By Jake Rossen
By Jesse Marx
By Michelle LeBow
By Alleen Brown
By Maggie LaMaack
By CP Staff
By Jesse Marx
The plainspoken, unsuspecting Clewette liked what she heard and arranged to meet Nordvik and Flavin at Baker's Square to talk some more. "I was excited," she says. "I didn't feel anything bad in my gut."
Meeting the two face-to-face and hearing the finer points of the investment plan, her confidence held. She gave them her social security number for a credit check. They gave her $5,000, courtesy of Flavin's company, Innovative Personal Solutions, and told her to deposit the money and keep it for closing fees on her first property. "I put it right in the bank," she says, "and I kept it there."
See supporting documents and additional images in Jeff Severns Guntzel's REPORTER'S NOTEBOOK for this story. Plus, learn what to do if you think you're a victim of real estate fraud.
THE FIRST TIME CLEWETTE VISITED her new investment partners at their Minnetonka office was about a week after their first meeting, and things were a bit chaotic. Walls were bare and boxes were everywhere. "Excuse the mess," said a cordial Flavin, "we're just getting set up."
Even with the benefit of hindsight, "everything seemed legitimate," Clewette says. "They had somebody answering phones and a guy working on advertising. They had property listings. They had an office."
Nordvik was there that day, and she was introduced to Jonathan Matheson and Brian Matheson Jr.—regular fixtures in Flavin's office and his link to American Wholesale Lending, where their father, Brian Sr., was a key player.
Flavin handed a contract to Clewette—a guarantee from Innovative Personal Solutions that they would pay Clewette's mortgage for six months whether they found tenants for her properties right away or not. "Sometimes it can take a few months," she was told.
The eager investor had her daughter with her, who had a question: "Have you ever had to deal with foreclosures?"
Innovative Personal Solutions had only existed for a few months, and Clewette was one of its first investors. Flavin left that part out. "No," he said. "That wouldn't benefit us at all."
Clewette signed the contract.
THE CITY OF OTSEGO, about an hour northwest of the Twin Cities, is a sort of frontier for suburban development. Highway billboards offer home buying opportunities and directions to the nearest John Deere dealership. The Otsego Preserve would be an unremarkable American suburban subdivision—except for the fact that it's virtually a ghost town. Flavin was a sort of savior at Otsego Preserve. Inspired by a euphoric real estate market, the subdivision went up quickly. By the time the houses were ready, however, the market was a mess and the homes weren't selling. Flavin got word of the stagnant development and decided to buy up the subdivision with the help of investors like Clewette.
It took a few months, but eventually Innovative Personal Solutions located six properties for Clewette—five of them in Otsego Preserve and one in the city of Ramsey. It all happened fast, much of it over the phone. Flavin told her she'd be hearing from someone at American Wholesale Lending who would get her loan applications in order. He gave her more "upfront money" and soon she had deposited $30,000, which did wonders for the asset-to-debt ratio that any lender one step beyond American Wholesale would be looking for. Soon there was a meeting to close on the first property—then another and another. She closed on six properties in less than two weeks. "It was a bit overwhelming," she says. Flavin warned her it would get crazy at closing time, and she wrote it all off as a quirk of the business.
AT POLICE HEADQUARTERS IN MINNETONKA, detective Steve Owens tends to a growing mess of documents in a room dedicated solely to a criminal investigation of Flavin's real estate investment business. He's got settlement statements, purchase agreements, leases, and loan applications. He's got files on American Wholesale Lending and other players big and small. Owens stresses this is an open investigation and no charges have been filed. He's been at it since 27-year-old nursing assistant Richard Tonn walked into his office in October 2007. Tonn told a story much like Clewette's. He was making $27,000 a year. It wasn't until his loans came through that he discovered his income had been inflated to $84,000 on the American Wholesale application. He had four Otsego Preserve properties in foreclosure.
"The earliest investor I've found is February 2006," says Owens. All told, he's identified 29 investors—"straw buyers," as he calls them—and more than 130 properties, most of them Otsego Preserve houses.
For months he's been interviewing investors and others affected or involved. He's had people crying in his office. "These people are suffering financially and going into what they believe is a legitimate business deal. And they end up losing everything. And that loss is reflected in our communities and in our neighborhoods. Go out to Otsego yourself—it's eerie. There's a sense that these homes and this neighborhood just aren't going to make it."
An investigation into potential real estate fraud promises one thing: a dense paper trail. Owens has spreadsheets and piles of paper and DVDs of scanned paperwork. He brings printouts home with him. It's a complex investigation and it's always on his brain. "There are so many players," he marvels.