust did — was more robust than it was when McConville’s buyers loans were made in San Diego County last year.
By 2008, some of the only companies still willing to buy those loans were Fannie Mae and Freddie Mac, the giant government-sponsored mortgage companies. It is possible that the companies will seek similar actions as SunTrust.
Meanwhile, cities brace for impending foreclosures stemming from McConville’s falling empire.
The Daily Independent, Ridgecrest’s local newspaper, mentioned trouble in the La Mirage complex in an article in Saturday’s paper, saying the “residents in the La Mirage housing development are left wondering where they will go and what they will do.”
— Will Carless contributed to this report.