Plein Update

As you are aware, back in December/January our firm submitted Proof of Claim forms on our clients’ behalfs. These forms required us to sift through the many letters, promissory notes, deeds of trust, canceled checks, and any other documentation that we received to supply the trustee’s attorneys with as accurate of an assessment as we could make on our clients’ behalfs of the liens owed to our clients by the Pleins. Since that time, the trustee and his attorney(s) have been working to slowly clean up the inventory within the bankruptcy estate.

We have been in contact with the trustee’s attorney, who is still in the process of basically cleaning out the property inventory from the bankruptcy. Those clients who have secured interests (meaning, Mr. Plein recorded the lien and there is enough equity in the property to pay back at least a portion of the lien) are being contacted as the properties are being sold. The trustee’s attorney has basically been going through a list, a few properties at a time, and finding out whether those clients in first position wish to buy the properties back from the bankruptcy estate for $3,000 plus taxes and HOA fees, or whether they wish to have the trustee list the properties for sale. In most cases, clients have chosen to have the properties listed for sale rather than pay more money up front to receive a deed to the property.

When the trustee contacts us, we are then contacting those individual clients with recorded liens on the properties and giving them the option to buy the property back or have the trustee list the property. The properties are basically being listed at fire sale prices compared to the values estimated by Mr. Plein. The reasons for this difference in price are (1) many of the values that Mr. Plein listed in his bankruptcy petition seemed to be based on their peak values at the height of the real estate bubble, rather than current market values, (2) the real estate market is dismal right now, and (3) the faster these properties are sold, the faster the estate will close.

Once an offer is bid on any given property, the property goes to auction where people have the right to bid above the proposed offer. If no higher bids are received, the property sells for the offer price. From the sales price, $3,000 or 5% (whichever is higher) is deducted and put into the bankruptcy estate, 6% is deducted for realtor commissions, and approximately $3,700 are being deducted for closing costs (though this amount varies from property to property). The first position lien holder is then paid off with any remaining equity from the sale, and if there is equity beyond the first position lien (which is rarely the case), the second position lienholder may receive payment as well.

The sooner the property inventory is cleared out, the sooner we will have an idea how much money the unsecured creditors (those with liens that were never recorded or recorded only after the bankruptcy filing) will receive. As has been the case from the start, we are basically at the mercy of the trustee’s timeline and the pace of the real estate market as to how quickly this process goes.

To date, I believe 4 or 5 properties in which we had clients who were secured lienholders have closed. There are more currently listed on the market, but again, they are only being sold as quickly as there are buyers placing offers on them. Those clients who were secured lienholders on those properties for the most part have received partial returns on the money they were originally owed. There are properties outside of these 4 or 5 that have been closed upon, but those were not properties on which our clients were secured lienholders.

We’ve received questions recently specifically regarding the office building on Coggins. Mr. Plein estimated this building was worth $1,500,000.00. Currently, the property is scheduled to sell for $105,000.00, though it may go for more at the trustee’s auction being held on July 18th, 2011. This property marks the largest discrepancy yet between Mr. Plein’s estimated valuation and actual market valuation. There were 9 recorded liens on this property, and from our records approximately 17 total secured and unsecured liens combined. Many of our clients had liens against this property. From the sale of this property, the bankruptcy estate will receive 5%, which will go into the “unsecured pot.” 6% will go to the realtor commissions, and a portion will go toward closing costs. The rest of the fees will go to the secured lienholders in order of their recorded lien dates.

To those of you who have asked why anyone has to pay $3,000 or 5% of the property value to the trustee, we’d like to explain to the best of our understanding. Basically, the trustee’s office is taking the position that this matter is similar to a Ponzi Scheme, and money that people were paying in toward the end was going solely to those who invested early on. The trustee’s office is taking the stance that many of the creditors were paid back at least their initial investment without interest over time. This scheme lead to a lot of unlawful exchanges of monies, and in lieu of pursuing claims against any of the creditors, instead they are accepting the $3,000 or 5% per property as settlement of any potential claims. The good news is that any of these payments go directly to the bankruptcy estate, so hopefully some of that money will be paid to those creditors with unsecured claims.

On June 20th, we met with Mr. David Williams with the securities department. Mr. Williams copied some documents as evidence of Mr. Plein’s unfair dealings, which will be used in pursuit of criminal charges against Mr. Plein. While the criminal pursuit is separate from our bankruptcy and civil claims we are seeking against Mr. Plein, we are more than willing to assist the State in any way possible. As we receive more information regarding the pursuit of these charges, we will keep you updated.

In addition to assisting with the criminal case and negotiating with the trustee’s attorneys regarding the properties with secured liens, we still plan to follow up with a separate civil action outside of the bankruptcy court. We are attempting to do anything we can to concurrently follow up with these matters while the bankruptcy process continues, but some of this work we are stuck waiting to pursue until after the estate has closed.

Finally, as a personal note, Amanda Carroll Flores, who has been a point of contact for many of you throughout this matter so far, is expecting her first baby on July 18th. The doctor has indicated that Babygirl Flores may come early. Amanda will be going on maternity leave upon the birth of the baby for a few weeks. She will still have access to email and will attempt to check it periodically, but please be aware that she may be unavailable by phone as she will be out of the office, and her email responses will be delayed while she is out. If you have questions that are more immediate in nature, feel free to contact Jim or Wayne in the office.

As always, feel free to contact us via email ( / / or by phone at (623)551-9366.


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