by Lesley Wright - Oct. 5, 2010 09:58 AM
The Arizona Republic
Read more: http://www.azcentral.com/community/westvalley/articles/2010/10/05/20101005sun-city-investors-house-flipping-scheme.html#ixzz0m5O63QcRA U.S. bankruptcy trustee who is untangling a complex Sun City real-estate operation advised investors to get attorneys during a hearing this week.
Trustee Brian Mullen also told about 40 creditors who attended the Kenneth Plein bankruptcy hearing Monday that they would need to file their claims by Dec. 23.
More than 100 investors are involved in a house-flipping operation that Plein ran from his Tri-Star Realty office in Sun City for more than 20 years. He filed for bankruptcy on Aug. 6 with no notice to investors, who stand to lose close to $18 million.
Some investors, who loaned Plein up to $500,000 to flip houses, have discovered that the deeds of trust they hold on houses and commercial properties also list other investors.
The eventual release of property, especially those with multiple lien holders, could be affected by a number of factors.
"There are indications that this has some elements of a Ponzi scheme," Mullen said. "Some people may have been improperly paid."
Some deeds were not recorded with Maricopa County, which could make it difficult for deed holders to prove their cases.
Mullen said Monday that investors who recorded properties after Plein's bankruptcy case began, or even just before that, committed "a useless act." Those recordings will not be recognized.
Investors spent about an hour trying to get information about specific properties, although most of them will have to wait until the proceedings are farther along.
Investor Tim Millette asked Plein why he did not seek the help of the investors before allowing the operation to collapse into bankruptcy.
"I didn't know where to turn," Plein said.
He continued taking money from investors as late as June because he thought the market would rebound quickly, as it did after similar real-estate downturns in the 1980s and 1990s.
"I had enough reserves but the market continued to decline," Plein added.
Investors also wanted to know why Plein's son Douglas is not listed on the bankruptcy action, since he appeared to be running the business with his father.
Plein said his son was an employee, not an owner, and stopped working for Tri-Star Realty in 2008.
Jim Carroll, an attorney representing about 40 of the investors, said that he will conduct a separate deposition of Plein. He is working on another suit that will try to determine if assets were distributed to Plein family members before the bankruptcy.
"We know that assets were improperly diverted to the last minute," Carroll said. "We're going to object to discharge (of the bankruptcy) and intend to sue him and others, including title companies."
Investors said they were worried that the bankruptcy trustee is not paying taxes and homeowner association fees on the properties involved, leaving the possibility of hefty fines later.
Mullen said he cannot pay those fees until he gets permission from the court.
"That's why we are trying to go through this as quickly as possible," Mullen added. "It's going to be quite a while before anybody gets any money."
Mullen told investors that they should consider consulting attorneys to make sure they follow procedures properly.
"That claim form is very important," he said.
Read more: http://www.azcentral.com/community/westvalley/articles/2010/10/05/20101005sun-city-investors-house-flipping-scheme.html#ixzz0m5NwNJe3
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