UPDATE 9-12-12:Jones homes were bought by her bank lenders yesterday at auction with credit bids. See Forced to Vacate story.
New Canaan real estate titan Ruth Jones lost her motion to halt the bankruptcy auction on five investment properties and her primary home of sixteen years. Last week Judge Shiff in Bridgeport, Conn. Federal bankruptcy court ruled regardless of her motion for appeal in Federal District court the trustee should move forward with the September 11th auction.
Jones, a real estate agent who in 2009 was named the ‘New Home Broker of the Year’ by the Home Builder’s Association of Connecticut for the 11th straight year, has been battling a chapter 11 reorganization for three years with over half a dozen banks. Rents on her New Canaan investment homes have been locked in a DIP account controlled by a court appointed trustee for over a year and banks like Ridgefield Bank and Greenwich Bank and Trust stated in court filings they haven’t been paid for three years. I previously reported how local banks were not willing to modify the 1st and 2nd loans she took out on most of her homes. The lack of ability for either party to negotiation led Judge Shiff to rule this July the homes must get sold on the court house steps at auction.
According to New Canaan town records Jones built her primary residence at 75 Beacon Hill rd in 1995 with her husband who bought the land for $420,000 in 1994. Then in May 2001 she got a first lien loan from Ridgefield Bank for $1.5 million and the next year the town assessed the 7,510 square ft home for $1.649 million. The assessed value for homes in New Canaan is 70 percent of the appraised value.
During the go-go years of the real estate boom Jones was earning commissions selling mega million dollar McMansions designed by builder Rick Girouard. Girouard was found guilty of bid rigging fraud, went to jail for two years, and was just released last month. The millions earned from commissions helped Ruth build her rental home empire. She also took advantage of her investment in a startup local bank run by Fred DeCaro Jr., and took out 2nd and 3rds on homes in her rental empire. Her loan to values were not near the 100% we saw a lot of real estate investors make from 2002-2007 but after the 2008 financial crises the appraised value tanked driving Jones to be stuck with little to no equity in the homes. (In 2010 Decaro’s USA Bank was shut down by the FDIC and I reported last year the FDIC is still investigating the Bank executives for abusive leading and fraud.)
By the time she filed for bankruptcy in August 2009, Jones had amassed 13 investment properties along the Gold Coast of Connecticut. Jones bookkeeper, Elizabeth Santaus, told me last month if all properties had paying tenants they earn around $45,000 a month. Accept for a $5,000 trustee approved management fee Jones can’t get access to most of that rental income because the banks have it tied up in a debtor in possession account.
“That was supposed to my income for my retirement,” Jones told me this summer over lunch.
Before Jones began loading up on loans from USA Bank to buy more rental properties she refinanced the loan on her primary residence adding on another $500k to the principle with a 5.25% interest rate. Court record show interest and some principle was paid till 2009 but the principle balance is currently $1,986,035. As the home grew in value, court records show, she then set up a credit line, via a home equity 2nd loan, for $1.5 million with an interest rate of 7% in August 2005.
Jones then used $750,000 from her credit line with Ridgefield Bank (also known as Fairfield County Bank) to make a short term investment in early 2007 with a Darien, CT couple who was setting up a pay telephone service to the public in Puerto Rico. Ronald and Margaret Massie of 451 Mansfield Ave, Darien CT ended up being fraudster and Jones filed a civil suit that year against them for a 90-day loan that was secured by their Mansfield home valued at $3 million. Unfortunately the Massie’s had also made deals securing the primary residence with other creditors. The IRS also had a $347,917 federal tax lien on the home since 2003. After over a year of litigation the couple ended up filing bankruptcy leaving Jones with no cash to pay back the credit line as interest was mounting from the Bank. In 2009 the beautiful McMansion, which housed her mother with Parkinson’s disease and an older brother with cancer, was saddled with near $3.5 million of debt. The inflated 2008 town appraised value was $3.25 million, which put her at least $250,000 underwater. Local New Canaan realtors I interviewed said a house like that would sale for only $2 million these days. Jones idea of a modification was to ask the bank in the Spring of 2008 to wipe out $2 million of the loans. She wrote the Bank’s board saying she could make the mortgage payment if the principle was reduced to $1.5 million. A steep discount the bank had no interest in making.
After Jones filed chapter 11 she signed an in-kind 6 year lease with her sick brother Alton to live in an apartment they’ve built in the home. Richard Coan, the court appointed bankruptcy trustee, filed motions last week to have the lease null and void so he could sell 75 Beacon Hill free and clear of liens and leases in the September 11th auction. Judge Shiff will hear that motion on the same day as the auction so it’s unclear if potential buyers will be picking up a home with a sick person locked into a lease living in it.
Steve Dibert CEO of MFI Miami, a foreclosure fraud expert, said, “An in-kind lessee can still be held valid in court assuming the lease, her brother, can perform the in-kind task.”
Last week Jones filed a Hail-Mary motion as an appeal for a stay in Federal District Court to halt the one-day auction of six of her homes. Judge Alvin Thompson heard her argument on September 7th and as of press time a ruling was not filed in court. In the last two days, four of the secured creditor banks and Trustee Coan have filed strong objections to the stay in the District Court. They haven’t been paid in three years, home values are still going down in Fairfield County, and they want the homes sold so they can take whatever cash they can get. Cash that could be used to make new loans to buyers who can afford homes. They also state they don’t believe Jones has a workable plan to pay them back. Unfortunately, the court is refusing to take into consideration that Jones has two sick family members living with her because the court is ruling on economic factors not emotional ones.
Ridgefield Bank went as far to tell the District Court they will be economically harmed by a possible two-year appeal because Jones has admitted her primary residence has some structural damage and she is not spending money to fix it. Ridgefield’s attorney also pointed out there is no equity in the house and asked if the court was to grant a stay Jones would have to put up a supersedeas bond in the amount of $418,335. The bank calculated this taking the principal amount of the two mortgages ($1,986,035 and $1,498584), applying the contractual interest rates (5.25% and 7%), and determining the interest that would accrue over the next two years. That means on the off-chance the District Court grants a motion to stop the auction until her appeal is heard, she still has to fork over $400k in cash to be held by the court. Ouch!
Christopher Fountain, a popular Greenwich blogger and real estate agent who focuses on distressed home sales wrote about Jones troubles after I broke news of the upcoming auction. You can see the local sentiment here – net net this tony lower Fairfield County community doesn’t appear to have a lot of empathy for the methods Jones used to build a real estate empire that federal courts are about to unwind. Nor do they hold bankers not willing to negotiate with troubled over leveraged homeowners as the bad guys.
Parties interested in placing good faith bids need to send 10% of the proposed purchase price and bid in writing to: Timothy Miltenberger at Coan, Lewendon, Gulliver, & Miltenberger, LLC 495 Orange St, New Haven, CT 06511, phone 203-624-4756.