In June 2010, when Michael and Donna Dunlap last saw Michael Litz — co-owner of the Bellington real estate companies and now an FBI target — he stood inside his corner office in downtown Clayton, sweating.
This wasn't the same confident 54-year-old with fluffy, blizzard-white hair who had sold them a home in Kirkwood a year earlier.
"His demeanor was different," recalls Michael Dunlap.
The house in question had needed some work. Such was Bellington's specialty: buying midrange properties in bulk, then selling them as-is, often to buyers who didn't qualify for traditional mortgages.
The Dunlaps had paid Litz in full within a month of closing. They knew Litz still held a mortgage on the home, but they believed his assurances that he would use their funds to pay it off.
Yet now, as they stood before him in June 2010, the bank was about to foreclose on their house. Litz had cashed their checks, but apparently hadn't paid off the mortgage. And after weeks of tense exchanges, the Dunlaps demanded answers. They told Litz he was forcing them to do things they didn't want to do.
"That was the first time I saw Mr. Litz look concerned," says Michael, adding one more curious detail: During their conversation, a young lady in Litz's office was pushing "stack after stack" of paper through the shredder.
"It was probably irrelevant," Michael says. "But it did cause me concern."
The Dunlaps are now among a half-dozen St. Louisans who believe themselves victims of shady home transactions — and are suing Litz, his long-time business partner Michael Fox, Bellington and its affiliate, Eighteen Investments. (At least 24 limited-liability companies are registered to one or both of the partners; all are commonly referred to as "Bellington.")
All of the plaintiffs, the RFT has confirmed, have spoken to the FBI.
Bellington's legal troubles don't end there. Since January 2009, no fewer than fifteen banks, one insurance company and one title company have filed suit against the partners and their companies in St. Louis County, claiming a collective debt of more than $32 million. Many of these cases have been settled, but nine are still winding through the courts.
To some extent, Litz, Fox and Bellington are themselves victims. Their business model depended on ever-rising home prices. But now the market has soured, credit has dried up and banks have no appetite for real estate. That means the company is sitting on a large inventory of houses that nobody wants, even as the banks that once begged for their business with them have called in their loans.
Which may explain why they owe hundreds of thousands in back taxes to the city and the county, not to mention $57,400 to the federal government. And why, in the past 28 months, 154 of their properties have come under foreclosure in the county alone. [Editor's Note: A correction was made concerning this paragraph. Please see the end of the article.]
Yet some creditors feel no pity for Bellington. Richard Miller, chairman of Truman Bancorp, says that Fox and Litz claimed a large net worth for themselves and their company in order to get the loans in the first place.
"Even if that net worth went down by 50 percent, they'd still have enough to meet their obligations to us," he says. "Very few things just disappear. But in this case it all has, more effectively than David Copperfield makes a live elephant disappear. And the only way assets can disappear is that they're concealed, or they weren't there to begin with."
Michael Litz and his partner, Michael Fox, had already been running a successful business when the real estate market heated up in the early- to mid-2000s. Area home prices, which, according to St. Louis Real Estate News, had been rising nonstop since 1993, ticked up sharply. All you needed to get financing, it seemed, was an ink pen.
As three different cable networks aired reality shows on flipping houses, foreclosure auctions in St. Louis grew crowded. Cartoon mascots such as "Archie" and "Ug" competed on billboards for the opportunity to gobble up your ugly house. In short, it was a good time to be in residential real estate. And nobody was moving units like Bellington.
"They bought a much larger quantity of homes than anyone else," says local developer Pete Rothschild, who himself bought his last two homes from Bellington-affiliated agents. "They were head and shoulders above the rest."
By all accounts, Litz acted as the salesman, while Fox concentrated on keeping the books. (Owing to health issues, Fox has reportedly kept a low profile in day-to-day operations for the last year or two and did not respond to phone calls seeking comment.)
As the market grew, regional banks smelled opportunity, says attorney Vince Vogler Sr., who is now representing Litz.
"They were lining up to lend him money," Vogler says. And, he adds, his client made the banks a lot of dough in interest payments — otherwise, they never would have lent him as much as they did.
And while Vogler admits that Litz wanted to turn a profit, he says the businessman also genuinely enjoyed shepherding people into their first homes. Those people number in the thousands, Vogler says. Some even sent thank-you cards.
As Vogler confirms, Bellington was willing, in certain cases, to engage in a type of seller financing called "wraparound" mortgages.
Take, for example, a rundown house worth $50,000. Bellington would snap it up at auction, get a mortgage to cover its outlay, and, after making a few repairs, immediately look for a buyer. Soon, someone with shaky credit (or a young person with no credit at all) might come along, willing to purchase it for $70,000. Yet she couldn't afford the down payment necessary for a bank loan.
So Bellington would convey the property to her, and she'd sign a contract agreeing to pay the full $70,000 within a short time-frame — a second "mortgage" that "wraps around," but does not replace, the first.
For months, she would make payments to Bellington, which would forward them to the bank to service its underlying mortgage. While making those payments, the homebuyer is also building her credit and fixing the place up. After a year, she should be able to refinance by obtaining a bona fide bank loan. That would give her the cash to pay $70,000 to Bellington in one lump sum — allowing Bellington to pay off its $50,000 bank mortgage and make a cool $20,000 in profit. Everybody's happy.
Happy, that is, as long as Bellington explains the details to consumers on the front end, and keeps relaying money to the bank on the back end.
In 2007, the housing bubble finally burst. Home prices dipped, and the economy began to tumble. That crippled outfits like Bellington, which relied on a steady cash flow, says James Regna, CEO of Triad Bank in Frontenac and a onetime creditor of Bellington and a few other investor/rehabbers.
"All these guys were grabbing cash from the next deal and using that to move things forward," Regna says. "A lot of banks would lend 100 percent to acquire and fix up a property. Those are fairly leveraged transactions. When you pile on tens of millions of dollars, it's a house of cards."
When the market turned, Fox and Litz were stuck with a huge inventory of homes, but a dwindling number of customers. To clinch deals, they agreed to more and more wraparound mortgages.
"It's a little exotic, a little more nuanced," says David W. Forth, a Maryland Heights attorney who has specialized in real estate for fourteen years. Speaking in general terms not specific to Bellington, he adds: "Anytime you get into these exotic agreements — wraparound mortgages, lease-option — to me, it's ripe for major misunderstandings and legal disputes."
The brick ranch home sitting on one acre in Kirkwood wasn't perfect, and Michael and Donna Dunlap knew it. But they fell in love with it, pooled twenty years' worth of savings and decided to buy it with the hope of spending their retirement there.
"We were going to renovate it," says Donna Dunlap, who, along with her husband, reluctantly shared their story with the RFT — in an effort, they say, to warn other potential customers. "To us, it was special. We had big dreams."
They closed the deal on June 26, 2009, just steps away from Litz's personal office, in Bellington's headquarters on South Meramec Avenue in downtown Clayton. (Through his lawyer, Litz has declined to speak on the record about any pending litigation.)
The Dunlaps had enough to pay two-thirds of the full purchase price upfront, and they say they wrote checks out to Bellington's affiliate, Eighteen Investments, for that amount. (In court pleadings, Litz denies this.) As for the remaining third, Litz offered — as he had in many other cases — to engage in "seller financing" and front them the money. The Dunlaps agreed.
Once the Dunlaps initialed all the necessary papers, they claim, Litz announced he had one more document for them to sign. He explained for the first time that his company was, in fact, still paying its own mortgage on the house to Regions Bank.
Caught off guard, Michael Dunlap said he didn't understand. He thought Bellington owned the house. He inquired whether the huge checks he'd already handed to Litz would go toward paying down the underlying debt. After all, Bellington's mortgage would have priority in any legal dispute, because it preceded all others.
Dunlap says that Catherine Breville, a Bellington employee sitting at the table that day, assured him his checks would pay it down. Dunlap then asked Litz directly to confirm that his funds wouldn't be diverted. Litz, he remembers, assured him they wouldn't, and that there was nothing untoward about Bellington selling the house: The company had already sold it to a different couple in 2008 and had recently foreclosed on them. That's why it was available.
"I remember being uneasy," Michael Dunlap says, "but with Mr. Litz's statements, and other people being in the room — the title company was there — I felt everything would be handled properly." The Dunlaps signed the agreement.
Within a month the couple paid off their loan to Litz. They also received a deed of release — the document that was supposed to certify their ownership of the house. All was well.
Until March 22, 2010, when the Dunlaps received a letter from Regions Bank demanding payment on the original mortgage — the one Litz had promised he'd pay off using the Dunlaps' money.
In a flurry of phone calls and meetings, Litz and his colleague, Breville, promised the couple that everything would be fine. At first, they suggested that it might've been a clerical error. Then they explained that an imminent package deal with another business would provide the revenue to resolve the matter.
Meanwhile, Regions Bank vice president Darrell Westbrook felt he was being deliberately misled by Bellington, according to his testimony in a subsequent lawsuit. Westbrook claimed that at one point he'd been "led to believe" the property in question was about to be sold, only to discover inadvertently that Fox and Litz had already sold it to the Dunlaps months prior.
Bellington, he concluded, had wanted to "hide" the arrangement.
When he confronted an unnamed Bellington employee about the matter, Westbrook testified, he or she "admitted...[it] was 'not the normal pattern and escaped proper scrutiny.'"
Impatient, Regions Bank moved for foreclosure on June 9, 2010 — only one year after the Dunlaps had closed on the house. It took a lawsuit against Bellington alleging breach of contract and other wrongs for the Dunlaps to temporarily stave off repossession.
The Dunlaps weren't alone.
That August, Eugene and Betsy Makovec — two Kirkwood residents who had also paid in full for a house from Fox and Litz — received their own unexpected foreclosure notice, this one from Montgomery Bank. The Makovecs claim they knew nothing about the underlying mortgage on the house.
"Until I read that, I didn't even know Montgomery Bank existed," Betsy says.
Distraught, she confronted Litz at his office. He promised to call the following day with an update, which he did.
"He told me I didn't need to take my sedative that night, that I could sleep easy, and that I would get all my paperwork that Thursday," Betsy says. "It was so condescending."
When the paperwork failed to arrive, she left a message at Bellington. Litz's colleague Catherine Breville called her back and left a voicemail trying to assuage her fears.
"At that point, I thought they were just going to keep lying to me," Betsy says.
She never erased the voicemail. In fact, when she later got in touch with the FBI, a special agent asked to meet her at Einstein Bros. Bagels in Kirkwood. He asked her to play the voicemail, pressing a small device onto her cell phone to record it. He told her to be patient, and that federal investigations take time.
The Makovecs sought the counsel of Clayton attorney Bruce Bartlett, of Jensen Bartlett & Schelp — the same attorney retained by the Dunlaps. Bartlett obtained a temporary injunction in September and, because it's still in effect, nobody has had to move — yet.
But the Makovecs' arrangement with Montgomery Bank requires them to pay rent on the house they once thought they owned.
"It hurts me that I have to pay rent, because I already paid for this house," Betsy says. "I guess I paid the wrong person."
Richard Miller, chairman of Truman Bancorp, is 79 and likes to wear cargo pants. His eyeglass frames are edged with neon green. A New York native and previous owner of radio stations such as KIHT (96.3 FM), Miller now lives in a tony section of Ladue. (The landline of his house is registered to a fictitious "Slim Pickens.") Two doors away lives a man whom Miller once trusted but now despises: Michael Litz.
Litz moved into the neighborhood in 1998, when he bought an eleven-room house on South Warson Road. It had a pool, a stable for keeping horses and an oval track for riding them. (State records from 2000 show Litz as the owner of two horses.) Litz was soon joined at the estate by Sohaila Danesh — owner of the Central West End boutique that bears her first name, and the daughter of prominent interior designer Arlene Lilie. Litz and Danesh were married in 2001.
Within a few years, Miller's bank was among several that were lending money to Bellington.
Apart from business dealings, Miller says he socialized with his neighbor only occasionally. But they ran in the same circles, and Miller knew Litz liked to dine at fine restaurants such as Tony's and Morton's the Steakhouse.
Often, Miller says, the businessman would bring his own high-priced bottle of wine to restaurants inside a leather caddy. As for Danesh, her boutique received favorable press, and she graced the cover of St. Louis Magazine in September 2005.
It was around this time that Litz appealed to the banker on a personal level to help him obtain some $100,000 in loans at Truman for himself and his partner, Fox. As Miller tells it, Litz came to him and said, "You know me. You know I'll never let you down. I know your wife is sick." (Miller's wife, Mary Jane, had been diagnosed with Parkinson's disease.) With Miller's blessing, the bank granted the loans, which were unsecured.
Miller did invite the Litzes over at least once, according to long-time St. Louis Post-Dispatch gossip columnist Jerry Berger. In June 2007, the bank chairman threw a sumptuous party in his garden for bank customers. Litz and Danesh were there. But at 10 p.m. the lights went out and wouldn't come back on. Many of the guests left, teasing Miller that he needed to pay his electric bill. (The real cause was a malfunctioning transformer.)
But Miller was about to experience very real financial troubles as bank chairman. In 2007, the economy was teetering on the edge of recession, and borrowers at Truman and elsewhere started missing payments. Bellington and its affiliates needed cash more than ever.
Litz's powers of persuasion were already well known in the banking industry.
"Litz is just slick," says one local bank vice president who claims to have sat through "countless" meetings with Litz and wishes to remain anonymous.
"He just starts talking, goes off on tangents, and it's not until you're leaving the meeting when you say, 'What in the hell just happened? That guy just spun me in circles. He had me walking out thinking everything was going to be OK, and I didn't accomplish what I wanted to accomplish.' The guy is smooth."
In 2007, Bellington affiliate Eighteen Investments applied for at least 22 different secured loans at Truman Bank, totaling a combined $3.4 million, according to court records. With Miller putting in a good word to the board of directors, the bank signed off on all of them.
The decision to champion his neighbor was one he would soon come to regret.
Says Miller: "Nobody takes this more personally than me."
By the time Roderick Bishop and Kristy Cruz of south St. Louis sat down in Michael Litz's Clayton office in November 2008, they eyed real estate people with suspicion. They'd been renting a house in the Bevo neighborhood, but their landlord hadn't paid the bank. The building fell into foreclosure. While looking for a new place to live, they fell prey to another scam perpetrated by a woman posing as a real estate agent.
But on that November day, Litz seemed to be offering them a safe alternative: home ownership.
"We told him what had happened, and he promised us he would not put us through something like that again," says Cruz, an office assistant. It was exactly what the couple wanted to hear: They had five children under their care, plus Bishop's disabled sister.
As Bishop remembers it, Litz won them over this way: "'You will be a homeowner when you complete this transaction.' Those were his exact words. And my chest was puffed out. I felt like we saved the day for everybody in the house."
On December 5, Litz and an employee of a title company explained each document to Bishop and Cruz before they signed it. However, the couple claims, they never heard anything about Regions Bank's loan to Bellington, or the term "wraparound mortgage." They just knew the property was being conveyed to them, and they were supposed to refinance in a relatively short time frame.
"[Litz] stressed that his company owned his house 'outright,' no liens or nothing," Bishop insists.
So Bishop and Cruz moved their clan into the home in the 6000 block of South Kingshighway. They made their interest-only payments to Bellington on time. They also paid down some of the principal, spent hundreds of dollars on plumbing, painting and repairs to the fence and garage door. Cruz was especially fond of the rosebushes she'd nurtured in the yard.
"We thought it was our house," she says.
The letter from Regions Bank announcing foreclosure arrived on July 27, 2010. At first Bishop and Cruz were bewildered, then panicked. They e-mailed Mayor Francis Slay and Governor Jay Nixon. They also contacted local news stations.
The only person who showed interest was Bonita Cornute of KTVI-TV (Channel 2). She aired a short segment on August 24.
In online comments connected to the story, strangers began sharing similar experiences. After Cornute found more victims, she aired a second segment the next week. Someone launched a Facebook page for "Bellington victims." A protest in front of Litz's house was proposed, although it never transpired.
But the online crusaders did achieve one goal: the suspension of Bellington's accreditation with the Better Business Bureau on September 20, 2010. The company was formally expelled from the BBB four months later.
Roderick Bishop and Kristy Cruz filed a lawsuit on September 3. They are awaiting a ruling from the judge on damages. In the meantime, they have relocated to Benton Park. The bank took back the house they thought was theirs, and it now sits vacant, damaged by looters.
"We could've continued paying for the Kingshighway house," Bishop says. "It could've been mine. And they could've had that off their books, instead of a house that's all torn up. But their philosophy was, 'No, we want you out.'"
Near her front door, Kristy Cruz displays something she took with her upon leaving the house: her rosebushes. She's replanted them in the soil. Right in front of the house she is renting.
In December 2008, the Federal Reserve bluntly demanded that Richard Miller's Truman Bank tighten its lending practices and reevaluate its leadership. A month later, Richard Miller stepped down as CEO, while retaining the helm of the bank's holding company.
Miller says that Truman's loans to Bellington were not one of the major reasons, though the company was defaulting by that time.
"Even in the good days, their payments were erratic," Miller says.
But a few days after Miller's resignation, it became clear that Truman wasn't the only one having trouble with Bellington. On January 20, 2009, Midwest BankCentre filed suit against Litz and Fox, alleging they'd defaulted on a loan.
In February, Triad did the same. Says James Regna, the bank's CEO: "When they came up with money to pay off our remaining loans with them, we dropped the lawsuit against them and agreed not to pursue them personally for what they shorted us."
One by one, other banks piled on with their own litigation: In 2009, Champion, Centrue, Boulevard, Regions, the Business Bank and St. Louis Bank joined the fracas. Enterprise, Heartland, Pulaski, First National, 1st Advantage and Rockwood banks all eventually followed.
It's worth noting that other real estate investor/rehabbers, such as Golden Delta Enterprises and the Saaman Corp., have also recently found themselves sued by banks for defaulting.
And regardless of Bellington's ability to pay, the banks had other reasons for calling in all their loans. The subprime mortgage mess gave rise to new government regulations and tighter scrutiny. Those changes caused banks to want to shrink their real estate portfolios in favor of greater liquidity.
Fox and Litz "clearly fell behind," Vogler concedes, hastening to add that the situation with each bank was different. In general, he says, the partners "went to banks to try to work things out, and some wouldn't renew. Their tolerance for real estate as collateral has changed drastically in the last three to four years."
As for Richard Miller's Truman Bank, it too filed suit against Litz, Fox and the Bellington affiliate Eighteen for breach of contract in September 2010. Four months later, the bank obtained a default judgment for $618,000.
But Miller says it's worthless. Fox and Litz claim to have no assets.
Because the partners have settled so many cases with various banks, it's unclear how much they still owe. Two plaintiffs have tried to garnish the assets of the partners and their companies at a dozen different banks. They've also gained access to a safety-deposit box rented by Michael Fox. So far, they've captured just $3,082, some life-insurance policies and five pieces of "yellow-colored" jewelry.
Litz's supporters point out that he could have simply declared bankruptcy and walked away from the mess, thereby royally screwing the banks. That he's chosen to stick it out and claw his way back to solvency is a testament to his integrity, they say.
Interestingly, Bellington continues to sell homes using seller financing. Some customers speak glowingly of the company. Anthony Coleman, for example, has been in a Richmond Heights house that Litz sold him more than a year ago. He recently called Litz out of the blue just to thank him.
"We looked at that house for over five years; I thought there was absolutely no way," he says. "But I went up to see Michael Litz and, an hour later, he made it happen. My wife literally broke down in tears."
He says Litz has let him extend the period before which he must refinance and pay the company back in full.
"He didn't have to do that," Coleman says. "So yeah, I just had to call him and say thank you. I don't know what other people's experiences have been, but mine's been absolutely positive."
For all the bad blood stirred up in the collapse of the Bellington empire, what seems to rankle both wealthy bankers and not-so-wealthy homeowners is that Michael Litz is not noticeably suffering.
He's still a member of the exclusive Westwood Country Club — although, according to members, he's somewhat avoided these days. Litz still sits on the board of Gateway to Hope, a group that provides breast-cancer treatment to low-income patients.
Danesh, his wife, also apparently remains active in the city's social circles: She's currently on the board of Legal Advocates for Abused Women and just last year won "Ms. Best Dressed" at the Contemporary Art Museum's Dada Ball.
The Litzes have even managed to hang onto their Ladue mansion, but serious problems loom. In February Investors Title Company Inc. filed a lawsuit, claiming that a Bellington affiliate, 202 LLC, held back information or flat-out lied about the liens on four different area properties. Because of Bellington's actions, the suit alleges, the title company was forced to spend more than $150,000 to clear the liens. [Editor's Note: A correction was made concerning this paragraph. Please see the end of the article.]
And there is, of course, the FBI's scrutiny of Bellington's dealings. A spokeswoman for the bureau declined to comment. But as recently as last month, one former customer received a letter that the feds send to "possible victims of federal crime."
While some Bellington tenants have problems that don't register on the FBI's radar, they're still problems all the same.
Consider the tiny municipality of Rock Hill. Its city hall sits in a strip mall at the northwest corner of Manchester and McKnight roads. There, city administrator George Liyeos wishes he'd get some kind of visit from Litz, a repairman — somebody.
The strip mall is so rundown that, last year, the roof collapsed into Rock Hill Chop Suey, the Asian restaurant next door. A Bellington affiliate owns the property. Liyeos says he's called Bellington "several times" to no avail.
"As the landlord," Liyeos asserts, "it's Bellington's responsibility to do something."
The damaged restaurant is still out of business. The hole in the roof remains.
"We have similar concerns for our roof," Liyeos says. "Especially with all the rain we've had."
Correction added 5/11/11: In the original version of this story, we erroneously stated that Michael Litz's Ladue mansion had come under foreclosure -- and that a company with the same address as Bellington had been able to purchase it at auction for a fraction of its value. While a home owned by Litz did come under foreclosure, and was bought by a company sharing Bellington's address, it was not Litz's personal residence.