FLIPS FLOPPED

Foreclosures, unpaid taxes and bank suits confront major property investor

In the early 2000s, investing in real estate and flipping houses became a popular hobby and lucrative career for thousands of Americans.

A&E launched a TV show dedicated to the flipping faithful. Consultants started selling how-to guides for thousands of dollars.

But as the economy soured, many investors and flippers flopped. Those who have survived are struggling to operate within the new status quo.

Bellington Realty is one of those survivors.

Incorporated in 1983, Clayton-based Bellington Realty specializes in buying and sometimes renovating “distressed” properties. Then it rents or sells them, according to its website. Bellington and its affiliates own and manage hundreds of properties across the metropolitan area. Company signs dot area neighborhoods, and its name is well-known in local real estate circles.

But this year, the company and its affiliates have faced six pending bank lawsuits claiming more than $9.2 million in damages, foreclosure actions against at least 130 properties and hundreds of thousands of dollars in delinquent property taxes.

Even the company’s own office building has hung in the balance: A foreclosure notice for the building was published in the St. Louis Countian earlier this year.

In the midst of all the activity, Bellington’s president isn’t talking. For four weeks, a reporter repeatedly tried to reach Michael Litz. He called back late last week and declined to speak on the record about the companies.

Wrong predictions

Gary Tretter runs the St. Louis real estate investors association Street REIA, whose members buy, renovate, flip and rent houses like Bellington. No one in the residential or commercial real estate market predicted the national housing downturn would last as long as it has, he says.

Take the case of individual homeowners. The well-documented subprime mortgage holders already have been cleared out by foreclosures, he says. Now, even people who’ve lost their jobs and had shored up the commonly advised six months worth of savings are in trouble.

“They’re not a bad person, and they can make a good living, but they didn’t realize they needed to have 12 to 18 months in the bank,” Tretter says. “Now that person who has been financially stable and responsible, that person now is losing their house. That’s why we’re still seeing foreclosures.”

Companies like Bellington resemble the six-months-worth-of-savings homeowners, Tretter says, in that they did everything recommended in the pre-downturn market.

“They’re just part of the whole crowd,” he says of Bellington. “There are a lot of people getting caught with their pants down.”

Bank lawsuits

Bellington’s banks seem unwilling to stick around and see what happens.

At least six have sued Bellington and its affiliates in St. Louis County Circuit Court seeking repayment of more than $9.2 million total in loans, interest and late fees over the last year. (One of the suits, brought by First National Bank of St. Louis for $1.1 million, was dismissed Aug. 9.)

Two big-ticket suits against Eighteen Investments, a large affiliate, have been brought by Champion Bank and Enterprise Bank. Champion Bank claims the company owes it more than $2.41 million. Enterprise claims it owes $1.59 million. The Champion suit is pending, and a settlement conference was held for the Enterprise suit in July.

In another suit, Heartland Bank v. Eighteen Investments, et al., the bank obtained a court-ordered receiver for 13 Eighteen Investments properties in March. At the time of the order, the company allegedly owed more than $2.22 million. In court documents, the bank cited failure of the company to make monthly payments, failure to resolve previous litigation with other banks and foreclosure actions on other Eighteen Investments properties.

Eighteen Investments also is being sued by the Metropolitan Sewer District. The suit, for more than $80,000 in sewer and water charges, interest and late fees, is pending in St. Louis County Circuit Court. A settlement conference is scheduled for the end of this month.

Foreclosed upon

More than 130 Eighteen Investments properties have had foreclosure action taken against them in 2010, according to public notices published in Missouri Lawyers Media papers. That’s nearly three times as many as were listed in 2009. In 2008, none show up in the Missouri Lawyers Media foreclosure database.

A public notice of foreclosure has to be published for 21 consecutive days before a property can be auctioned. A company can make good with the bank up until the time of auction.

The Eighteen Investment properties listed are spread out across the St. Louis metro area, with high concentrations in Webster Groves and Kirkwood. One of the properties — 226 S. Meramec in downtown Clayton — is Bellington’s and Eighteen Investments’ office building.

The companies still operate in the building, but no additional information on whether or not the property reached auction earlier this year was immediately available.

David W. Forth, of James Hutchison Forth & Snyder in Westport, cries foreclosure auctions in St. Louis City and County. He says Bellington affiliates have previously stopped auctions at the last minute. Eighteen Investments took steps to halt one county property from being auctioned twice before Forth finally called it Aug. 20, he says. (The property had no bidders at the auction and went back on the lender’s books.) Forth says buyers from Bellington haven’t been around for months, an observation confirmed by two other auctioneers.

Time lag for taxes

A search of the St. Louis County Depart-ment of Revenue website in August showed Bellington affiliates owned at least 286 properties in the county. Eighteen Investments was delinquent on more than $460,000 in property taxes on 61 of them this year, according to Aug. 9 postings on the website.

In the county, tax liens are “sold” three times before a property title can be obtained by a new buyer.

Sixty of the 61 liens Eighteen Investments owed in the county were for first and second sales, so the company has another year before it potentially loses most of the properties.

The time lag in property tax delinquency actions plays into business models for companies like Bellington. Because of the way tax lien delinquencies are handled in St. Louis City and County, for example, a company can go years without paying property taxes before a lien can be sold and a buyer can obtain a title.

For years, many companies have taken advantage of the lags to improve cash flow, Tretter says.

Businesses sometimes use property taxes as de facto loans, says David Neiers, a partner with Helfrey, Neiers & Jones in Clayton and the chairman of The Missouri Bar Property Law Committee.

“Banks aren’t lending money, so it’s tight and very, very difficult to make ends meet,” he says. “So you borrow money from other sources, and maybe that’s the tax.”

In the county in 2009, Eighteen Investments was delinquent on at least $650,000 worth of taxes for at least 69 properties in first and second sales.

In the city, a tax sale is held about a year after publication of delinquencies. Bellington affiliates owed more than $95,000 on seven properties this year, according to a tax suit announcement published in the St. Louis Daily Record July 27 and documents from a city tax sale Aug. 17.

One of the properties, an office building at 1002 Hi Pointe Place, is listed for sale on the website of Schlafly Corp. — a commercial real estate broker — for $750,000. As of the July 27 tax suit announcement, however, Eighteen Investments owed more than $50,500 on it in property taxes.

Bellington affiliates weren’t the only ones carrying heavy delinquencies in St. Louis this year. For example, in a city tax suit announcement published in May, Altman Building LLC, the owner of a commercial building at 2200 Washington Ave., owed $123,000, while Spinnaker Cos. owed about $340,000 on the Mercantile Library Building downtown.

Missouri Lawyers Media reported on the two properties’ tax delinquencies in May. Calls to the developer who previously owned Altman Building were not returned at that time.

Spinnaker inherited the Mercantile tax liens from a previous owner. The company’s local representative, Amos Harris, said in a May interview he wasn’t concerned that delinquent taxes would prevent potential financing.

“Once we figure out a good development plan, they won’t be a big issue,” he said.

Street REIA president Tretter says the St. Louis real estate market hasn’t hit bottom yet, and he’s unsure where Bellington might land. Others haven’t fared well.

“A lot of the bigger names who were doing it aren’t in business anymore,” he says.

TOP FORECLOSURES BY ZIP

Webster Groves               63119    16

Kirkwood             63122    14

Creve Coeur       63141    13

Maplewood       63143    13

Brentwood         63144    12