"Cash Back" Arrangement Being Used To Purchase Central Florida Condos; Deals Raising Eyebrows Among Local Real Estate Pros

In Sarasota, Florida, the Sarasota Herald-Tribune reports:

• As condo owners across the state bemoan a downward slide in values, an unusual situation is taking place at the Bermuda on Osprey condominium complex near downtown Sarasota. A group of Californians -- two of whom were arrested in March on charges of running a brothel in the Anaheim area -- have been snapping up units at prices that are hundreds of thousands of dollars higher than those paid during the boom. The buyers, led by John Edward Couch of San Clemente, say they will convert the 46-unit complex into a senior-living center complete with a luxurious clubhouse, communal dining room and limo service.

Reportedly, the California group has purchased 15 units out of the 46 units in the two-story walk-up building built in 1969 in transactions in which the complex owners claim to have received a little more than half of the stated price, with the balance (ie. the "cash back") being placed in an "amenity fund" controlled by the buyers to be used for future improvements. Representatives of the seller of the units claim that the amenity fund was clearly defined and disclosed to the mortgage lender on the closing statements so that there is nothing improper about the sales.

According to the story:

• the entire complex was sold in March, 2005 for about $109,000 per unit to a tax felon now awaiting extradition from Italy on money laundering charges connected to a cocaine deal,
• the complex was then resold nine months later to Warren Hickernell, a condo converter, for about $222,000 per unit, involving a $9.4 million loan from the Bank of Commerce,
• the Bank of Commerce loan subsequently went into default and was bought out of its interest in the complex by an investor with prior ties to Hickernell,
• since November, 2006, the California group has purchased 15 units at an average price of about $566,000, with about $300,000 going to the complex owner and about $250,000 or so going into the amenity fund.

Not surprisingly, eyebrows are being raised among Sarasota-area real estate observers. For more, see In Sarasota, an unusual condo deal (Group snapping up units at prices higher than during boom).

Go here for a related story on this California "investor" group.