Monday, August 31, 2015

Trump Buys Out $3.65M Defaulted Mortgage Owed By Failed Company Co-Founded By Son, Two Others, Then Begins Foreclosure In Apparent Squeeze Play To Eliminate Unwanted Partner, Wipe Out Slew Of Subordinate Lienholders

In North Charleston, South Carolina, The Post and Courier reports:
  • Donald Trump, who explained his four corporate bankruptcies at the Fox News GOP debate by saying he’d “taken advantage of the laws of this country,” could turn a profit from the financial wreckage of a North Charleston manufacturing company his eldest son co-founded.

    The unusual business deal is apparently the “very interesting” investment in the Charleston area that Trump, the Republican presidential front-runner, mentioned during an April campaign stop. Trump created a company in late 2014 to acquire a multimillion-dollar bank loan secured by the North Charleston company’s assets, and now he’s trying to collect the debt through foreclosure.

    Titan Atlas Manufacturing, a specialty construction products firm, operated for barely two years and shut down in 2012, leaving a trail of litigation, unpaid bills and unpaid taxes.

    Donald Trump Jr. and two partners in Titan had personally guaranteed payment of a $3.65 million loan from Deutsche Bank. With roughly the full amount coming due in November, the senior Trump stepped in and bought the note, through a new company called D B Pace Acquisition.

    The scenario allows Donald Trump to potentially turn a profit on the debt, which is worth more now than when he acquired it, while relieving his son of personal liability to Deutsche Bank. If the presidential candidate’s attempt to foreclose on the North Charleston business is successful, the company’s unpaid taxes and other debts could go uncollected.

    “It makes perfect sense,” said William Harrison Jr., a real estate professional who lectures at University of South Carolina’s Darla Moore School of Business. “Father steps in to essentially protect his son’s investment and strip away the unsecured investors.”

    Real estate law experts described the deal as smart and sophisticated, while some of the creditors who may never see the money Titan Atlas Manufacturing owes them said it was unfair, or dishonorable.

    ***

    “This is a legitimate business tactic that few people know is available,” Harrison said. “It’s fairly sophisticated.”

    Trump acquired the loan from a private wealth lending arm of Deutsche Bank, a lender involved in several high-profile Trump deals. The amount Trump paid for the loan was not disclosed, but banks typically sell debts at a discount, and that’s one way buyers can gain control of distressed property for ownership or investment.

    “What a bank does is factor in their costs and the possibility of recovery, sell the note at a discount,” said College of Charleston real estate law professor John F. Martin. “Anybody can buy a note, as long as the bank is willing to sell it.”

    “It’s not an ‘average Joe’ kind of deal,” Martin said. “This is a very smart play, and not everybody would have the resources to do this.”

    As owner of the debt, Trump could ignore loan guarantees made by his son and Titan co-founder Lee Eickmeyer, or pursue them after attempting to collect the full value of the debt through foreclosure on Titan’s assets. Trump’s foreclosure suit reserves the right “to further seek a judgment against each of the guarantors jointly and severally.”

    Eickmeyer, a Washington state farmer, originally owned a one-third share of Titan, as did Trump Jr., and Mount Pleasant resident Jeremy Blackburn. Eickmeyer also loaned Titan $950,000.

    Each of the three company founders personally guaranteed the $3.65 million loan from Deutsche Bank, allowing the bank to pursue them together or individually if it were not repaid. However, Blackburn declared personal bankruptcy in 2013, wiping away his debts and liabilities.

    Eickmeyer’s Charleston lawyer, Jason Smith, said in a legal filing that D B Pace Acquisition — the company controlled by Donald Trump — is engaging in unfair trade practices and purposefully caused Titan to default on the loan. Smith’s filing accuses Trump’s company of being “owned or controlled by individuals who owed and breached fiduciary duties and made misrepresentations” to Eickmeyer.

    Smith declined to elaborate on those claims or otherwise comment on the case.

    Mount Pleasant resident Franz Meier owns a company, XJM Co., that sold land and a building in North Charleston to Titan in 2010, for $1.5 million according to Charleston County records. In legal filings, Meier said he was never fully paid, and a $351,908 judgment won by XJM in 2012 is still outstanding against Titan, according to Trump’s foreclosure filing.

    “It’s very interesting, but it’s not very honorable,” Meier said of Trump’s move to purchase and foreclose on the loan. “That’s what he said in the debate, that he takes advantage of the laws like bankruptcy.”

    ***

    Philadelphia law firm Mendelsohn Drucker & Dunleavy is another company with a significant claim against Titan. The firm won a judgment of more than $400,000 in 2013, after not being fully paid for work on a patent lawsuit.

    ***

    Titan also left taxpayers on the hook, failing to pay nearly $115,000 in South Carolina sales tax, workers compensation tax and federal taxes. The state and federal governments have placed 24 liens on Titan’s property in the hope of someday collecting those taxes, but if Titan’s assets are sold through foreclosure and fetch less than Trump’s loan is worth, other creditors would get nothing.

    Meanwhile, the value of the loan owned by Donald Trump’s company is growing by $1,716 per day, because it’s in default and high-interest penalties are being assessed. So, the value of Trump’s investment grows ever larger as a result of the company co-founded by his son defaulting on the loan.

    “What the father is apparently banking on is wiping out the other creditors and recovering his investment,” Martin said.

    Creditors could have faced a similar scenario if Deutsche Bank had retained ownership of the loan, and in that scenario the younger Trump and Eickmeyer could also have faced personal liability.

Links to this post:

Create a Link

<< Home