Sunday, April 13, 2008; Posted: 05:31 AM
It's a scandal that was repeated by hundreds of dubious property flippers thousands of times around the country, leaving the nation's housing market in shambles and shocking the world economy.
The problem has grown so vast that the federal government is weighing a $10 billion nationwide bailout. Mayor Thomas M. Menino testified about Boston's problems before the House Financial Services Committee, chaired by Rep. Barney Frank (D-Newton) on Thursday.
First of three parts
A Bentley-driving former convict is at the epicenter of a foreclosure scandal that has left a trail of blighted streets, ruined investors and civil lawsuits across Massachusetts, the Herald has found.
At the height of the housing boom in 2004 and 2005, Dwight Jenkins of Dorchester offered easy-money real estate deals to inexperienced investors in Boston, Brockton and other struggling pockets of the state.
The investors needed to commit only their names, their good credit ratings and their often unrealistic hopes for fast profits.
But the properties were never fixed up and resold, as promised. Instead, they were left to fall into disrepair and foreclosure, while the investors ended up in debt and credit disarray.
One investor spent time in a shelter for homeless vets. Others would see their credit ratings destroyed, according to a monthlong Herald review of court papers and land records.
"It is my view that Dwight created this rigged market," said attorney Jeffrey S. Baker, who represents eight investors in three lawsuits against Jenkins and others. "There is nothing economically legitimate about these transactions."
"None of the purchasers were aware of the fact at the closings Dwight Jenkins was taking substantial fees, in some instances well over $100,000, from the monies that the purchasers borrowed" said Baker, who is collaborating with attorney Jonathan D. Plaut on the case. "If these purchasers understood the true nature of these transactions, none of them would have gotten involved."
In a 90-minute interview with the Herald, Jenkins defended his actions and said the plaintiffs knew the risks of his deals.
He also admitted that he had no contracts with any of them. He described the arrangments as "mano y mano" deals and "adventures" that he and his "friends" were going on together to profit from the booming real estate market.
The morass Jenkins' investors fell into is akin to the trouble facing many struggling homeowners who were granted "subprime" loans they could never pay back.
Bill Minkle, interim director of Ensuring Stability through Action in our Community in Jamaica Plain said, "These people could have definitely not have afforded under any circumstances any of these mortgages."
He also faulted the mortgage companies and brokers who rubber-stamped so much suspect paperwork. "In the end, you wonder how these deals could have been done at all," he said.
A trail of foreclosures
Dwight Jenkins is a Dorchester-born 36-year-old with a penchant for doing business in Dunkin' Donuts and a federal record as a bank fraud felon. He handled residential real estate sales at at least 17 properties statewide from May 2004 to October 2005, court papers and land records show.
The six properties he handled in Dorchester are among the 233 foreclosures that made that neighborhood the hardest hit by the mortgage crisis that began in 2006 and accelerated in 2007 and 2008.
The deals behind them offer a rare insight into the street-level chicanery of the foreclosure crisis rocking global financial markets.
In 2004-05, businesses connected to Jenkins pocketed more than $905,000; that happened even as the investors who signed up for his deals fell behind in mortgage payments they were told they'd never have to pay, according to Suffolk County and federal court papers, interviews with his accusers and signed affidavits.
Among the investors was Robert Smith, a Marine veteran who lived at the New England Shelter for Homeless Veterans in Boston.
"Mr. Smith is currently liable for enormous sums he borrowed from the defendant banking institutions. Further, Smith's credit has been substantially harmed," according to a complaint signed by Baker and Plaut on behalf of Smith.
"Mr. Smith has suffered emotional distress resulting in physical symptoms, stomach problems and high blood pressure as a result of the wrongful conduct of the defendants," the lawyers state.
Smith was not alone. By December 2005, the first of more than a dozen foreclosure deeds was filed on a Bay State property handled by Jenkins. Seventeen Jenkins properties eventually fell into foreclosure, according to court papers and land records reviewed by the Herald, and are currently worth thousands of dollars less than their mortgaged values.
In the first half of 2006, clients of Jenkins grew to suspect the deals they had so eagerly entered into. By June 2006, the first of three civil lawsuits were filed against Jenkins and others alleging fraud and conspiracy. The plaintiffs claim they have paid thousands of dollars out of pocket because of their involvement in Jenkins' handshake ventures.
A lawyer for Jenkins, David Sokol, denied the fraud allegations in court papers. He asserts the deals ran into trouble because of a softening real estate market and plunging property values. Jenkins "reinvested large and substantial sums" into repairing the properties and offered to assume the debts of each deal, Sokol wrote in a Sept. 12, 2006, affidavit.
Sokol has since left the case.
His side of the story
In his interview with the Herald, Jenkins said he amassed a total of $300,000 from the deals he made with the plaintiffs. He said he reinvested $600,000 of his own money into those same properties and is now flat broke. He submitted documentation to the court to show his accounting of $422,500. Jenkins asserts that sum went to four investors and also covered mortgages, improvements, and water and gas bills at eight properties.
While the records show some mortgage payments, they also show charges for a trip to Foxwoods, a cruise and cash withdrawals from $9,000 to $50,000.
Jenkins admitted to owning a Bentley, a Land Rover and a Porsche, and asserts in an online real-estate testimonial that he earned more that $1 million in one year from his turnover deals.
"I have nothing. Gone. I'm done. These people destroyed me, man," Jenkins said. "I put all that money back into these properties. They take it from me and watch them go to foreclosure with my money going down the drain with it and then you're suing me."
According to a July 16 pleading filed on his behalf, Jenkins owned four properties in Boston appraised at $3.4 million. Since then, foreclosure deeds have been filed on three of those properties, Suffolk County land records show. One of Jenkins' foreclosed houses is at 17 Hendry St. in Dorchester.
Hendry Street, in the Meeting House Hill neighborhood, became a focal point for the emergency task force Mayor Thomas M. Menino formed after the Boston Sunday Herald exposed the blight that foreclosures brought to the area.
Deals at Dunkin's
According to court documents, Jenkins would approach first-time homebuyers with strong credit records and offer them a chance at a real estate investment connected to RE/MAX Real Estate Specialists, a franchisee in the Fields Corner section of Dorchester.
In exchange for buying "undervalued" properties on the strength of his clients' good credit, the investors were offered $20,000 amid promises that the real estate would be resold within a year.
Jenkins then arranged for the buyers to purchase a targeted property, which he pledged to rehabilitate, rent out, manage and resell within a year. Investors claim they were never told they would be liable for mortgage payments.
Jenkins secured 100 percent financing for the deals, negotiating with banks and lenders, preparing paperwork for closings and finding attorneys for the transactions, court papers state.
Much of the business was conducted on street corners or at a Dunkin' Donuts on Dorchester Avenue, according to plaintiffs suing Jenkins. He did not have business cards, plaintiffs say, and used multiple cell phone numbers, which were sporadically turned off.
Jenkins said he wasn't trying to run a business as such and didn't advertise. He considered the real estate deals to be pacts between pals and claims several plaintiffs were part of a social circle.
"The only thing that took place here was two human beings went on a business adventure together. There was no picture-painting, no enticing -- I didn't barely even talk to these people, you know," said Jenkins. "It wasn't me being a corporation seeking customers, that's not something I would do on a broad basis. That has to be something close-knit if I'm going to own a house with you, but I still got burned."
A lucrative fee
Jenkins may say he got burned, but he collected hefty fees for the deals. In court papers, Jenkins acknowledged that the mortgage amounts were higher than the amount the seller received. The difference, he asserts, represented the amount of money it would take to improve the properties for resale and pay him a "contract release" fee.
"I would put a purchase and sale agreement on the property at say $70,000, then I would sell the property to a buyer for $100,000," said Jenkins. "And then at that time I would go back to the owner's property, tell them to release me off the contract for the difference, for the $30,000 difference."
Plaintiffs say they were blindsided by the "contract release" when their real estate ventures began to falter. In court papers, the investors assert they had no idea that thousands of dollars, ranging in amounts from $12,000 to $154,785 per property, were directed to companies connected to Jenkins and others on the settlement statements they signed at the real estate closings.
"I didn't really look at the mortgage application," said Daniel Montrond, now 27, of Dorchester, a State Street fund accountant, who purchased 36 Milton Ave. in Dorchester for $487,500 on Aug. 13, 2004. "He said: 'Don't worry about nothing. Just sign and I'll take care of everything.' I was like, alright. Cool."
The seller was Jenkins' aunt, Magnolia, who owned the property from 1979 to 2004, according to Suffolk County land records. At the closing, $69,362 was directed to a business, One World One Link, connected to Jenkins, the suit states. Montrond later found that Jenkins' sister, Cherry, and her mother, Ella, were living at the property. The property foreclosed on Nov. 7, 2007.
Jenkins insists the plaintiffs were aware of the "contract release" provision. "They knew that. How did they not know that?" he said. "That's the only reason I'm involved. And you got cash at closing. Where did it come from?"
A nightmare spiral
Plaintiffs say that within months of purchasing real estate through Jenkins, they started receiving notices from mortgage companies that their loans were in arrears. They said rents were rarely collected from tenants, the properties were not maintained or significantly improved, and none of the properties was put back on the market for resale.
Plaintiff Aderito B. Andrade, now 29, of Dorchester purchased properties in Brockton and Springfield in 2004-05. He said he signed an agreement with Jenkins.
"The first time we signed, it was a page that said we promise to sell him the house back within a year and that he would pay the mortgages and stuff," Andrade said. "The thing is, it was at Dunkin' Donuts so he didn't make a copy of it. We turned it in to him, but we never got a copy back."
The Brockton property foreclosed in July 2007. The Springfield property foreclosed last October, land records show.
A Marine's story
Marine veteran and former trash hauler Robert G. Smith, 44, is among those suing Jenkins and others in federal court. He purchased $849,162 worth of real estate in Roxbury and Dighton, with no money down, after receiving a flier about the deal from Laurice P. Taylor, an independent contractor for a RE/MAX franchise in Dorchester. He said he was handed the flier while working his trash route.
In a complaint filed in federal court, attorneys describe how Smith, who suffers from schizophrenia, post-traumatic stress disorder, depression, a learning disability and mild retardation, was told he could turn a profit even though he didn't have money to invest or experience in real estate.
Taylor, now 33, told Smith he would receive $10,000 for every investment he made with the RE/MAX franchisee, EB Real Estate Group Inc., court papers state.
"He said again that he did not know anything about real estate investment. (Taylor) said that did not matter, and that 'RE/MAX would take care of everything' concerning the investments," the complaint states.
Taylor is not named in the suit. Her former employer, EB Real Estate Group, is a defendant.
Taylor could not be reached for comment. Two telephone numbers listed for her have been disconnected. A Randolph property she purchased in 2005 was foreclosed on Aug. 22, according to Norfolk County land records.
EB Real Estate broker and owner Mark Warren said in an interview that Taylor was fired after hundreds of fliers about the investment were found in the trash. The fliers, which mention RE/MAX, were not authorized by the franchise, Warren said.
On Feb. 7, 2005, Smith purchased 2715 Winfield Lane in Dighton for $411,964 by means of two mortgages. The mortgages were granted by Fremont Investment and Loan, a Florida firm, despite information on the loan application that overstated Smith's income, listing it as $90,000 annually, the complaint states.
An attorney for Fremont, Donn A. Randall, told the Herald in an e-mail the company would not comment.
On Feb. 28, 2005, Smith purchased 27 West Cottage St. in Dorchester for $437,198 with two mortgages from Meritage Mortgage Corp. The complaint states that the application for Smith's loan overstated his income. The company has been taken over the FDIC, which insures banks.
At the closings, more than $102,000 of the proceeds were directed to Jenkins and Dorchester Real Estate Inc., a Century 21 franchisee, the complaint states. Both properties were foreclosed on in 2006. Jay S. Gregory, an attorney for Dorchester Real Estate, said that the $18,950 directed to the realtor at the Roxbury closing was paid by the seller.
Minkle, the Jamaica Plain housing advocate, said the impact of mortgage schemes like these on troubled neighborhoods will be ruinous for years to come.
"These properties are deteriorating," he said. "Think about how long these houses are going to be boarded up.
"It's just a horror show," he said. "The horse is out of the barn. I don't think there are any easy answers out there."
Tomorrow: The victims and the legal entanglements.
lcrimaldi@bostonherald.com. Tomorrow: The victims and the legal entanglements.
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