Thursday, February 3, 2011

Paul Koenig's Dollar House Program

After foreclosure, Paul Koenig paid $1 for this.

After foreclosure, Paul Koenig paid $1 for this.

After foreclosure, Paul Koenig paid $1 for this.

After foreclosure...well, you get the idea.

$1

Should Paul Koenig buy a cheeseburger at McDonald's, or a house?  With $2, he can have BOTH!
Post and photos by the Hawthorne Hawkman.  Photos originally appeared on the JNS story, "Pamiko Property Photo Tour."

I'll give Paul Koenig this much:  he's got chutzpah.  What he is trying to do to retain ownership of "his" properties in NoMi (and a few in south) is nothing short of astonishing.  Koenig bought dozens of houses in Minneapolis, and at least one commercial building in St. Paul with four loans from Minnwest Bank totaling roughly five million dollars, and another half-million from Aspen Financial.  These commercial loans were cross-collateralized, a procedure that looked awfully suspicious to many, but may have been at least somewhat of a solid business practice.

Cross collateral means that several properties were the collateral on more than one of the million-dollar lines of credit.  The reason for this is so that if some properties go vacant, in need of repair, or otherwise stop producing income streams to support loan payments, spreading them out this way creates an intermixed income stream to support several lines of credit simultaneously.  In the business world, this model apparently works rather well, provided your borrower isn't a flat-out lying scumbag.

Which, in my opinion, sums up Koenig quite nicely in light of his recent actions.  Minnwest foreclosed on the Bryant property above, to the tune of $2.5 million, along with a bevy of other houses attached to that loan.  They did the same with the $1.1 million foreclosure of a commercial building in St. Paul.  Where it gets tricky is...

...in how the foreclosures break down.  On the Bryant foreclosure, each property is listed at the full loan amount needed to redeem.  (2420 Bryant Ave N - $180,260.72; 3025 Clinton Ave S - $194,020.72; 2708 Bryant Ave N - $160,640.72...etc.)  The St. Paul foreclosure lists the entire $1.1 million, minus a few dollars for each of the other properties listed.  Why would the foreclosures be structured this way?

Well, let's assume that Paul Koenig has loads and loads of cash (which he probably does) and plans on using that money to fulfill his financial obligations (okay, so that's a stretch).  The downtown St. Paul commercial property is easily the most valuable asset Minnwest owns from the Koenig foreclosure portfolio.  This is the crown jewel and I would not want to give it up unless I was paid in full.  So that foreclosure gets filed at as close to the full amount owed as possible.

I'd still want to try and get my money back or minimize losses on the other properties too.  So on the $2.5 million loan, I'd itemize which houses were owed which dollar amount.  And then I'd take a token sum from each property and use that amount to file a foreclosure attached to the St. Paul loan.  In this way, Koenig could redeem the St. Paul property by paying $1.1 million.  He could redeem 2420 Bryant (the property, not the $2.5 million foreclosure associated with that as the lead house) by paying BOTH the $180,260.72 owed on the first foreclosure AND the $1.00 owed on the second foreclosure.

Instead, Koenig went ahead and paid $1.00, plus an additional $.07 in interest, plus various filing fees, to "redeem" at least six properties in north Minneapolis from the St. Paul foreclosure, and then had them transferred to Komo Properties LLC.  His transactions break down this way:

2420 Bryant Ave N
  • $180,261.72 to redeem
  • Koenig paid:  $1.07
  • Still owed:  $180,260.65

2435 Portland Ave S
  • $187,489.72 to redeem
  • Koenig paid:  $1.07
  • Still owed:  $187,488.65

1318 18th Ave N
  • $226,391.72 to redeem
  • Koenig paid:  $1.07
  • Still owed:  $226,390.65

3119 Queen Ave N
  • $157,511.72 to redeem
  • Koenig paid:  $1.07
  • Still owed:  $157,510.65

1414 16th Ave N
  • $147,641.72 to redeem
  • Koenig paid:  $1.07
  • Still owed:  $147,640.65

1016 Newton Ave N
  • $217,511.70 to redeem
  • Koenig paid:  $1.07
  • Still owed:  $217,510.63

Remember, even if Koenig paid the $1.07 for each of these redemption fees for the St. Paul foreclosure, they are still encumbered by the Bryant foreclosure.  He has to pay them both in order to fully redeem the properties.  Instead, he paid a buck apiece and still owes $1,116,802.88.

Seeing as how we're only partway through the first third of documents filed so far, I'd hazard a guess that there are other properties Koenig tried this with too.  I wonder if anyone is answering the door over at Kaizen Properties at 3201 3rd St N to tell us which properties they think they're managing in our neighborhoods?

Finally, here are the documents I have so far.  In anticipation of getting numerous Koenig court docs, I've put a number at the beginning of each to indicate as best I can, the chronological order of the court proceedings.

Minnwest Complaint
Minnwest Temporary Restraining Order
Pamiko Response to Restraining Order
Paul Koenig Affidavit
Exhibits 1-15
Exhibits 16-29
Exhibit 30

35 comments:

  1. Aren't all the properties still subject to the first mortgage which "blankets" and therefore encumbers all the properties? It does not seem like any Court would find it equitable to apparently wipe out the first mortgage lien against some of the properties. Does he have a chance of getting these back for next to nothing and the bank and its shareholders are screwed???

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  2. Great Work! Keep it up!

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  3. It pains me to say this, but Koenig is actually right. He now owns these properties and only paid $1 each.

    You need to understand how foreclosure law works in Minnesota. Both the 1st & 2nd cant foreclose at the same time. It's one or the other. All mortgages are leased if ANY foreclosure happens. If the 2nd forecloses, they MUST 1st satisfy the 1st.

    Koenig isn't stupid and knows the law. When he requested a redemption amount, I can only imagine the stupid grin on his face when asked the sheriff if he had change for a $20

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  4. @Anon 10:54, I do believe you are mistaken. How do second mortgages protect their rights in a foreclosure if this is the case? And if there was such a huge loophole in Minnesota foreclosure statute, I can't imagine why anyone would lend money under cross-collateral financial structures.

    But if you've got specific language you can refer to, by all means, share it here. And if you don't, well, ultimately the courts are going to decide if Minnwest or Koenig is correct here.

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  5. MN 580.29

    HOLDER OF JUNIOR MORTGAGE MAY PAY DEFAULT IN PRIOR MORTGAGE.

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  6. A cross collateral loan isn't really unusual. The bank simply financed a portfolio of properties with a debt/service ratio that met their risk tolerance. It's a more efficient loan than writing them one at a time. Unfortunately when the loan goes into default, it sticks out like a sore thumb.

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  7. Again, anon, how does that apply to this situation? The "junior mortgage" of $1 was indeed satisfied, but the "prior mortgage" of $180,000 was still out there.

    I interpret what you're quoting this way: Many conventional loans were written as 80/20 or 90/10. If US Bank owns the 80% mortgage, and Wells Fargo owns the 20% mortgage, Wells can pay off US Bank's portion and then redeem it for themselves. And in fact, if I'm paying the 20% loan on time, but in foreclosure on the 80%, Wells would have to foreclose to protect their interest.

    But if that's my house in foreclosure, I don't get out of foreclosure simply by paying the smaller loan amount.

    Sorry, but my reading of this statute in light of Koenig's actions is that the prior mortgage default was not paid by anyone, and therefore Minnwest is the rightful owner.

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  8. Did you add up the total amounts paid at the sheriff sale? Any surplus beyond 1.5M goes back to Koenig. Probably nothing there, but it might be interesting to review just in case it comes up in court.

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  9. A foreclosure wipes way ALL liens on a property. It doesn't wipe away the debt owed - but the liens are gone. So yes - when Koenig redeemed for $1, he became the owner of title on these properties.

    That's why a junior lien rarely forecloses. The junior MUST and satisfy the first in the process.

    Under your example of the 80/20 US Bank / Wells Fargo, imagine the value of the house was $100,000. $80,000 1st / $20,000 2nd....right? Now let's say the value of the house dropped to $50,000. In order for Wells to foreclose, they'd need to pay US Bank $80,000 to remove the lien. It would never happen. The only time a 2nd forecloses is when the property has equity beyond the 1st mortgage balance.

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  10. Right, but let's say that $100,000 loan was on a house that was worth $150,000. And, to draw another parallel to the Pamiko situation, let's say that US Bank was the holder of both loans totaling $100,000. Obviously they would initiate foreclosure proceedings on both the $80k and $20k. Are you saying that someone could redeem a house with $100,000 owed, that has a $150,000 value, for just the $20,000?

    Bringing it back to the Minnwest/Pamiko scenario, I have a hard time believing our laws and lenders are both that stupid.

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  11. Also, keep in mind that we're going off of an incomplete set of court documents so far. I'll be tracking down another 5 filings next week. That could shed some light on the matter one way or another.

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  12. What appears to have happened was the attorneys were sloppy. $1, $1,.......$1.5M. Remember, when Koenig took the loan, it was on a portfolio of properties NOT individually. When he saw a nominal amount an several properties, he reached for a $20.

    Because Minnwest owned both the 1st and the 2nd doesn't change foreclosure law in MN. The process wipes clean all liens.

    Where I'm a little confused Minnwest states the 2.5M loan foreclosed 1st. That should have wiped the 1.5M lien away.

    AGAIN the debt doesn't go away, just the lien.

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  13. The problem with your posts, HH, is that you don't know the whole story. You are trying to give a book report on a 1500 page novel by only reading the dust jacket.
    There is so much going on at so many different levels, and you are not privy to any of the inner workings.
    There are so many laws involving many different levels of government, and banking, finance, mortgages, foreclosure, bankruptcy, etc.
    There are numerous people and corporate entities involved in multiple locations and states.
    And you think you can run down to the vaults and read a few pages of a court file and suddenly enlighten us your vast knowledge of the case.
    And even what is in the court files is not the whole story. What is in a court file is what the attorneys want in the file, and what the Judge allows into evidence. There are cases and cases and cases of documents that will never find their way into the court file.
    Unless you are a party to the case or one of the attorneys involved, or have access to the transcripts in total you will never be able to discuss the cases with total intelligence.
    What comes across is your writings is your bias against certain individuals, which I would suggest taints your ability to do your job effectively.

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  14. JD, you are right that I do not have the full story. I wish I had the ability to sift through hundreds of pages of legal documents to get every last shred and write up one comprehensive post. Alas, I'm doing my best under the circumstances.

    If you go back and read my initial posts on JNS, you can see my incredulity at how Koenig's loans were structured, and how that matured as I learned more about the type of business line of credit he used and how that is actually rather common. As I glean more information from the files, reader comments, and my own experience, I hope that same learning will be reflected here.

    Finally, you accuse me of being biased against certain individuals, and in Koenig's regard, I'm guilty as charged and unapologetic about it. You say it taints my ability to do my "job" effectively? Well, this isn't my job, it's my blog I do on my free time.

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  15. Wouldn't there also be a "note" under which the bank could sue him? Every mortgage I have ever seen also contains a note and thus a promise to pay.

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  16. Indeed, Anon 8:11. However, what the other anonymous commenters and I are disagreeing over is not whether Koenig still owes Minnwest a certain amount of money, it is whether Koenig or Minnwest owns the above properties (and any others that might fall into this category).

    The question at hand is in regards to loans with multiple foreclosing liens. At what point do the liens of one competing entity - even when they are the same company - become either satisfied through redemption or eliminated through foreclosure? If, as the other anonymous commenters are stating, the foreclosure and $1.07 redemption is upheld, then Koenig would still own the properties while owning money to Minnwest.

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  17. HH, I'm not talking about your blogging.
    Your bias against certain landlords taints your ability to work effectively with them as housing director for the improvement of the neighborhood. While I don't know what your job entails, I would hope it involves sitting down with problem landlords and mediating some resolve in a productive way that turns around problem properties. If that is not part of your job, than the HNC needs to give you some firm direction and rewrite your job description.
    Blogging about slumlords doesn't solve the problem, but has clearly created considerable resentment towards you from those you have written about. With the exception of Bertelson who invited you to coffee, I don't think you have the ability to work with any of the other "slumlords" because I would assume they have little respect for you at this point.
    Have you ever called up Meldahl and invited him to coffee? How about Bashir, asked him to tea to discuss his properties?
    They say you can catch more flies with honey than with vinegar. But rather than set out the honey, the approach you seem to prefer is to hose them down with pepper spray and then give them a bottle of vinegar to wash it off.
    At what point in time do you actually recognize that your methods are not working, and are in actuality making the situation more volatile?
    I know of several success stories of problem landlords that have been resolved by neighborhood groups, and none of them are in your neck of the woods. This tells me the problem is not 100% the landlords.
    Maybe it would help if you shoved aside your keyboard and picked up the phone. The solution has to start with someone, and I think that might be what you're paid to do. If that’s not your job, than you just go about your blogging and let the neighborhood decay.

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  18. Opps, I just send a post and I think I for forgot to use my name

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  19. Hawthorne Hawkman is doing what other journalists do every day: taking a complex event and trying to give us an idea what's going on. His coverage has more depth, more detail than any story would ever have in the Star Tribune.

    The fact the foul up is vast and complex is not the fault of HH, but the fault of Paul Koenig. And, frankly, even if it were a book report from a dust jacket, that tells me more than I knew about the book without the book report. The fact is nobody else is doing this, and it needs to be done, and that's why we have built our own grassroots media network of NoMi blogs.

    And I'm fascinated to see how far to the bottom Jeff is going to dig on this thing.

    As for bias, is the Star Tribune and City Pages coverage of Paul Koenig biased? When the facts are this heinous, what is the person covering the story to do? Keep throwing out sentences like, "Oh, but let's keep in mind he may be innocent and we haven't heard the whole story, yet"?

    The commenter crying about "bias" can go cry to Star Tribune and City Pages, too.

    I want to give public thanks, again, to the source who put me on to this ongoing trial with a mere two page printout, which allowed me to put Jeff on the story minutes later.

    I knew Jeff would go after it but, my word, it's like seeing a snowflake set off an avalanche.

    Oh, yeah, one more thing...

    DOLLAR HOUSE PROGRAM?

    How many of us have urged city officials, again and again, to reinstate the old "dollar house" program and sell some of these vacant properties to city workers, or police, or firemen, or soldiers for a dollar and cut 'em a break on the vacant and boarding fees.

    Will it take this notorious slumlord creating his own "dollar house program" to spur such a city program into happening?

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  20. JD, your point about when it's appropriate to strive for a constructive relationship vs. when to publicly criticize is a valid concern, and one I consider often.

    However, there are some slumlords who are beyond the point of having such a relationship or dialogue. Given his extensive history, I consider Paul Koenig to be one of them.

    And I believe blogging about slumlords and their effect on neighborhoods does have an impact. It raises the profile of issues to the point where our elected officials and public employees take action. It allows residents across NoMi (and other areas) to share information about someone like Koenig so that we have a better understanding of how he operates. And it contributes to the culture that such behavior won't be tolerated in our community.

    JNS, thanks for the kind words. I'd say that the city's old Dollar House program ought to be resurrected for pretty much everyone, not just those select groups you mentioned. (Although if it was heavily marketed towards them, that's great.) The title of the post was a tip of the hat to that program, which many in south Minneapolis consider as wildly successful. Maybe a "Dollar House Photo Tour" post will demonstrate that.

    Another snowflake causing an avalanche, I hope.

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  21. Anon 11:47

    Since you seem to have a special interest in this area and self professed know how, why don't you get involved with making responsible landlords out of the slumlords featured in these blogs rather than berating others for their efforts?

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  22. Also, for the record: I support the Irving Inquisition's posts exposing Meldahl's issues with substandard property management and tax delinquency. However, the decision to try and meet with him was not mine, nor was the decision to stop pursuing that sit-down meeting after he canceled. That dynamic has been largely driven by folks in Jordan who are more directly affected by his properties. If I have an issue with a Meldahl property in Hawthorne, I'll deal with that in the way that seems most appropriate at the time.

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  23. Hey JD - Jeff's job is to protect the NoMi citizens from scum like you. The reason he sounds bias is because 95% of the housing problems have been caused by investors like Koenig, etc. Like he said, there are investors that fly under the radar.....BUT Koenig, Bashir, Meldahl, are high profile SLUMLORDS!

    His blog (hobby) gives the LOCALS a forum to discuss local issues. If you don't like it, GET OFF the blog!

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  24. I would like to know how anyone like MinWest Bank would give a Paul Koenig any money after his "bolt together" dream home fiasco. There had to be a fraud comitted during the loan ap process by Koenig as to his net worth, disposable income etc in order to get these huge blanket loans. Has anyone researched this???

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  25. According to II. posts a while back and a list that was provided , Meldahl owns at least 15 properties in Hawthorne. Are you telling me that you have never had an issue with his substandard management of any of these? If that is the case, why would he supposedly have a problem only in the Jordan neighborhood? Or is this really just slamming someone who owns too much property to manage appropriately in your opinion or in II.'s opinion?

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  26. @Anon 9:21, I would not consider JD to be scum; just someone who has a different perspective. And I certainly don't want different points of view to "get off the blog." Even so, thanks for sticking up for me there.

    @Anon 9:31, I'd love to find out that kind of information too. Maybe it's buried in some of the legal docs we've yet to uncover. If not, I don't know how we'd get that info.

    @Anon 9:49, what I'm saying around the Meldahl issue is that there were other folks in Jordan leading the charge. While I might have approached things a bit differently, I was and still am satisfied that others are pushing the issue. If I need to deal with Meldahl on different terms than I.I. is doing, I'll make that decision for myself or my neighborhood.

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  27. To HH. So you are saying that you have had no issues with the management of any of Meldahl's properties in Hawthorne? Based on your 11:54 post, that would appear to be the case. In fact, in reviewing the II. blog, again there are no specific complaints that I could find anywhere about his supposed mis management of any of his properties! Now Bashir Moghul is a different matter! He rents to drug dealers at 2504 Humboldt N and 2938 Dupont N just for starters and those 2 buildings look like death traps!

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  28. I am trying, very briefly now, trying to understand the simple task of figuring out those who cannot figure out what is actually going on here. Should the question of whom is trying to do right by the neighborhoods they live in or those who do not live in the neighborhoods but are trying to con certain people that their personal level of concern is legitimate be a worthwhile thought or comparison? It is as obvious as the blatant style over substance hypocrisy that prevails in todays society. Oh yeah... it also helps to have a plant in the system who is funneling the money your way when you're as crooked as a motherfucker. These folks giving the money to these clowns masking theirselves as leaders of the Black community makes me want to puke in the assumption that we are to believe you are that gullible. Listen and listen closely....that is the sound of Harry Davis, Cozy Breedlove and Gleason Glover crying in the distance. It's a mess guys, i miss you.

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  29. Oh...and i miss Van White too. Sorry Van and whomever else i may have unintentionally omitted. Good Day.

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  30. Looks like it's going to get a lot more difficult for Slumlords (if inspections holds up it's end).

    http://x2t.com/83460

    Looks like the Green Initiatives proposed by the City are going to require a mandatory energy audit and a boiler/heater inspection every two years. Also, all lead abatement will need to be supervised by certified lead abatement personnel.

    How many of these rental do you think will pass muster if the city follows through with this?

    This will also mean a lot more homestead properties hitting the market which will be bad for the short term values but great for the long term health of communities.

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  31. Anon 7:22, your link went back to a post of this blog. I assume you were going to link to the city's proposed changes. If so, could you please re-post the link?

    I'm not a big fan of those proposals, and here's why: The first time they were presented at a meeting, we had a local economist paint a pretty grim picture of what is happening in our fair city. Property values are, at best, stagnating. Individuals' incomes are decreasing. City revenues are going down, even as property taxes go up.

    And where is the money going to come from for these proposed changes? How will the city generate enough revenue to cover the cost of these inspections? Who will have the money to pay for the actual compliance? Well, those costs will initially be fronted by the landlord, but he/she will eventually pass the expense on to tenants in the form of higher rent - these are the same tenants, in general, that are seeing their own incomes in decline.

    If--IF the tenant pays utilities, they may see at least a slight offset in lower bills there. Otherwise, this looks like a feel-good ordinance that will not be properly funded, and the true enforcement costs could be passed on to those who can least bear the burden.

    Now, I do LIKE most everything that the changes propose for the physical property conditions. I just haven't seen a satisfactory explanation of how they get PAID FOR.

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  32. Frankly it's none of the city's business how energy efficient rental housing is. Energy efficiency has no bearing on safety and as HH mentioned it will only serve to increase rents or increase foreclosures and vacant properties when landlords walk away or cannot sell what they can no longer rent in a cost efficient manner. In NOMI the cost to comply alone could be 20% of the value of the property.

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  33. Are you kidding me? Hardly any of these low income tenants pay for their heat, even if it is their responsibility and in their own name. They wait till the end of the heating season and either go to Energy Assistance and get it paid, or now put the heat in a fake name as they usually have done for years.

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  34. HH is what anon 4:22 saying true? I'm sure it occasionally happens....but is it a problem with most section 8 renters?

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  35. I did property management for a real estate broker in North Mpls up until 2 years ago, when I moved out of town. Over 1/2 of our renters in single family homes did not have utilities in their own names - it's a fact!

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