Boulder, Colorado Offer

By Summit 1031 Bankruptcy

May 2009

I had given Padrick the benefit of the doubt until he rejected a very good offer on a residential home in Boulder, Colorado.

My dad had listed a house in Boulder that he purchased with the family’s own funds back in 2006 for $548,000 with a $417,000 mortgage. My brother, Kenyon, owned 50% interest in it. Kenyon was going to college in Boulder and paid the payment by renting the house to other students. He also used the extra money from his track scholarship to help pay his share of the payment, plus taking care of any upkeep and management.

Terry Vance reviewed all the comps and the market information provided by a Boulder realtor. The realtor’s recommendation was that a list price of $510,000 to $530,000 made sense. Terry approved the listing at $530,000, the high end of her recommendation. The listing agreement was signed and sent back to the realtor. On a Sunday, Kenyon called my dad. Kenyon said that a kid on the track team said his parents had been looking for a house to buy for him and to rent out to other students.

The parents were in Australia at the time. They called my dad and said they’d like to talk, but when they got back. These potential buyers asked that dad hold back the listing until then, but it was already listed.

Upon their return, they went right to Boulder and looked at the house. They made an arrangement with the realtor regarding her commission. They wanted to buy the house but didn’t want to pay as much as was being asked. They struck a deal with the realtor in which the realtor would charge the buyer 1% and the seller 1%…. a reduction from the full 6% written in the listing agreement. The net proceeds with a full price offer at $530,000 and full 6% commission would have been $498,200. The offer received was for $500,000 and would have netted $495,000 after a 1% commission. Seemed like a great offer given the current market!

Obsidian was given a heads up early in the week that an offer might be coming. The offer came on a Friday with 24 hours to respond. The offer was forwarded to Obsidian right away for consideration. Hopefully they would accept the offer as is. They’d had 2 ½ months to assess values, plus a heads up that the offer was coming. This could help get the liquidation of assets on track and start getting money to the creditors.

No word came from Obsidian on Friday. No phones calls were made to my dad. No phone calls to the realtor. No phone calls at all. The answer was due by noon Saturday. Just after noon dad got an email from his attorney. He’d been given an answer by Obsidian. Ewan Rose of Obsidian wrote, “Our view is that the $500k is at the low end of the market for this property. Given that the proposed purchaser is a related party, we cannot consent”.

Issue 1 - ”low end of the market”

This case has about 90 total properties. Then when they get a decent offer on a residential home, they just flat out reject it without a counter offer. What kind of “experts’ are these guys? I later found out that the only due diligence Obsidian did, was to look up similar listings on the Internet. Since a home that was similar was listed for $560K, they determined that it was on the low end of the market. What the heck was going on? Dad’s attorney was pursuing it Monday morning. Obsidian told them they looked on the internet and found a house listed for $560,000. This is the type of due diligence these “experts” charge the bankruptcy estate for.

Issue 2 – “purchaser is a related party”

The buyers’ son was on my brother’s track team at Colorado State University. So who else would be considered a related property? Central Oregon is a “small town” where everyone knows everyone. With all of the property transactions that were supposed to occur, how many people are going to know one of the 4 principals or one of the 50 or so innocent parties? If all of these people are considered to be “related parties”, then that seriously reduces the buyer market available to the Summit 1031 bankruptcy estate, especially in a market where there are not many buyers to begin with.

Dad’s attorney demanded that Obsidian perform a real analysis on the property and explained that a track teammate isn’t a related party. So Obsidian spent a week analyzing the property. They finally made one phone call to the realtor. The realtor provided all the comps that he based his listing range on. The next thing we knew, Obsidian sent a counter offer (they were not authorized to do so since they didn’t own it) to the buyer for the original listing price of $530,000. What would you do if a seller countered with the listing price? You would walk? That is exactly what this buyer did.

Dad’s attorney emailed the realtor and asked if the buyers might counter back with the original offer and give him a chance to get it approved. The buyers said they would consider it, but they were worried about interest rates going up. Nonetheless, they graciously countered back with the original offer and gave a week for a response. My brother Kenyon didn’t want to deal with the whole thing and he said he would agree to give up his half of the proceeds ($40,000) to help get the deal done. Obsidian considered the offer for another week. Dad asked his attorney to file a motion to get the offer approved. He said that would be fine, but the buyer would have to wait about 45 days for an answer. Really??? The buyer was not willing to do that. At the end of the week, Obsidian turned the offer down once again, even with Kenyon’s half of proceeds thrown in. They said they would get his half anyway at some point down the road. One attorney’s comment on a phone call on which the Boulder house became as issue later on was, “Obsidian was foolish not to take the deal and here we’ve spent $2,000 on the phone arguing over the stupid thing.” At this point, the Boulder house sits, unlisted and with no renters lined up for the next school year while the real estate market remains weak.

There was another factor we didn’t understand at the time. Obsidian couldn’t get the 15% on the proceeds of any sale until after the bankruptcy plan was approved. That wasn’t scheduled until early May. So any sales before that date would result in Obsidian not getting a piece of the pie. I guess I wouldn’t be motivated to take that deal either if I was a person who just considered my own interests and my own pocket book.

This transaction proved to me that Padrick and company were…

1. Not the experts they claimed to be

2. Not trying to get money to the exchangers

3. Not willing to work with innocent third parties to get this job done

Obsidian and Company apparently have another agenda, like making money off the liquidity issue at Summit 1031. After 5 months of limited action and large fees, I think this was their agenda since Day 1. In the meantime, our agenda of getting the exchangers paid off in a quick manner has suffered irreparable damage.

“Click here to see my last communication with Obsidian” [ http://www.summit1031bkjustice.com/wp-content/uploads/2009/05/bouleremailcorrespondence1.pdf ]

“Click here to see another offer rejected by Padrick” [ http://www.summit1031bkjustice.com/?page_id=684 ]

By Kenyon Neuman

August 2, 2009

This is an extremely accurate account of what occurred with the house in Colorado. I have worked as property manager at this residence for over 3 years now. I maintain the property, deal with the renters, and I have recently been making up the shortfall on the mortgage as well as paying the bills. I also pay for any repairs that need to be made on the home. The only inaccuracy I can identify lies in the sentence that says I go to Colorado State. I go to the University of Colorado in Boulder.

Not only is Kevin Padrick trying to take my interest in the home, he is ignoring the fact that I have worked hard managing the property and finding responsible tenants every year. I did all this amongst fulfilling my obligations as a full-time student-athlete at the University.

Padrick is not only trying to steal from me, he has already stolen from the creditors. He turned down roughly $70,000 in an offer that I found through a friend. My teammates parents, who I had met on 1 occasion prior to this dealing, made a great offer on the home. Since this communication was not made through the realtor, all involved agreed on a total of a 2% commission for the realtor on the sale of the home. The rest of the money saved in realtor’s fees was to be deducted from the price of the home since we wouldn’t have received that money in a normal sale. This was a very fair agreement and at a certain point I even offered to give up my part of the proceeds so that I could avoid the hassle and fees involved in fighting this in court. I also wanted to help the creditors recover some of what they had lost. Accepting this offer would have brought the creditors around $70,000.

I will now fight for my part of the proceeds vigorously in court. That means more legal fees for the creditors. I have an arsenal of proof indicating that I have managed and cared for the home for over 3 years and that I retain sweat equity. After the legal fight, Padrick’s commission on the sale, the proceeds due to me, a realtor’s commission around 6% instead of 2% and money potentially lost if he doesn’t sell the home for at least $530,000, it looks like the creditors will receive far less than $70,000.

I wish the creditors knew Kevin Padrick was stealing their money and harassing innocent victims of this bankruptcy.

1:46 pm