Koenig Bankruptcy Update - Vegas Baby!

Post and stock photo by the Hawthorne Hawkman.

Every once in a while I wonder how my arch nemesis' long, slow fall from grace is going.  Over Christmas break, Johnny Northside poked around on PACER and sent along some updates.  Live links to documents will be procured as soon as I can get them, but for now I can tell readers that in conjunction with Dream Homes co-conspirators David and Sharon Kohlenberger, there is a $32,000 judgment filed against a Koenig LLC in Las Vegas.

Plaintiff William A. Leonard filed a claim against...

The Hammer Comes Down on Koenig's Bankruptcy

Post and video by the Hawthorne Hawkman, audio from a Koenig bankruptcy proceeding.

A whole series of Koenig bankruptcy documents have come my way, and they are quite revealing. Based on what I can piece together here, it looks as if the United States Federal Credit Union essentially forced Koenig into bankruptcy by demanding he either pay them the $1.1 million owed or demonstrate that he does not have funds for a payment plan.

The bankruptcy appears to be involuntary, and was in fact discharged.  Only after that did other financial dealings come to light.  Yet Koenig was less than forthcoming with the trustee regarding his finances.  After the discharge, the case was brought back to life.

The audio file posted here was from a hearing where the judge ordered Koenig's attorneys to cooperate with the trustee.  He brings the hammer down quite convincingly, I might add.

For those who would rather spend seventeen minutes on Youtube watching "In a Gadda Da Vida," a quick summary follows...

Bankruptcy Proceedings About to Land Notorious Slumlord Paul Koenig in Financial Hot Water!

Post and illustrative stock photo by the Hawthorne Hawkman.

An anonymous commenter recently made readers of this blog aware of the fact that Paul Koenig, the slumlord behind Dream Homes, Pamiko, and a host of other slummy LLC's, as well as a failed attempt to keep his foreclosed properties for $1 apiece, can't even go through BANKRUPTCY without getting into more financial difficulty.

The man at one time owned eighty or more properties in north Minneapolis alone, and used this community as a cash cow to feed an extravagant lifestyle of motor homes, racehorses, and a mansion in Afton.  Oh how the mighty have fallen.

Documents are coming into my hands from a source associated with the Johnny Northside blog.  Two such docs are already here; one is a Notice of Removal transferring Koenig's bankruptcy proceedings to a different court, and the second is an Unlawful Detainer Koenig filed at his (now rental) property at 1775 Majestic Pines Trail, Afton MN.

I'm not an attorney nor have I ever declared bankruptcy, so what follows is a layman's reading of these documents.  However the very first time I noticed something odd about the Pamiko property empire, I posted what it was that I did know in hopes that more information would follow.  I'm employing the same strategy here, and eagerly await more documentation.

Let's jump in, shall we?

Paul Koenig Loses Hopeless Appeal

Post by the Hawthorne Hawkman, top photo from Koenig's defunct blog, bottom photo from Johnny Northside.

I can't think of a better way to close out the year than to close out yet another chapter in Paul Koenig's ongoing legal failures.  For those unfamiliar with Koenig at all, Ed Kohler of the Deets compiled a list of (at the time) all the northside blog posts about this guy.  Koenig came on to the radar almost a decade ago, buying up tons of vacant land and putting down "Dream Homes," poorly-built houses with six bedrooms, no basement, no garage, and basically destined to be section 8 rentals.  He and his investment partners lied about how much rent they pulled in, were sued, and lost.

Koenig managed to shift the blame onto his partner, picked up many of the Dream Homes post-foreclosure, and started a new wave of slumminess under various LLC's.  Pamiko, Marklee Construction, and MCK Investments were the most prominent of the three.  Despite siphoning off tons of money to fund a lavish lifestyle, (or perhaps because of that) he couldn't make the payments, let his properties deteriorate, and then lost them to foreclosure.

He has since been involved in a legal battle in which he claims that he redeemed several of his foreclosed properties for a dollar each.  In reality, this fight was little more than a charade so that Koenig could continue to make life miserable for Minnwest Bank with the slim hope that he could temporarily collect additional revenue from these rental units.

Oh, and in the midst of his housing hand grenade exploding across NoMi, Koenig was largely believed to have been the primary contributor to the Jordan Hawkman blog.  Good riddance.

Now, about that ruling...

Who Owns Them Now? (Not Paul Koenig)

Post and top photo by the Hawthorne Hawkman.  Bottom photo from Paul Koenig's now-defunct blog.

When a property becomes owned by a slumlord, or is touched by mortgage fraud, that property is quite unlikely to immediately go back into the hands of a quality owner - whether the house is homesteaded or not.  It's been long enough since the "One Man Housing Crisis" of Koenig/Pamiko/Marklee Construction/MCK Investments/Dream Homes/Did I forget any LLC? collapsed on itself, so its time to take a look at where those houses ended up, starting with...

Pamiko's Legal Struggles Continue

Post by the Hawthorne Hawkman, "Pamiko Rail" photo from the Hillside Chronicles blog.

Paul Koenig and his Pamiko Properties LLC are apparently still wrangling out differences with the powers that be in court.  I was given information that Pamiko and the State of Minnesota and Hennepin County still have issues to settle in Minnesota tax court.  Thanks to the government shutdown, the tax court website is not in operation and I can't even access the registrar of actions.  But the case number for Pamiko Properties LLC v. Hennepin County is 27–CV–09–13258.  From the rudimentary information passed my way, it appears as if Koenig is challenging the amount he owes on property taxes.  But the case summary does state that...

Catching Up on Slumlord Details

Post and photos by the Hawthorne Hawkman.

Recently in the Strib, there were two articles that had tiny bits of information about slumlords in north Minneapolis.  Where the NoMi blogosphere comes in is that we can take those shreds of info and hold them up to a magnifying glass for all to see.  In one article, a list of landlords who had lost one or more rental licenses was published.  Near the bottom of the article were two names of landlords familiar to NoMi:  Mahmood Khan and the Durkops (Aaron and Mary).  Khan shouldn't need much introduction, and the Durkops were the principals behind Kaizen Property Solutions LLC, who were the designated manager of Paul Koenig's dollar houses.  Khan and the Durkops each lost one rental license, but from which properties?

Well, that took a little digging through city council and committee meeting minutes, but...

And the Minnwest v. Koenig Verdict IS...

Post and stock photo by the Hawthorne Hawkman.

The Minnwest v. Paul Koenig, Aaron & Mary Durkop, Komo Group LLC, and Kaizen Property Solutions LLC is over.  Judge Susan Burke granted the Minnwest Bank request for summary judgment, and Minnwest is now the owner of the six properties at issue in this case.  There was a court hearing scheduled for Monday March 21, 2011, but that apparently has been canceled.  I showed the final documents to a real estate attorney, who confirmed they contain the final ruling, unless of course Koenig or any other defendant wishes to appeal.

In the last post regarding this trial, I mentioned that I was missing some previous documents, such as Paul Koenig's affidavit and the Defendants' Memorandum in opposition to summary judgment.  The defendants do make some interesting, although ultimately fruitless, claims.  Such as...

Koenig "Ignores Some of the Most Basic Principles of Mortgage Priority," Appears Set to Lose Case

Post by the Hawthorne Hawkman, photo from Johnny Northside originally appeared on Paul Koenig's blog, used under First Amendment criticism and commentary.

Before we begin, let me get one thing out of the way.  I don't have all the documents or information I need in order to write what I would consider a complete blog post.  But since it's going to be a few days before I have time to get downtown again for what may be the last round of Pamiko court documents, I'm writing with what I've got.  In a way, this is oddly appropriate.  I'm somewhat of a completist, and when I first discovered a $2.5 million-dollar foreclosure, I wanted to do more research and get the whole picture before writing anything.

Instead, my friend, neighbor, and fellow blogger John Hoff told me about "All the President's Men," in which reporters who uncovered the Watergate scandal knew they had a lead on something, but didn't know how big it was going to be.  "Just write what you've got, and people will start contributing more information, and the rest of the story will happen," was essentially what John advised.  And now look where we are, with Paul Koenig and his various LLC's being perhaps the most extensively covered topic in the NoMi blogosphere.

So we press on, knowing the picture is not yet complete, telling the story with what we've got, confident that the rest of the information will indeed follow.  We start with the Affidavit of Minnwest President William Swanstrom, which states...

The Koenig Apologist(s) Might Have a Point

Post by the Hawthorne Hawkman, stock image from www.failblog.org.

In some recent posts about Paul Koenig, one or more anonymous commenters have said that Paul Koenig is at least partially a victim of bad timing, and have defended him to varying degrees.  I've stuck to my opinion that, no, Koenig is pretty much the main character at fault and brought about his own financial demise.  In so doing, I've repeatedly said that Mr. or Mrs. Anonymous should show me somewhere in either the Koenig loan documents or the FDIC-mandated plan where Minnwest is either forced or allowed to arbitrarily change various terms on Koenig's loans.

In preparation for a post still in the works, I read the Affidavit of Minnwest President William Swanstrom, and the corresponding exhibit A.  That exhibit is the loan document for Koenig's $2.5 million loan at 2420 Bryant Ave N.  In that document, a series of events that would qualify as a default are listed.  Those events, in particular the last one, are listed verbatim after the jump...

Koenig's Impact on Minnwest Bank

Post by the Hawthorne Hawkman, image from the Investigative Reporting Workshop blog.

There's a financially nerdy aspect of the Minnwest vs. Paul Koenig legal showdown that I don't think should get lost in the shuffle.  Last year, I compiled quite a bit of information on Minnwest in a Johnny Northside post called "Minnwest Bank Metro - Breaking the Bank."  There's quite a bit of technical stuff to digest there, but the key point in relation to this post is that Minnwest was found to have a dangerously high level of bad commercial debt in comparison to their total assets.  That's a red flag for regulators.

The Investigative Reporting blog link above is helpful because you can drag the mouse over various points on their graphic to see exactly where Minnwest stood from one quarter to the next.  The statistic shown there is slightly different.  It compares the sum of troubled assets with the sum of tier 1 capital plus loan loss reserves.  Basically, the amount of bad debt compared to two kinds of assets a bank has.  I'm pointing out the obvious when I say that the higher ratio this is, the worse off the bank, its shareholders, and those who hold deposits are.  Readers are encouraged to compare the blue line (national median) to the yellowish line (Minnwest's ratio).

The troubled asset ratio comes into play because thanks in part to Paul Koenig's and Pamiko's massive loan defaults, Minnwest Bank was put on notice by the FDIC that they had to improve those numbers--or else.  That order happens to be exhibit 30 in our court case.  Granted, Minnwest made a rash of high-end bad commercial loans, such as when they wound up holding the bag on the failed Ramsey Town Center.  But let's take a look at that graph above and see what connections there are to Koenig's mass foreclosures in Minneapolis and St. Paul.  In the case of the $1.3 million-dollar loan at 4652 Aldrich Ave N, the sheriff's sale was scheduled in the last quarter of 2009, coinciding with a huge jump in the troubled asset ratio that quarter.  That was also the same quarter when 2420 Bryant Ave N ($2.5 million) had a sheriff's sale scheduled, although the intent to foreclose was filed one quarter earlier.  The 1417 Logan Ave N property ($1.5 million) followed the same pattern as the Bryant loan.    According to the Complaint documents, Koenig's St. Paul property ($1.1 million) was foreclosed in the same quarter of 2009 as well.

While I can't say with certainty when exactly the $6.4 million total default bomb exploded onto the chart above, there can be little doubt that the series of Pamiko foreclosures directly led to Minnwest being on the FDIC's naughty list.  Watch out banks, this is what lending to Paul Koenig can do to you.

On an appropriate note, since this post was finished after midnight, it officially hit on the 1-year anniversary of Pamiko Comeuppance Day.  Happy Pamiko Comeuppance everyone!

Koenig Court Proceedings: Affidavits and Answers

Post and photo by the Hawthorne Hawkman

When we last touched on Paul Koenig's court proceedings, he had just transferred at least a half-dozen properties to his name, and then shifted title to a new LLC, Komo Group.  Minnwest alleges, and I agree, that such a purchase and transfer didn't even satisfy the basics of title transfers and foreclosures in Minnesota.  Koenig and at least one anonymous commenter here feel otherwise.

Last week I had some spare time and was able to swing by the Government Center again to peruse more docs.  We start with the affidavit of Toni Warren, who states for the record that...

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...

Hennepin County Pamiko Court Documents, Round 1

Post and photo by the Hawthorne Hawkman. 

After trekking to downtown St. Paul and finding virtually nothing in Minnwest's Ramsey County civil case against Pamiko, I expected much of the same here in Minneapolis.  Boy, was I wrong.  The Hennepin County case has three file folders marked as full.  (Hennepin rules prohibit the photographing of actual court documents, but the folders and stop markers are fair game.  The other rule in play here is they only allow five documents to be copied at a time.  More than five and you have to fill out a work request and then it takes a week to get done.  Got to love bureaucracy.)

Now, because of the sheer volume of documents and the aforementioned rule, I picked five docs from the first file that seemed pertinent.  We'll be playing catch-up as I'm able to obtain and review the documents.  For instance, I can already tell you that Minnwest's temporary restraining order was denied, although I didn't read the denial to find out specifics yet.  And in another filing, the plaintiffs eviscerate the Koenigs' maneuverings of properties between LLC's during the foreclosure process.  I cannot WAIT to sink my teeth into that one.

The Complaint lists Minnwest Bank Metro as the Plaintiff, and the following defendants:  Komo Group LLC, Kaizen Property Solutions LLC, Paul Koenig, Aaron Durkop, and Mary Durkop.  Komo Group LLC had its office or at least a mailbox at 8632 Tamarack Village in Woodbury, the same address as Pamiko.  The Complaint states, "Upon information and belief, Koenig is the sole member and chief manager of Komo."  Kaizen Property Solutions sounded awfully familiar to me.  Why does that name ring a bell?  Oh, NOW I remember...

Airing Pamiko's St. Paul Dirty Laundry

Pictured above:  The only Ramsey County property confirmed so far as owned by Koenig and financed in part by MinnWest.

Image originally from the Koenigs' blog, republished under First Amendment comment and criticism

Post by the Hawthorne Hawkman, photos originally published on Johnny Northside.

One of the two lawsuits against Paul and Michelle Koenig and Pamiko has been tracked down.  I went to St. Paul first since that would be the harder set of documents to obtain.  I'd love to publish every scrap of paper associated with this suit, but Ramsey County doesn't make it cheap to obtain court documents.  So the following links get you the most telling aspects of the case thus far:

Pamiko Register of Actions, Ramsey County
Pamiko Summons, Ramsey County
Pamiko Scheduling Order, Ramsey County

What these documents tell us, so far, isn't much.  Although there was another item wherein the attorneys for Minnwest attempted to go the direction of mediation as ordered by the judge, and were stonewalled by the Koenigs and their attorney.  As far as the summons and scheduling order go, the most important parts of those documents say...

NXNS Exclusive! Paul Koenig Sued by Minnwest Bank!

This guy, going up against...

...them.

Post by the Hawthorne Hawkman, first photo from Johnny Northside, second photo from www.classicglassandmirror.net.

Last year, when the City Pages and Star Tribune simultaneously published stories on Paul Koenig (pronounced Kay-neg) Comeuppance Day, we wondered when (not if) the Koenigs would be sued.  A source close to one of their many, many creditors said rather ominously, "Just watch the courts."  Well, NoMi bloggers have been doing just that.  For whatever reason, these cases filed in mid-2010 didn't show up on any of our searches until just now.  But the Koenigs and a host of others are now subject to multiple lawsuits from Minnwest Bank.

Johnny Northside passed on to me the Register of Actions for both cases.  I won't have access to a vehicle to get to a scanner until tomorrow, so in lieu of pdf files, the text of each document is retyped after the jump...

Former Pamiko Property Open to Trespass

Post and photos by the Hawthorne Hawkman.  Second-to-last image from the Johnny Northside blog.  Final image from www.cracked.com.

One of the nice parts about fresh snow is that when we have vacant properties on a block, it's far easier to tell when somebody's been snooping around.  On my way home for lunch today, I happened to drive past 621 26th Ave N, a property I know well.  Tracks in the snow clearly indicated somebody had been scoping the property out, so I followed suit.  I went around to the back and I found...

The Big Bang that Started Pamiko's Downfall

1211 Knox Ave N

2402 4th St S

2616 Cedar Ave

Post and photos by the Hawthorne Hawkman, although the photos first appeared on the Johnny Northside blog.  The three properties above were owned by Pamiko at the time of the photographs, and had been part of a lawsuit involving various partners who made up the numerous Dream Home LLCs.

POST IN PROGRESS - more hyperlinks to add back stories will be added later.

Physicists widely point to "The Big Bang" as a likely starting point for our universe, and although they can surmise the origins of the universe, there are two questions such a theory leaves unanswered:  1) Why did matter exist in the first place? and 2) What CAUSED the Big Bang?  We can measure up to the first few nanoseconds, but still are unable to fill in the gaps these conundrums leave us.

Likewise, NoMi blogs (more famously on Johnny Northside) have chronicled the downfall of Paul Koenig, Michelle Koenig, and their various LLC's - Pamiko, MCK Investments, and Marklee Construction.  However, we never really answered the questions of why Koenig was allowed to acquire so many properties in the first place (technically in the second place, since he screwed over north Minneapolis first with the Dream Homes and then through Pamiko).  Nor have we understood what was the spark that set off the 80-foreclosure powder keg.

Well, after finding a confession of judgment on the Dream Homes lawsuit (a previous JNS post chronicled much of that suit, but had not come across its conclusion), I now have a theory about what started Pamiko's foreclosures over a year ago.  Bear in mind, this is only a theory, and there may be equally valid theories out there - although I sincerely doubt "Intelligent Design" is one of them.

First, a brief history...

Danna D III Principals Plead Guilty to Mortgage Fraud!

Post and photos by the Hawthorne Hawkman.  Editorial note:  the photos were taken almost a year ago and it is unknown if the property is in identical, better, or worse condition at this time.

Julia Rozhansky and Zack Dyab, two of the principals in the Danna D III corporation and American Choice Lending, pleaded guilty to mortgage fraud in federal court this week.  Danna D was a series of LLC's (roman numerals I - VI were also used for properties at various locations, although most NoMi houses were under the III entity), and Rozhansky and Dyab had planned to buy "hundreds of rental properties in north Minneapolis," according to an MPR report that broke the story of their criminal activities.  Through wire fraud and mortgage fraud, they stiffed investors of over $2.5 million and caused more than two dozen foreclosures in north Minneapolis alone.

This is a pattern we've unfortunately seen all too often; predatory investors coming in and buying properties on the cheap, using fraudulent means to qualify, not pulling proper permits, doing substandard (if any) maintenance, and ultimately losing scores of homes to foreclosure when the house of cards collapses under its own weight of malfeasance.  At least we're seeing some of these crooks finally get jail time, but the impact on our community will likely outlast their prison terms.

And when fraud is committed at one of these properties, it's not just a one-time occurrence.  The neglect of a property often makes it unappealing to anyone but the next predatory investor.  Or the first fraudster wants to sell at an over-inflated price, and the only ones qualifying for something at that level are the ones committing the next round of slumlording mortgage fraud.  That is exactly what happened with one of the properties listed in the indictment (the plea agreement isn't available online yet, but I will publish it once it is, and the sentencing hasn't been scheduled).

1417 Logan Avenue North was owned first by Danna D III, and then...

Replacement Windows and Closed Porches - A Slummy Pictorial

 

Post and photos by the Hawthorne Hawkman.

Just in case readers weren't convinced by my last post about the effects of things like replacement windows, I've gone through the Hawkman slumlord archives to retrieve some other prime examples of what happens when people like Bashir Moghul, Mahmood Khan, Paul Koenig, and those behind the Danna D III LLC get their hands on properties in NoMi. I even had someone with more architectural knowledge look at these pictures as well, to confirm what it was that I was seeing.

First up is Bashir Moghul. The photo above displays the exact kind of windows that little children are prone to fall out of. Nice work Bashir.

This one was at one point in time an open porch. Not only was it closed off, it was done without anything more aesthetically or structurally sound than plywood.

If you look to the side here, you can see where someone took out a double-hung sash and replaced it with a plywood and vinyl heap of ugliness.

Here's another closed porch and similar mistreatment of the second-floor window.

Look at the first floor windows there.  He's really not even trying at this point.

At least here, Moghul kept the original openings intact.  If someone were to come along and restore decent windows, that job wouldn't be so hard.

Here though, he didn't even bother to keep any openings.  Several windows are just covered up.

The little white diamonds under the plywood are the architectural equivalent of a middle finger.

And here we see what many slumlords have done, removing or covering up a second-story arched window frame.

Several more slumlord shots are coming right up...