By Jake Rossen
By Jesse Marx
By Michelle LeBow
By Alleen Brown
By Maggie LaMaack
By CP Staff
By Jesse Marx
Independently, City Pages has reviewed some of the loan applications American Wholesale Lending drew up for Flavin's investors.
There were a dozen separate applications submitted on Clewette's behalf. She saw only one of them. There were two requests per property—for a first and second mortgage, a not-uncommon practice in the market at the time—totaling nearly $2 million. On every one of Clewette's loan applications, the box next to "primary residence" is checked and the box next to "investment property" is blank. Her reported income was more than triple her actual income of $27,000, and she was asked to sign only one of the 12 applications. On most of them, in the space reserved for the "interviewer" who filled out the form, the American Wholesale employee who signed was either the imprisoned John Searle or the disappeared Brian Matheson Sr.
Another investor, Joseph Addie, an African immigrant who came to Minnesota 18 years ago, has identical omissions and fabrications on loan applications for his six Otsego Preserve properties, and he asserts, through his lawyer, Ryan Ahlberg, that the six purchase agreements bearing his signature were documents he had never seen, much less signed. What's more, on his first visit to Flavin's office in December 2007, he was given a flyer from National Investment Group (Innovative Personal Solutions had been dissolved) claiming that the company "has been managing and investing in real estate for over five years with a history of excellence" and that "the property management company that manages our properties has a track record of success." Yet National Investment Group had been incorporated just five months—not five years—earlier. The property management company, United Management Group, had been incorporated just one month earlier.
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.
Flavin defends his business practices and denies any wrongdoing: "This is not a scam kind of deal," he says. In December, Detective Owens served a search warrant at National Investment Group's Minnetonka office. "I would have never figured anything like that should have happened," Flavin says. The search, he says, was "stupid."
"Somewhere along the line people think we did the mortgages on these things," he says. "We never filled out any loan documents." He doesn't name names, but he's passing the buck to American Wholesale. Owens isn't buying it. "I believe there was collusion," he says.
Owens's interest, however, runs deeper than the loans—because the loans aren't the only documents being looked at. There are also the settlement statements—the forms filled out when the sale of the house is complete and shipped off to the U.S. Department of Housing & Urban Development. Five of the seven settlement statements City Pages obtained from lawyers of Flavin's investors include a line item for a consulting fee to one Flavin company or another. These are fees paid out by the seller once the deal is done. On one statement it's a "construction consulting fee" to National Investment Group for $66,000 on a $350,000 sale. On another statement it's a "Consulting Fee to Innovative Personal Solutions" for $46,000 on a $300,000 sale. All told, Flavin and his companies made $268,199 upfront on five of the properties City Pages examined. In the cases of Clewette and Addie, the fee was never discussed. The seller simply cut a check once the deal was closed. From information obtained on his search of Flavin's offices, Owens believes these settlement-statement payments likely earned Flavin and his companies millions as his investors tumbled toward foreclosure.
IN APRIL 2007, Clewette opened a letter from a mortgage company that had purchased her loans from American Wholesale. They were offering a better rate. She was a bit surprised. She had been told that National Investment Group was adept at keeping rates as low as possible. Something else struck her, too: Her loans appeared to be primary-residence, not investment, loans. She called Flavin.
"He seemed surprised and told me they had never had any problems with their loans," she says.
Next she wanted to apply for a loan to renovate her north Minneapolis home. She needed to collect information on her investment properties. She called Flavin and he told her the properties were full and the rent was being paid.
Then, in May, Flavin invited her into the office for an "investors' meeting."
When she showed up, she was the only investor there. Flavin and Jonathan Matheson met her in the front, where she sat waiting and thumbing through realty listings and back issues of Parade of Homes. Things seemed pleasant enough as they led her into a conference room. Flavin shut the door and sat down across from Clewette, looking glum. "Our company is going bankrupt," he said. "Your loans are going to default." Her heart sank. "But you told me in March my properties were all rented and things were going well," she shot back. "I didn't want to worry you," came the response. "If you haven't heard from the bank yet, call them and tell them you won't be able to make the payments."
In shock, she offered to help. "He really seemed sad. He blamed the market. I thought maybe if we got all the investors together we could think of some way to help." He told her there was no turning back.