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Honest Government Matters - 2009 - 2nd Quarter


Stewart Title sued for fraud. 06/25/09
by Pat Flannery

Up and down the State of California lenders and title companies have been conspiring with developers to bilk people out of hundreds of millions of dollars. This lawsuit recently filed in San Luis Obispo tells a story that is happening all over California. I have investigated several situations that parallel almost exactly what happened in San Luis Obispo.

Professionals within the title and escrow community used their positions to commit unrestrained fraud. The damage to the real estate system, particularly to the concept of title insurance, will take years to reverse. Public confidence in the integrity of title insurance, escrow and loan origination may be irreversibly damaged.

Imagine being the holder of a second deed of trust on a property and being asked, as part of a refinance escrow by the property owner, to put a reconveyance (a release of your lien) into escrow in the certain knowledge of receiving a payoff check when escrow closes. Imagine your shock when you discover that the title/escrow company stole your money by clearing title for a new loan and pocketing your payoff. 

Imagine your shock when you report this crime to your local District Attorney only to receive a letter telling you that they were too busy and do not have the resources to investigate. Your life savings is gone and you have no money for private attorneys. That is just one example of some true-life tragedies I have recently documented from the Bay Area to San Diego.

The mainstream media must stop writing "shaggy dog" stories about the "straw buyers" involved in McConville's scams, while ignoring the real crooks, the developers, the lenders and the title companies who took the money and still have it, while the straw buyers and many others are left with ruined lives. The real story is how the developers, the banks and the title companies conspired together to commit massive fraud.

Most of the McConville straw buyers I talked to, and I talked to quite a few, had no real estate knowledge whatsoever and had no idea what they were getting into. They genuinely thought they were co-investors. They were reinforced in that belief by the fact that Jim McConville put 20% down on each loan and actually paid that money into escrow, or at least according to the escrow companies' settlement statements. I saw several of these buyers' settlement statements, all of which were only received a year after closing and only under subpoena.

The first time many buyers saw their Deeds of Trust, with owner occupancy clauses, was when I provided them with copies from the County Recorder. They never saw their final loan documents because they were signed "on their behalf" by a McConville employee. Yet the lenders and the title companies accepted all those legal documents without question. It is hard to believe that these professionals did not know what was going on. It is hard to believe they were not complicit.

There is an old saying in real estate: to form the ideal real estate partnership you put together somebody with money and somebody with experience. But when the deal is done and the dust settles, the partner with the experience usually has the money and the one with the money usually has the experience. Jim McConville's co-investors now have the experience while his co-conspirators, the developers, lenders and title companies have the money. This cannot stand. Society must react. Both law enforcement and the media must come to the public's rescue.


Will the School Board help build "Moores Folly" - an East Village School/Library? 06/22/09
by Pat Flannery


Why locate a "Central Library" in this part of town? Because John Moores wants to enhance the attractiveness of the East Village to which he has been given sole development rights by the City of San Diego. Moores agreed to Project Labor Agreements (PLAs) to get his Ballpark built, now the labor unions are pushing to give his development district a Library.

Even the union-controlled School Board has offered to chip in $20 million of its precious Prop-S bond money to help build this "Moores Folly". Its over-compliant legal counsel wrote a convoluted, contradictory legal opinion purporting to justify the pre-payment of 40 years rent on two upper floors for an un-wanted Charter School. This so-called pre-paid rent is nothing more than a cash gift to Moores and is totally inconsistent with any school needs. It is a repeat of the infamous Ballpark deal, a diversion of public money for private use - but with jobs for union labor.

What makes it even worse is that the School Board is behaving like it has the $20 million sitting in its bank account. In its rush to serve a union-friendly developer, it wants to borrow $20 million using "zero coupon" bond financing, the most expensive form of borrowing imaginable.

"Zero coupon" means that a bond issuer pays no interest over a  period of years with principle and accrued interest-on-interest payable at the end. Most Prop-S bond borrowing will be done using this method. The School District has no other choice because the prior Prop MM bonds will not be paid off until 2029 and there are legal limits on annual bond servicing payments in the form of a maximum percentage of assessed valuation (AV). In the case of Prop MM it is $66.67 per $100,000 AV and $60.00 per $100,000 AV for Prop-S.

Thus, Prop MM bond servicing crowds out Prop-S bond servicing until 2029. Even then, because of the annual servicing cap, it is heavily deferred until 2044. The final payment in that year is almost a half billion dollars, mainly interest-on-interest. It may be much worse because this payment schedule is predicated on assessed valuations going up by 5% year-on-year, the reverse of what we know is happening. The truth is that Prop-S bonds are little better than junk bonds, a very poor way to finance school repair, let alone a "Moores Folly" Library.

Borrowing $20 million in these circumstances is like an indulgent parent, who is broke, putting $20,000 on a credit card at 20% in order to buy a wastrel son a sports car he will surely wreck his first night out on the town. If the School Board approves this folly today, it will rank as one of the worst examples of corrupt government in San Diego's sorry history.


PLA Money talks - the environment walks.

by Pat Flannery

There are only two Republicans on the San Diego City Council, Kevin Faulconer and Carl DeMaio, the other six are all Democrats. That should suggest a definite leftward tilt, a strong labor and environmental bias. We might even expect a move towards increased local taxes.

But that is not at all what we are seeing. The left in San Diego consists of gay rights and project labor agreements (PLAs). The concept of social justice does not exist. Socialism is as much an anathema to the left as it is to the right. Gay rights have nothing to do with economic justice and project labor agreements are the antithesis to social leveling.

Organized labor in San Diego is primarily about collecting union dues and political power. PLAs are ugly partnerships between union bosses and corporations to "stabilize" the workforce. The union bosses do not need  to recruit the old fashioned way, their dues are guaranteed by the corporations. Thus the workers right to strike is bargained away for the stabilization of union dues. Without the right to strike, a worker is little more than a slave. In modern society, they are economic slaves.

Labor leaders routinely answer such charges by asserting that PLAs benefit all workers, that every worker benefits from the good fortune of a few. I struggle to understand that logic. The truth is that it splits the labor force into the "haves" and "have-nots". Old fashioned labor leaders were social levelers not social elitists. PLAs are the opposite to leveling.

It is widely believed that labor's insistence on a PLA drove away Gaylord from Chula Vista. If Gaylord was allowed free access to the job market, would Chula Vista be better off today? The hard fact is that jobs are the life blood of any economy. A prime waterfront site lies silent and a city stagnates because union dues were not guaranteed by a developer.

This whole question came into sharp focus this week with the City's appointment of a little known attorney from the lobbyist community to the Port District, Ms. Lee Burdick. What happened has been the subject of much speculation. I believe it reveals the primacy of PLAs for labor.

Only three of the six Democratic Councilmembers, Frye, Gloria and Lightner voted for the obvious Port choice, Diane Takvorian, executive director of the Environmental Health Coalition, from an environmental and labor point of view. Many and lame were the excuses given by Hueso, Young and Emerald for voting in a lobbyist.

It doesn't take a genius to figure out what happened. Steve Cushman, Port Commissioner and master of waterfront PLA negotiations, told Ben Hueso (Council President) and Lorena Gonzales (Labor Council President) that Takvorian would not be acceptable to Port employers in negotiating PLAs. Cushman advised Hueso and Gonzales to find somebody more "acceptable". Takvorian bears the scars of too many fights with Port business interests on behalf of children's health.

So what does a Council President do in a situation like that? Why, he calls in the lobbyists, of course. They know who is "acceptable" and who is not. Lobbyist Adrian Kwiatkowski, who works for Jack Monger and represents various developers and corporate aviation interests, stepped up to the plate. He and Monger "suggested" fellow lobbyist Lee Burdick, Jimsair former general counsel for government affairs and now working for the politically well-connected law firm of Higgs Fletcher & Mack.

So, Diane Takvorian gets blindsided by her politician and union "friends" who, like good capitalists, put union dues (profits) before the environment. Cushman gave them good advice: if you want PLAs, dump Takvorian. So the political posturing began.

Politicians will agree to anything if you give them cover. The Chiefs of Staff and the lobbyists went to work writing the script for Monday's Council meeting. It was like watching professional wrestling. And the media printed it all, like a professional wrestling announcer.

Lorena was like the Godfather at a christening, loudly protesting her loyalty to Takvorian, while her soldiers put five bullets into Takvorian's Environmental Health Coalition. Hueso, Young and Emerald's bullets were the unkindest cuts of all. Now if you want something from the Port Commission, go talk to Kwiatkowski and Monger. Money talks and the environment walks.

The media are contributing to mortgage fraud. 05/28/09

by Pat Flannery

"McConville's Check Clears". I was amazed to read that piece of news in the Voice of San Diego yesterday, so I made a few phone calls to see if it was true. It is not. The Voice wrongly reported that James McConville wrote a check to Najarian Loans Inc., to settle this lawsuit.

The Voice quoted Edward F. Cullen, attorney for two of the defendants, Jack Thomas and Mariam Rasuli, as follows:

"I'm pleasantly surprised" the check came through, Cullen said. "[Najarian] received money from Mr. McConville and that money was accepted as a release of Mr. McConville and the defendants who were named in the lawsuit."

I spoke to Mr. Cullen and he denied having told the Voice that anybody had received money from McConville. He told me that all he knew was that the case had been dismissed. I checked with the Superior Court of California, Contra Costa County and got confirmation that the case had indeed been dismissed without prejudice on May 14, 2009.

I then called David E. Harris attorney for the Plaintiff, Najarian Loans Inc. He denied having told anybody that Najarian had ever received a check from McConville, let alone waited for it to clear. I told Harris that a Bay Area investor, who has a judgment against McConville, told me that he intended to subpoena the check. That creditor had failed to discover any bank account controlled by McConville. Yet here was the Voice reporting the existence of a McConville check therefore a bank account.

Attorney Harris assured me that the Bay Area creditor would be wasting his money subpoenaing any alleged check. I told him that I took that to mean that a McConville check never existed let alone cleared. He did not disavow me of that belief and told me that that was the best he could do within the confines of attorney-client privilege. His frankness probably saved the investor a lot of futile attorney's fees as I passed that information on to him.

Why in the world would the Voice of San Diego report such a sensitive matter as a McConville settlement check as fact when one clearly never existed? The Voice's named sources, the above attorneys, both completely deny its story.

Here are some real facts about the
300-unit condo project in the Kern County town of Ridgecrest, where the plaintiff Najarian Loans Inc. made the loans that were the subject of the lawsuit. The condo complex is called La Mirada.

San Diego's William Ayyad (see my blog dated 4/18/09) purchased these 300 units from California Housing Corporation for $4,750,000 on February 8, 2002. That was $15,833 per unit. Here is the Grant Deed.

On December 19, 2003 Ayyad signed a Grant Deed transferring ownership of these 300 units to 1402 Alta Vista Partners LLC. He did not pay any transfer tax on the Deed, which means that he owned the LLC or at least part of it. Jeff Greene (see my blog dated 4/27/09) was also an owner and a manager of that corporation. Therefore Ayyad and Greene were partners in the La Mirage condos.

Now for NL Inc., formerly Najarian Loans Inc., the company McConville is supposed to have settled up with. It is owned by a real estate broker named Tracey Lee Hirt, formerly Tracey Lee Najarian. Here is her personal real estate license and here is her NL Inc. license. She seems to have quite a lot of agents working for her. She even has two branches here in San Diego, one at 3636 Nobel Drive, Suite 410, CA 92122 and another at 12275 El Camino Real, Suite 130, CA 92130.

NL Inc. was sued by Suntrust Mortgage Inc. for negligence and misrepresentation in selling 18 fraudulent loans to Suntrust. They were all to McConville straw buyers. NL Inc. created all 18 as owner-occupier loans, despite the fact that most of these straw buyers bought multiple units, which is fraud on its face. Here are some examples:
Borrower Property Date 1st Loan 2nd Loan
Angela Spangler 240 Sahara Dr 07/26/07 $116,000 $14,500
Angela Spangler 316 Sahara Dr 07/26/07 $124,000 $15,500
Angela Spangler 513 Sahara Dr 07/27/07 $124,000 $15,500
Mariam Rasili 228 Palm Dr 08/04/06 $124,000 $15,500
Mariam Rasili 509 Oasis Dr 08/04/06 $124,000 $15,500
Alfredo Ramos 417 Oasis Dr 08/04/06 $124,000 $15,500
Alfredo Ramos 236 Palm Dr 08/04/06 $124,000 $15,500

NL Inc. tried to blame its misrepresentation on the straw borrowers. It pleaded that it didn't know for example that Angela Spangler had bought more than one unit, when NL Inc. was the lender on all three. So it had to pretend to go after McConville and the straw buyers.

The American legal system has degenerated into giving color of law to illegal acts. First everybody sues everybody to put the "settlement" under a court mantle. Suncrest settled with NL Inc. and NL settled with McConville. The lawyers got paid and the Voice of San Diego got a story. The last thing lenders Suncrust and NL wanted was the whole affair aired in open court. The lawsuit was purely for show. Unfortunately the Voice, eager for a story, lent it credibility.

No wonder developers/investors like William Ayyad, Ralph Giannella, Jeff Greene and Chris Lafornara are laughing at how easy the whole thing is. They have no fear of being exposed in the media, at least not in San Diego.

Now rolling in cash, they are buying foreclosure properties that were the "security" for "securitized" loan bundles during the boom years. Here is such a property in San Diego. It was recently bought by the Ayadd family for $142,000 and put back on the market for $209,900.

The seller was a "pass-through" (securitized bundle) created by Countrywide under an exotic name starting with CWALT, which stands for Countrywide Alternative Loan Trust. There are $billions in such CWALT bundles yet to come on the market, a veritable treasure trove for the Ayyads, the Greene's, the Giannellas and the Lafornaras, loaded down with cash from all their inflated sales to straw buyers.

The listing agent, Guy Kennedy, is an old friend of the Ayadd family. He notarized William Ayadd's La Mirada Grant Deed to Jeff Greene in 2003.

They are all getting away with it because media "investigators" like the Voice of San Diego are straining to give an air of normality to some very illegal acts. Readers of the Voice are being told that not only was there a "check in the mail" but it has now cleared the bank. To cover up fraud you simply need to file a lawsuit, settle it under the jurisdiction of the court, call the media who will obligingly report whatever you tell them, while you plead attorney-client privilege.

If there is any hope of reestablishing trust in the American financial system, the media must be willing to expose fraud perpetrators, instead of tailoring the truth to make a good "news" story.


Financial ingenuity, otherwise known as fraud. 05/26/09
by Pat Flannery

China and Russia wanted a piece of the American capitalist dream - ordinary American people lending their life savings to neighbors to build their American dream home through a Jimmy Stewart-style small town American bank.

But we are not in "Bedford Falls" anymore. The Chinese and Russians can no longer invest in small town banks, so Wall Street took Jimmy Stewart's mortgages, packaged them up in large bundles and sold them to gullible Chinese and Russian investors as true American "mortgage-backed securities" (MBS).

These foreign investors trusted Wall Street and got taken to the cleaners. Now Obama is trying to bail the whole thing out. Maybe he is afraid that the Chinese and Russians will retaliate if he does not. At the very least, they will never trust Wall Street again.

Creating MBSs, known as "securitization", used to be the sole privilege of government-backed agencies like FNMA (Fannie Mae). Now anybody can do it. That is at the heart of the global financial meltdown. It is not that our American banks became deregulated, they simply chose to become unregulated brokers for foreign investors and created all kinds of unregulated investment instruments for them.

They had discovered that every time a mortgage is wrapped or bundled new money is created. The American Government thus lost control of the money supply. The printing of American money had been effectively privatized. Previously only regulated banks could create money by making regulated loans. It was called fractional-reserve banking.

Michael Strauss, former Chairman and CEO of American Home Mortgage (AHM), now in bankruptcy, typifies the rogue loan originators who took advantage of all that foreign money. Chris Lafornara of Kearny Mesa Townhomes typifies the many developers/sellers who were the main recipients of that easy money. Lafornara was able to sell his condos for three times their normal value and pocket the profits.

Here's how it worked. A straw buyer aggregator, like James McConville of Fremont in the Bay Area, agreed to provide Lafornara with all the straw buyers he would need. In the case of Kearny Mesa Townhomes there were 42 units so Lafornara would need 42 straw buyers.

Veronica Padilla is a good example. On November 29, 2006 Lafornara signed her up, a married woman with an address in Fremont, for the purchase of four of his units. He sold her three 2 bedroom, 900 square feet units (numbers 13, 25 and 26) for $355,000 each and one 1 bedroom, 644 square feet unit (number 35) for $305,000.

All the deals were signed and notarized on the same day. All her loans were owner-occupier i.e. all four units were to be her "primary residence", even though she lived with her husband in northern California. AHM funded her four purchase loans of $319,500 each, a first of $248,500 and a second of $71,000 on each unit. They didn't even bother to read the paperwork - they made a loan of $319,500 on the 644 square feet unit that sold for $305,000.

Meanwhile Lafornara had "corporate" cover.

He appointed McConville's daughter Nicole, as a "manager" of his corporation, Kearny Mesa Townhomes. Here are the two documents he filed at the California Secretary of State: the original 2005 filing and the 2006 change adding Nicole McConville as a manager. She was added in addition to the two original managers, Chris Lafornara and David Hurwitz. There was no change of ownership of the corporation.

To underline that fact, Lafornara signed a "double-flip" of the units, from the corporation to himself and back again, on November 30, 2006, the day after the Secretary of State filing adding Nicole. Nicole started signing grant deeds on behalf of the corporation on the very day of the Secretary of State filing, November 29, 2006. Here is her grant deed for unit number 25 to Veronica Padilla.

The double-flip of the units was to create false comparables for subsequent appraisals. The units were worth nowhere near $355,000 each. Unit number 16, a studio with 388 square feet was sold to Adrianus Schabbing, a McConville straw buyer with an address in Hayward, for $305,000 and a loan for $244,000 from WAMU on October 10, 2007. Nicole's father, Jim, signed the grant deed himself, even though he was never a registered officer of the corporation.

WAMU now purportedly owns the unit through foreclosure. Was Schabbing's mortgage valid? Did he get proper title from Jim? The only persons authorized to sign grant deeds for Kearny Mesa Townhomes were Chris Lafornara, David Hurwitz and Nicole McConville. If otherwise the Secretary of State's records mean nothing.

To sum up, developer Lafornara's corporation raked in approximately $11 million through fraudulent loans on the 42 units he had converted to condos. He had already pulled out $3,450,000 in a refinance deal with La Jolla Bank on September 12, 2006. That probably covered all his investment to that date. The balance of $7,555,000 could then be shared with those who helped in the scheme. The losses however, will be shared, not by the banks that originated the loans, but by the foreign investors who purchased the Wall Street-bundled MBSs in good faith.

As a final demonstration of financial ingenuity, bankrupt AHM is now AHMSI, American Home Loan Servicing Inc. It is making millions acting as trustee in the foreclosure of its own bad loans. Two of these  foreclosed units in Kearny Mesa Townhomes are now in the San Diego MLS. You guessed it: they are two of Veronica Padilla's owner-occupied units, numbers 13 and 25. We are now entering phase two of this All-American scam.


Our Lady of Peace will sue the City of San Diego. 05/07/09

by Pat Flannery


These are the most beautiful words in the English language:

"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances."

They are of course the First Amendment to the U.S. Constitution.

But Congress did make such a law. And in my Blog dated March 4, 2009 I predicted that Our Lady of Peace Academy (OLP) would sue the City under that Law: the Religious Land Use and Institutionalized Persons Act (RLUIPA), passed by the U.S. Congress on July 27, 2000. Now OLP has announced it is going to do so. The Law says in relevant part:

"No government shall impose or implement a land use regulation in a manner that imposes a substantial burden on the religious exercise of a person, including a religious assembly or institution, unless the government can demonstrate that imposition of the burden on that person, assembly or institution

  • (a) is in furtherance of a compelling governmental interest; and

  • (b) is the least restrictive means of furthering that compelling governmental interest."

This Law puts a religious institution in a more favorable position than a non-religious institution, despite the fact that any attempt to grant favors to any religious institution is a breach of the U.S. Constitution, just as any attempt to impair the exercise of any religion is a breach.

Now look at the OLP web site. The Board has written a letter to its "Friends", making it clear that (after careful prayer and reflection no doubt) its preferred course is to sue the City for religious discrimination, over a land use decision. The letter reads in part:

 "Under the federal Religious Land Use and Institionalized (sic) Persons Act of 2000 (RLUIPA), religious institutions are protected from religious discrimination and unnecessary burdens on religious expression imposed by local government zoning requirements. Our modernization plan is necessary to further the mission of the school. We believe that the City’s decision unfairly discriminates against our Catholic identity; the denial of the implementation of our modernization plan places a substantial, if not impossible, burden on us to carry out our mission. Because of this, we believe that challenging the City’s decision under this statute is our best alternative. While we don’t relish the idea of litigation, we must be true to our call to provide our students with the best education possible."

I wouldn't want to be the City attorney defending this case:

"We would appreciate your prayerful remembrance with the offering of a Hail Mary each day until this matter is resolved .....We know that her intercessions are dear to the heart of her Son, Our Lord Jesus Christ."  I think City Attorney Jan Goldsmith might want to get outside counsel on this one (several of them believe they too can walk on water).

The idea that the Church is not subject to civic or secular law goes back to the apocryphal Donation of Constantine. Here is a beautiful painting from the workshop of Raphael, that still hangs in the Vatican, depicting Roman Emperor Constantine kneeling before the Pope and "donating" to him the city of Rome and all of Western Europe.


The Board of OLP obviously still believes that any attempt by any City Government anywhere to regulate any Church land is an infringement of the Church's centuries-old land privileges. The "Friends'" Hail Marys will no doubt strongly press that case before the Highest Court there is.


Condo developer Jeff Greene buys his own "credit default swaps". 04/27/09

by Pat Flannery

Nobody knew better than Los Angeles apartment mogul Jeff Greene when the real estate bubble would burst. He was one of the main architects of the fraudulent loans that inflated real estate prices. Then he bet that the whole edifice would come tumbling down and made a billion dollars on that bet. He had discovered "credit default swaps" (CDS). Watch him explain to a CNBC reporter how his only regret is not doing "twice as much":
  The star-struck reporter obviously did not know about Greene's scam of creating bad loans and then buying the financial instrument (CDS) that bet on them not defaulting. Every CDS traded was grossly underpriced because the market did not know how bad the underlying loans really were. But Greene knew. He was therefore able to buy low (before the markets realized the risk) and sell high (after the markets realized the risk) the oldest trick in the book.

Greene came from a Worcester Mass working-class Jewish family. He paid his way through Harvard Business School as a Boston slum landlord. He moved to Los Angeles and continued his slum landlord business in the underbelly of Hollywood. He befriended people like Hugh Hefner, Oliver Stone and Mike Tyson, who was best man at his wedding, before which he lived with Heidi Fleiss, the colorful "Hollywood Madam".

He specialized in rundown, rat-infested apartment buildings in sought-after neighborhoods of Los Angeles and branched out from there. Somewhere in that shadowy world he teamed up with Jim McConville and perfected the "straw-buyer condo-conversion" loan. The beauty of Greene's scheme was that he could then buy and sell the credit default swaps (CDS) that "insured" the very fraudulent loans he created.

Wall Street traders had a traditional believe that bundled real estate loans were a safe investment, that bundling spread the risk. But Jeff knew that some bundles were now 100% fraudulent, the 300 hundred loans on his La Mirage condo complex for example. He knew that CDSs were a financial time bomb. He was one of those who had set the clock ticking.

With this knowledge all he had to do to make a billion dollars was to purchase enough CDSs at their low-low 2006 price and wait for that price to skyrocket around 2008 when the market would realize the enormity of the risk these CDSs had been insuring. That is why he and others were hungry for cash in 2006. They wanted to buy these CDSs while they were still cheap.

I did an in-depth analysis of his condo conversion project in the City of Ridgecrest, Kern County.
The nearby China Lake Naval Weapons Center makes it familiar to many San Diego families. Some may have lived in the 300-unit La Mirage complex, the subject of this analysis.

It was formerly called "The Willows". Jeff Greene bought the complex and changed its name to "La Mirage" (appropriately named) on October 12, 2004. He took title using a company he had formed on June 14, 2000, named 1402 Alta Vista Partners LLC. Here is the full (restated) CC&Rs document, signed by Greene personally and recorded on January 18, 2005 by a company named Millennium Holdings Inc. at 1800 N. Argyle Ave., Los Angeles, the address given on Greene's (now expired) real estate broker's license.

Greene started selling his La Mirage condos on July 14, 2006. His first buyer was a close associate of Jim McConville, Jack Thomas. He is the registered straw owner of McConville's much-used address at 37968 Canyon Heights Drive, Fremont, Ca 94536.

Here is that first Grant Deed, signed by Greene himself. The purchase price was $165,000. Here is the Trust Deed for Thomas's mortgage with New Century Mortgage for $148,500. It was notarized by another key member of the McConville team, Agnes Kantere. The scam was on.

Greene had already sold 189 of these condos before he deeded the remaining 111 to McConville on August 15, 2006. Here is  the full attachment showing the legal descriptions of each condo unit. All subsequent sale deeds were signed by or on behalf of McConville.

I compiled a list of all 300 La Mirage condo sales from the Kern County Recorder's Office. Here is a list of those sold by Greene and here is a list of those sold by McConville. Many straw buyers are common to both lists. This means that Greene was familiar with and actually selling to McConville's buyers before McConville bought the La Mirage complex.

Did McConville really buy these 111 condo units? Greene paid $7,840.25 transfer tax on the grant deed, indicating a sales price of $7,127,500 or $64,211 per unit. Where did McConville get the money? If the sale was genuine he must have paid cash because there is no loan for anything like that amount recorded around that date.

Did he really buy the 42 units in Kearny Mesa? According to Chris Lafornara, McConville shelled out another $7.4 million 3 months later, on November 30, 2006, for the 42 units called Kearny Mesa Townhomes.

There are a few other tell-tales in the public record, Agnes Kantere for example. Not only did both Greene and McConville use her as a straw buyer, both before and after Greene sold to McConville, they both used her to notarize various straw buyer Trust Deeds!

Here is a grant deed to her signed by Jeffrey Greene dated August 3, 2006 (Greene deeded the 111 units to McConville on August 15, 2006) and here is a grant deed to her signed by James McConville dated September 9, 2006. Here is her $101,500 "owner occupier" Trust Deed to American Home Mortgage (a favorite lender of these scammers) that goes with her August 3, 2006 purchase.

She bought 6 such condo units from Greene on August 3, 2006 and 3 more on August 7, 2006, all with "owner-occupier" loans. Then she purchased another six from McConville in September. Meantime she is notarizing Trust Deeds for other McConville straw buyers like Jack Thomas and Heidi Lee. She appears to be the "Notary Madam".

To sum up: the "La Mirage" story describes the sordid details of the 2000s real estate boom and bust better than anything I have come across. Jeff Greene straddled its component parts like a Hollywood anti-hero. The real life Jeff Greene puts screenwriter Robert Towne's  character Noah Cross (John Huston) in my favorite movie "Chinatown" (1974) in the shade. "Chinatown" was considered to have depicted the ultimate real estate scam. Not any more.



The truth about McConville and Kearny Mesa Townhomes. 04/25/09

by Pat Flannery

In reporting this story today the Union-Tribune carefully avoided mentioning the name of local developer Chris Lafornara, just as the Voice of San Diego carefully avoided mentioning the name of local developer Ralph Giannella in a similar story about the Sommerset Villas condos in Escondido last week. Why is that? Aren't these developers the real culprits?

Today the U-T even made it appear that McConville did the condo conversion at 7555 Linda Vista Rd after Chris Lafornara "sold" him the 42 unit condo complex on November 30, 2006:

"Kearny Mesa Townhomes, at 7555 Linda Vista Road, was converted from apartments by Diamond House Development, a company linked to James McConville of Fremont".

Chris Lafornara was still the principal owner of Kearny Mesa Townhomes on September 12, 2006. On that date he signed for a $3,450,000 loan from La Jolla Bank as "Manager of Kearny Mesa Townhomes LLC".
The condo conversion process, which started back in 2004, was completed on October 17, 2006 with the filing of a final Condominium Map. This was over a month before McConville supposedly "purchased" the units on November 30, 2006.

I hope today's U-T article will not mislead the public into believing that the condo conversion was effected by McConville, as the U-T reported.

With regard to the "purchase" the U-T wrote:

"A McConville company bought Kearny Mesa Townhomes in November 2006 for $7.4 million, or about $176,000 per unit, according to deed records and the previous owner."

The "deed records" the U-T relied upon to make that statement were recorded on November 30, 2006 as documents number 2006-0849881 and 0849882. The first purported to transfer title to the 42 condos from Kearny Mesa Townhomes LLC to Chris Lafornara and John Watmore; the second purported to transfer title from Chris Lafornara and John Watmore back to Kearny Mesa Townhomes LLC. It was a concurrent "flip", certainly not an "arms length" sale.

Filing such an invalid grant deed makes it appear that Lafornara "sold" the 42 unit condo complex to McConville in order to establish a "bulk" price of $176,000 per unit that would support inflated individual appraisals later.

Developers know how to use the media. Lafornara was careful to ensure that CoStar picked up the November 2006 "sale" and published it as a comp for his appraisers to use later. He recently convinced Mike Freeman that the 2006 "sale" was genuine. Unfortunately the media believe these guys. They even protect them by not publishing their names.

In any case the November 30, 2006 grant deed is invalid, because it did not use the 42 individual legal descriptions that were created on October 17, 2006 by the final
Condominium Map. The grant deed used the legal description before the lot was subdivided into 42 condos.

I hope today's U-T article will not mislead the public into believing that a genuine sale took place "according to deed records", as the U-T reported.

If a change of ownership of more than 25% interest in the limited liability company (Kearny Mesa Townhomes LLC) did take place "according to the previous owner" as the U-T reported, such a transaction would be detectable by a complete reconveyance (or assumption agreement) of the Trust Deed dated September 12, 2006 securing a loan of $3,450,000 from La Jolla Bank, because it had an "acceleration" or "due on sale" clause. Read it. The first associated reconveyance recorded by La Jolla Bank for Kearny Mesa Townhomes LLC after November 30, 2006 was on January 10, 2007 as document number 2007-0018612.

If a change of ownership of Kearny Mesa Townhomes LLC did not take place and the November 30, 2006 grant deed is invalid, the 42 purchases are invalid, the 42 loans are invalid and the foreclosures are invalid. You cannot give a lender a security interest in a property you do not own. Each lender would have required title insurance, therefore the title companies are liable for the lenders' losses. Or the title policies are as phony as the loans!

Anybody want to purchase a 42 unit condo complex? Call me at (619) 600-5845, I think I know where there may be one for sale "at the right price" - after I negotiate a settlement with a few very unhappy lenders and title companies.


Another McConville "straw buyer" scam project. 04/22/09

by Pat Flannery

Here is
another San Diego county condominium project owned by a company at Jim McConville's now infamous address, 37968 Canyon Heights Drive, Fremont. This is the current owner list. They all appear to be typical McConville "straw buyers" from northern California. Those units marked with a red flag are in foreclosure i.e. almost all of them.

The company that sold the condos, Kearny Mesa Townhomes LLC, was formed on September 19, 2005. CoStar Group, a commercial real estate information company, reported the sale of this apartment complex at 7555 Linda Vista Road, built in 1968, to Kearny Mesa Townhomes LLC on December 13, 2006 for $7.4 million. The seller was Chris Lafornara. CoStar does not report the date of the sale, merely that it took place.

Lavornara was still signing on behalf of Kearny Mesa Townhomes LLC on September 12, 2006. Here is a Trust Deed securing $3,450,000 for La Jolla Bank personally signed by Chris Lafornara as "Manager of Kearny Mesa Townhomes LLC".

A condo conversion application for the property was "Deemed Complete" on October 21, 2004 by the City's Development Services Department. The applicant was North Park Venture LLC. The Planning Commission approved the Tentative Map on April 21, 2005 under the name "Kearny Mesa Townhomes". Kearny Mesa Townhomes LLC was formed by Lafornara on September 19, 2005 . The required Public Notice was on the City Council's docket for July 31, 2006. The conversion was completed on October 17, 2006. Here is the final Condominium Map.

Lafornara must have wanted the transaction made public, which is how CoStar became aware of it. He would almost certainly be a CoStar client. They are the "MLS" of commercial real estate.

The following documents on three of the units are typical of the others:

Unit # 11 Unit # 12 Unit # 29
Grant Deed Grant Deed Grant Deed
Trust Deed Trust Deed 1st Trust Deed
Notice of Default Notice of Default 2nd Trust Deed

All the grant deeds were signed by Paul Giffin, a Director of Kearny Mesa Townhomes LLC. All the Trust Deeds contained an affidavit of owner occupancy and all were for dollar amounts considerably more than the units were worth.

The default amount for unit # 11 as of February 27, 2009 , is $15,824.26. The last payment was made on August 1, 2008. The default amount for unit # 12 as of January 26, 2009 is $6,645.79. The last payment was made on September 1, 2008.

Is McConville a "straw seller" who recruits "straw buyers"? Is he the scammers' scammer, the "marketer", as he was described in the Escondido scam?
Does he really own thousands of condo units up and down the state? All we know for sure is that various LLCs use his Fremont address as do the various "straw buyers". Until we know the ownership of these LLCs  we cannot assume that McConville is the only scammer.


Judge gives Navy Broadway the green light. 04/21/09
by Pat Flannery

Here is the Tentative Ruling in the "Navy Broadway Complex Coalition" vs. the City of San Diego case, denying the petition. Judge Prager will formally announce his judgment in court tomorrow morning at 10:00 A.M.

This is a devastating blow to all who believed (1) that the Manchester Navy Broadway Complex will pose a security risk by providing an enticing, easy target for terrorists and (2) is being built on an active earthquake fault.

Judge Prager blew both of these beliefs out the window with a stroke of his judicial pen. First, he found that
"CEQA does not require an analysis of terrorism" and then, despite the fact that there is no evidence that GEOCON ever did any test to locate an active fault, he found that  "the GEOCON Report concluded that tests were unable to locate an active fault".

Illogically he then concluded that "the Project is not located within a seismic hazard zone". It is! That alone may be grounds for appeal.

Then to add insult to injury he wagged his judicial finger and
told us that "nothing more than ministerial decisions were involved". If that is correct then CCDC must be disbanded immediately. Prager's judgment means that CCDC is nothing more than a "ministerial" tool of the developers. What do we have a City Council for?

Prager found that the Navy's water supply impact determination made in 1992 was still good for the City's findings in 2006. CEQA has been turned on its head by one man in a robe. This is why for decades the San Diego elite has guarded its control over who sits on our court benches. The "Navy Broadway Complex Coalition" never had a chance.

There is a connection between the Escondido loan scam and the San Diego RICO loan conspiracy - Anton Ewing. 04/18/09

by Pat Flannery

This Settlement Statement, known as a HUD-1, for one of the fraudulent condo sales in Escondido about which the Voice of San Diego and the Union-Tribune reported last week, contains a little gem of information: a commission payment to "United Equity".

"United Equity" is a DBA owned by a Rancho Santa Fe CPA and mortgagee broker named Anton Ewing. Here are his license details with the California Department of Real Estate (DRE). He filed the "United Equity" DBA with the DRE on June 16, 2008, a week before closing the fraudulent Escondido loan on June 24, 2008.

Ewing is one of the 24 people arrested by the FBI on April 7, 2009. The arrest made national news. This is a link to his company's web site.

Below is a picture of his home (and office) at 18103 Via Ascenso, Rancho Santa Fe. Not bad for a 38-year old veteran of the First Gulf War. Unfortunately he is only renting it. Here is the County Tax Assessor's record showing the owners as John D. & Dinah C. Watkins who live and work in China.

This is their loan from Washington Mutual for $1,500,000  when they purchased the property in October 2007 for $2,615,000. They certified it as their primary residence although they are living permanently in China.
They gave a power of attorney to Mr. Watkins Sr. in Columbus, Ohio to sign the loan documents on their behalf. One wonders how Washington Mutual could make an "owner occupied" loan to somebody it knew, through employment verification, to be living permanently in China. Perhaps they had a broker like Ewing who knew how to get it done.

Now that we have a connection between the Escondido scam and the San Diego RICO case, what next? How many of these people knew each other?

I decided to run a check on the two northern California addresses associated with Jim McConville. I "Google Earthed" the properties and found that they are both single family houses in rundown neighborhoods. 3218 Baumberg Avenue, Hayward is the worst, with 37968 Canyon Heights Drive, Fremont being the best house on a "so-so" street. This last address is where
Ralph Giannella's Escondido company sent various "consultant" fees of $180,454, payable to a McConville company, 3 Mac Asset Portfolio. Did McConville get to keep them all? Very unlikely.

The Hayward house was deeded to Nicolle McConville by Jim McConville as Emerald Park House Corporation. The Freemont house was deeded to a Jack Thomas
by Nicolle McConville as Diamond House Development, a company involved in condo sales in Fresno as Stonemark Homes, associated with Giannella's partner, William Ayyad, as more fully described below.

There are a number of foreclosures in the McConville/Ayyad company's Fresno condo complex that resemble foreclosures in the Giannella company's Escondido condo complex. Read my April 13, 2009 blog on the Escondido condos.

Let's look at the situation the Linn family in Fresno now find themselves. It is substantially the same as the Jenkins family in Escondido: they both participated in a loan scam for a fee and are now left holding the bag. The Linns purchased three condos in Stonemark Homes from Stonemark Asset Portfolio, a McConville company. I have obtained the documents on two of them. They are worth studying to see the pattern.

Stonemark granted title to the Linns as straw buyers with a grant deed for 4875 E. McKinley Ave., #106, and one one for #117. The "purchase price" in each case was $225,000, while similar units were selling for $125,000. The straw buyers then signed First Trust Deeds for $157,500 each, one on #106 and one on #117. Next they signed two Second Trust Deeds for $45,000 each,
one on #106 and one on #117. All this took place on the same day, May 10, 2007.

On September 1, 2008 the straw owners made their last payments. The lender filed Notices of Default (NOD) on the First Trust Deeds only, on February 23, 2009, on #106 and on #117. The NODs show $6,125.98 owing on #106 and $6,230.98 owing on #117 as of February 27, 2009. The Second Trust Deeds will be wiped out in the foreclosure sale. So will any leasing rights of the renters. Rental agreements are junior to First Trust Deeds, just like junior Trust Deeds.

There is a company in San Diego called SSBI Stonemark Homes L.P. at 9252 Chesapeake Drive, which happens to be the main address of Ralph Giannella's partner, William Ayyad. According to Manta, a business search service, they own Premier Communities together.

Giannella and Ayyad are well known as owners and sellers of condo conversions statewide. The "Agent for Service of Process" for SSBI Stonemark Homes L.P. is Randy Bailey, a vice-president of the company Ayyad founded, United Development Group Inc..

According to Manta,
Ayyad's SSBI Stonemark Homes L.P and McConville's Stonemark Asset Portfolio are different sides of the same coin. They are both involved in Stonemark Homes at 4875 E McKinley Ave, Fresno. Here is a Google Earth picture of that Fresno complex.

Ayyad's company, United Development Group Inc., has a longtime presence in Fresno. According to this article in the Fresno Business Journal dated November 25, 2005,
"United Development Group owns several apartment properties in Fresno that they have purchased during the course of 15 years". The article explains that under the name "Condos in Fresno" it converted 220 units called "Villa Borgata" and 74 units at "Ridgeview". According to United Development Group's web site it directly manages "The Lexington" apartments in Fresno.

This Reader article, dated May 1, 2003, describes how ex-City Councilmember Ralph Inzunza's wife Olga, worked for Ayyad: "Until recently, records show, Olga worked for an enterprise run by Willie Ayyad, one of the Barrio Logan area's most successful developers of multi-unit low-income housing. His company, Premier Communities, has also developed upscale condominiums in Chula Vista, Escondido, Bonsall, La Jolla, and Alpine. In a 1998 county disclosure filing, Inzunza listed his wife's position at the Ayyad owned ACDW Inc. as "Accounts Payable." She is now reported to be spending a large portion of her time managing the couple's real estate." According to Manta, ACDW Inc. operates an apartment building in Fresno, called "Villa Hermosa".

Putting all this together and it would appear that Jim MConville had a prior business relationship with William Ayyad before becoming the expensive "consultant" for Sommerset Villas, the Escondido condos sold by a company apparently owned by his partner, Ralph Giannella.

Anton Ewing provides a connection between the RICO "straw buyers" conspiracy, for which he and 23 others were arrested by the FBI on April 7, 2009, and the fraudulent loans created to sell the Escondido condos owned by a Giannella company.

It is likely that the Feds will entice Anton Ewing to "sing".  Once the "singing" begins, we may learn "the rest of the story".


Council imposes "last, best & final" on POA & Local 127. 04/14/09
by Pat Flannery

At 10:45 P.M. this evening the City Council reconvened to impose the Mayor's "last, best and final offer" on the Police Officers' Association (POA) and on the city's blue collar workers' union, AFCSME Local 127.

The Council deferred voting on the tentative agreements reached with MEA, DCAA and Firefighters' Local 145 until Monday April 21, 2009 to allow full details to be worked out.

This means that the whole business of wage agreements went surprisingly smoothly this year. We await publication of the full details.

Do journalists do deals to get stories? 04/13/09
by Pat Flannery

  Here is what the Voice of San Diego did not tell you in its real estate scam story: Vicki Jenkins, the buyer, signed five trust deeds (mortgages) as an owner-occupier on five different properties. The Voice merely reported that she had "loaned her identity" for a fee.

This is the relevant page from one of her trust deeds showing the "owner occupancy" clause. All five trust deeds contained this clause. Ms. Jenkins promised to occupy all five properties as her principal residence all at the same time! Here are her five loans. It is fraud to obtain an owner-occupied loan under a false declaration of occupancy. When you do it on a federally insured loan it is a federal crime.

Did the Voice of San Diego fail to report the loan fraud in order to protect the seller who benefited? They spent three months investigating this and didn't find out about the owner occupancy fraud? I spent less than one hour investigating it and discovered it right away. It is all in the public record.

In reporting this story the Voice never once mentioned the seller, Ralph Giannella. Giannella is well known around San Diego as a major seller of condo conversions. Using the usual maze of Limited Liability Companies (LLCs) developers use, he had purchased Sommerset Villas from Mark Gleiberman, another well known condo converter. Here is his subsequent grant deed to Vicki Jenkins using one of his many LLCs, North Coastal.

This maze of LLCs does not excuse the Voice for failing to include the real seller in their investigations. They knew who he was. He had signed this letter, which the Voice itself published. But they never once mentioned his name in their report, even though he had signed this Addendum to the Purchase Agreement, which the Voice also published.

Giannella used this "disclosure" document in an attempt to normalize a "secret profit". He unloaded dozens of troubled condos in a fraudulent scheme and didn't know about the loan fraud? There was more to this than McConville borrowing the identities of some gullible straw buyers. It required them to make false loan statements. It was fraudulent in its very concept.

It had to be abundantly clear to the Voice that Giannella knew all about the "secret profits". Yet the Voice report is all about McConville. The local guy is given a free pass. Look at this Settlement Statement known as the HUD-1. It shows a "marketing fee" of $180,454 to McConville's company, 3 Mac Asset Portfolio! But nothing about the seller who paid it. What was supposed to happen to the "marketing fee" once it was paid to McConville? Was he meant to keep it all? "Secret profits" are usually divided up among the participants. Ms. Jenkins is still waiting for her cut.

This is not the first time the Voice gave a free pass to a developer with regard to "secret profits" in dubious real estate deals. Back in July 2007 I uncovered a land deal involving a "secret profit" to SEDC's chairman, "Chip" Owen. Will Carless, the same Voice of San Diego journalist who "broke" the Escondido story, told me at the time that he had investigated what I wrote in my blog about Owen but could find nothing wrong with him receiving a "secret profit" of $500,000. He refused to investigate it further.

Carless now believes that this knowledgeable developer, Ralph Giannella, knew nothing about the fraudulent loans that bailed him out of his troubled condos. We are expected to believe that Giannella gave McConville approximately $180,000 for each sale and didn't suspect a thing. The Voice will probably seek a prize for this piece of work.

The Mayor gives his senior staff 3 months "heads up" to enter DROP. 04/11/09
by Pat Flannery


Writing about Sanders' lawsuit against the POA on March 2, 2009, I asked why Sanders
"loudly proclaims that DROP is not a vested benefit for police officers, while allowing his own staff and those directly under his mayoral control to retain it as a benefit."

I am now reliably informed that he has given his senior unclassified and unrepresented staff a "heads up" that he will be eliminating DROP for those under his control starting July 1, 2009. He is giving his close associates three months to get into the City's 5 year DROP program, while it is still possible and while the creditable interest rate is at 7.75%.

Most of his senior staff will leave with him anyway in January 2011, as happens with most elected offices.


The City overcharged its departments $100 million for "pension contributions". 04/07/09
by Pat Flannery

Here is
a copy of an account in the City's books that shows the accumulated unpaid Annual Required Contributions (ARC) from 1988 to 2007, known as the Net Pension Obligation (NPO) account. It shows a balance at June 30, 2007 of $195,556,000 owing to SDCERS by the City.

SDCERS has confirmed that this item is not shown as an asset in the pension fund's list of plan assets. This means that each year the Unfunded Actuarial Liability (UAL), the difference between pension assets and pension liabilities, was greater by that amount. The interest charged on the UAL was consequently greater. Interest on the UAL is part of the ARC payment each year.

An overcharge of $100 million has therefore resulted from the City wrongly accruing interest on its unpaid Annual Required Contribution (ARC), despite the fact that it is already included in the UAL. Here are these spurious
annual interest charges. They total $100,859,000.

The City must now reverse these duplicative charges. This will result in credits to every department or fund that has been charged NPO interest over the years with a corresponding reduction in the NPO account. This action will provide the Mayor with $100 million toward his current budget.

The pension fund should give back the $103 million tobacco settlement money it received from the City in 2006. That windfall was wrongly used to pay off this spurious interest on the NPO account. It was not a "pension contribution" as falsely claimed by the City. See
the document I have provided. Look at the bottom of the 2006 column. You will see that the $103 million was used to reduce the NPO balance from $264 million to $160 million. This was a massive misappropriation of taxpayer funds. The proceeds of the Tobacco Settlement was used to pay off a contrived pension debt.

Both the City and SDCERS must have known that unpaid ARC increases the UAL and therefore increases interest charges, rather like a credit card. You would hardly add interest to your credit card payment knowing that the credit card company already charged interest on your outstanding balance. Yet that is exactly what the City did. They just wanted to shovel money at their pension system.

Correcting this will require revisions to the City's CAFRs. The inescapable fact is that the City double-charged its departments, consequently its citizens, over a period of 20 years, 16% instead of 8%, on the accumulated unpaid portion of the Annual Required Contributions (ARC).

Eliminating DROP could save $16 million immediately. 04/02/09
by Pat Flannery


Mayor Sanders filed
this lawsuit in the Superior Court today seeking a Writ of Mandate declaring that the City's Deferred Retirement Option Program (DROP) is a "term and condition of employment", not a "vested benefit" as claimed by the Police Officers Association (POA).

The City's lawsuit cites Art. 43 § 6(D) of the
POA MOU dated July 1, 2008 in error; it is in fact Art. 44 § 6(D). Read the relevant page.

It says: "The Member is 100% vested in the DROP from its inception. That means that a POA Member who has entered DROP owns the money in his/her DROP account from the day they entered the program. It does not mean that entering DROP is a universal right that cannot be taken away. Otherwise why would it be in an MOU for any particular period?

It is a benefit available as "a term and condition of employment", which may be offered from time to time as a term of employment, as happened in the last POA MOU. It will be interesting to see the POA's argument.

But what struck me about Sanders' lawsuit is how he loudly proclaims that DROP is not a vested benefit for police officers, while allowing his own staff and those directly under his mayoral control to retain it as a benefit!

Management personnel account for most of the DROP cost. They are the highest paid employees, are not represented by any union and serve at the pleasure of the Mayor. The entire cost of DROP for these non-represented employees could have been saved from the day Sanders entered office.

There is something deeply hypocritical about a man who gets elected as a "reformer" and once elected refuses to take a simple action that would save the taxpayer millions of dollars. If all this time he has believed that DROP is not a vested benefit, he should, even now, immediately discontinue DROP for those under his control.


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