Tuesday, May 14, 2013

"$2,000 a month? Wow! We're Rich!" The saga continues......

Rachel was hired by JR McConnell

It was March 1982 and my sister-in-law, Debbie, called me one day and asked if I'd like to go on a blind date with a cute girl at work.  Being 350 pounds and just on the rebound from a devastating relationship, I only asked if the girl was comfortable with big, fat men.  Debbie assured me that she was, so I agreed to meet them all for dinner, drinks, and an evening of checking each other out.  We were married February 12, 1983.

Debbie and Rachel were both loan processors for (then) San Jacinto Savings where one of there customers was multi-millionaire builder/developer, JR McConnell.  JR had come from Florida with his wife and the shirt on his back.  He started buying old houses and built a huge empire that culminated with the redevelopment of The Strand in Galveston and the acquisition of The Grand Hotel (on the northeast corner of Westheimer and 610 . . . now something else, but it eludes me).  Rachel called me one day and told me that JR's "people" had offered her a job paying $2,000 per month.  (I believe at that time she was making $1,100 per month, the going rate for a loan processor.)  Wow!  That was big money, and we were both so excited for her!  (Interestingly, I had purchased a building at 6th and Heights to move my office into with owner financing by JR.  It had been listed with another Realtor.)

Soon, JR liked Rachel and offered me the position to sell a huge quantity of houses he had acquired in what was later called in federal briefs, "cash for trash" transactions.  Apparently, the Savings and Loans were having huge numbers of foreclosures which was threatening their existence.  It was the beginning of Reaganomics, and Reagan de-regulated the S&L's so that they could compete with banks.  But their balance sheets were overloaded with non-performing assets (the foreclosures).  So JR and the banks devised a scheme where JR purchased all of the banks' foreclosures -- at book value -- which made them appear very solvent.  Then, in exchange, they made him large loans to keep his building/developing ongoing.  "Cash for trash" became a keyword in the huge lawsuits that were later filed and in the ultimate demise of the S&L industry!  

And me, I was hired by JR to sell all those homes to basically anyone who would meet some very minimum credit standards.  My fee was 4% -- 2% at closing, and 2% over 12 months.  But I had hundreds and hundreds of easy-to-sell listings and a remodeling crew at my disposal.

As it turned out, the whole empire was a giant ponzi scheme.  The "cash" from the S&L's went to try to pay past due bills.  The S&L's were holding the financing on the homes, yet we were selling them with insured first liens from Federal Title Company.  When Reaganomics finally kicked in and runaway inflation fell and interest rates collapsed, so did JR's empire.  So did the entire S&L industry!  No more cash was available and it all started to crumble.  That's what happens in ponzi schemes.  It was so large, that no one person could figure it all out.  And when they arrested JR, he electrocuted himself in jail.

For the next several years, many of the "players" in that ponzi scheme -- including most of JR's employees, the bankers, and especially the title company -- were indicted, tried, charged in a RICO case (organized crime), and some went bankrupt and some went to prison.

Rachel and I were investigated by Clyde Wilson, the federal government, Ticor, and others, and were found to be "exemplary" as claimed by HUD.  We had stayed completely out of the illegal activities and were, frankly, completely naive to what was going on until the end when it crumbled.  And we were owed $250,000.  (After years of bankruptcy, we received $500 of that from the court!)

And mother was stressed and had an aneurysm.  Rachel was pregnant and delivered Katie.  And I shut down my ERA franchise and stuck to VA foreclosure work as an Area Management Broker.  But then we went into the coffee business with 4 partners.  Want to know about the Java Java Cafe?  We opened it before anyone in Houston ever heard about Starbucks.  And it's still in its original location on 11th Street in the Heights, though we've not had anything to do with it in many, many years.  And I should have learned then to stay out of partnerships!  (I have learned now.)

And who remembers the JR McConnell scandal?  It was quite the media circus in those days.  Got questions?  I'll try to remember what I can now 27 years later.