When it comes to tearing down crack houses and fighting blight, many of her neighbors count on Loretta Hudson to lead the way. She has spent the last five years helping to clean up Brightmoor, one of Detroits most deteriorated neighborhoods. But when it comes to understanding how the collapse of a megamortgage corporation will affect her community, Hudson says she doesnt have a clue.
"I got at least 10 calls from people asking, Am I going to lose my house?" she says.
Like those charged with sorting out the complex financial maze MCA Financial Corp. left behind when it filed for bankruptcy in February, Hudson is stumped. Those most knowledgeable about the situation say it may take two years to piece together all the details for MCA, its 11 affiliates, and the thousands of individuals who mortgaged homes through the company, invested in it, or live in its 3,100 rental properties throughout the city of Detroit. The collapse of MCA looms as a potential disaster, threatening the citys tax base, the health of a housing market beginning to recover after decades of decline, even the census count.
All of which creates unsettling feelings for Hudson, who worries about MCAs roughly 500 rental properties in Brightmoor on Detroits west side. She fears that the homes will not be maintained, destroying improvement efforts by many groups and individuals to improve a community that could ultimately be left in ruins.
Connecting the dots
A Brightmoor resident for nearly 20 years, Hudson spent most of that time minding her own business. But as drug dealers invaded the neighborhood, she decided something had to be done.
In 1994, she helped form block clubs and designated leaders to keep an eye out for crack houses and alert police. In the last five years, she says, theyve managed to rid the neighborhood of about a dozen drug dens.
"Shes the hero," says Roberta Schuette about the 59-year-old grandmother of 16.
With Schuettes help, Hudson began confronting the problem of burnt-out homes in 1995. The two made a video of several fire-damaged homes in Brightmoors four square miles and included neighbors and business owners comments. Shortly after sending a copy to Mayor Dennis Archer, city administrators met with Hudson and other community members about the problem. The city demolished 65 buildings in the area that first year, and 260 more in the last four years.
"Loretta took this whole thing to another level of understanding what is going on in the neighborhood," says Brightmoor resident Mark Hoerauf. "She helped us connect the dots."
Hudsons quest eventually took her to the city tax rolls to track down the owners of abandoned homes. Many of them, she found, were owned by Lawrence, Bruce, Stollman Inc. (LBS), the communitys largest landlord, which owned hundreds of homes. In addition to the vacant houses, Hudson says she found that many others were in disrepair, and had been neither registered with the city nor inspected, as required by law.
After Hudson informed city officials, LBS was cited for numerous housing code violations.
For the better part of 1996, Hudson stayed on the heels of the delinquent landlord, trying to ensure that it did right by her community. By the end of the year, she says, LBS had moved out of the neighborhood.
"If you dont get rid of the large landlords ... They are the ones who will take your community down," says Hudson.
Large landlords do this, she says, by failing to exercise discretion in choosing tenants and failing to maintain the properties. In some cases, the houses are eventually torched. Ironically, Hudson shooed LBS from the neighborhood, only to find that it was soon replaced by a bigger, and in time, more troubled landlord.
RIMCO moves in
Before LBS left Brightmoor, it sold about 150 properties to Rogers Investment and Management Company (RIMCO), a creation of native Detroiter Lee Rogers, who had been buying, restoring and selling Detroit homes for about 15 years. RIMCO, around this time, was getting out of property ownership and becoming a management company.
Rogers eventually sold some of his 300 properties to the fast-growing Southfield-based MCA Financial Corp., and became manager of MCAs massive Detroit holdings. With 3,100 Detroit properties, MCA became the citys largest private landlord, second overall only to the city itself. MCA, with offices in 17 states and total assets of about $210 million, had more households than Romeo, Lathrup Village, Bloomfield Hills or Huntington Woods.
As management company, RIMCO acquired homes for MCA, refurbished them, found tenants, collected rents and handled repairs. RIMCO was the most visible part of MCAs housing empire, garnering praise and scorn. It managed homes across the city, with concentrations in southeast Detroit and on the west side.
Detroit News editorial writer Bill Johnson touted the company as a savior of Highland Parks housing in a 1998 article with the headline "Will Detroit learn from Highland Park how to revitalize homes?" He suggested RIMCO as a possible answer to revitalizing city housing to ensure a Detroit population of more than 1 million for the year 2000 census.
Al Shifman, who at one time managed a few hundred homes in Detroit and has done business with RIMCO, says the company held Detroit together when the city did little to improve its housing.
"RIMCO was the first large company to make a market for rental houses, and fix them up, and make them habitable," says Shifman.
But to many tenants and their advocates, RIMCO was more a housing problem than a housing solution.
One of those tenants is Lavina Hill. In nine years as a renter, she says she never had problems with landlords until she moved into a RIMCO-managed home last May. Hill rattles off a list of needed repairs. "They dont call you back for two weeks and then they dont deal with the problem," she says.
Other tenants took cases to court.
A personal injury lawsuit filed against the company and eventually settled for $25,000 states that 6-year-old Lamont Wilkins suffered two lacerations to his arm and permanent scarring when living at a RIMCO-managed home. His hand went through a glass-paned door that he tried opening but couldnt because the door jamb was stuck. His mother testified that she repeatedly asked that the jamb be fixed prior to her sons injury.
The Wilkins suit was one of about 40 personal injury cases filed against RIMCO since 1994. Wayne County Neighborhood Legal Services attorney Miriam Menczer says that about half of the 80 or so landlord-tenant cases she handles annually involve RIMCO. She says her clients often complain that the company does not complete necessary repairs.
RIMCO simply had too many homes to manage and committed too little to the job, suggest critics. According to the Wilkins lawsuit, the property manager at that house was responsible for repairs at about 270 others as well.
"This is a company that has a very bad reputation for doing repairs and upkeep," says City Council President Pro Tem Maryann Mahaffey. She says neighborhood groups have been complaining about RIMCO not taking care of its homes for about four years.
Rogers counters that it wasnt easy maintaining Detroits aged housing stock. He says that part of the reason there are so many complaints and lawsuits against the company is the "sheer volume you are dealing with." Most Detroit homes his company manages are 70 to 80 years old, which also makes it difficult, says Rogers. Under his charge, he says, the company spent $1.5 million annually on repairs.
The question now, however, is what happens to Detroit without the giant property management company? B.N. Bahadur, the conservator appointed to oversee MCA and RIMCO through their bankruptcies, sees trouble.
"There will be a big impact on the city," says Bahadur. "It could change the tax base, the real estate equity base and the census count." At a Detroit City Council hearing Mahaffey called last week, Bahadur suggested forming a task force of city and state officials to address the possible devastation.
Boom and bust
MCA provided RIMCO with 95 percent of its business. When MCA went up in financial flames, RIMCO burned as well.
Pat Quinlan, former CEO of MCA Financial Corp., says trouble began last spring after the mortgage corporation opened about 25 new branch offices and purchased two California firms, adding about 500 employees. He says that the company was $4 million in debt the first six months of 1998.
"The timing on the expansion could not have been worse," says Quinlan.
The company had specialized in providing mortgage loans to people with poor credit; making money by selling the loans to investment firms at interest rates higher than those charged the individual mortgage holders. MCA was also paid for servicing the loans that is collecting the home buyers monthly payments, crediting their accounts, and managing the paperwork on behalf of the larger companies to which it sold loans.
Just before MCA went under, it was servicing approximately 4,700 mortgages totaling about $355 million and about 7,000 land contracts valued at about $181 million, according to court records.
Quinlan says the factors involved in the companys downfall are complicated, but, he says, essentially profits were affected when large firms that purchased the mortgage loans stopped buying, which restricted where MCA could sell them. It could no longer sell the loans at the higher interest rates, which the company counted on for generating a profit and paying off its lenders.
As MCA fell behind on payments, credit dried up. For instance, Chase Bank of Texas, which had provided $185 million in credit, extended MCAs line of credit only through January 1999, says Quinlan.
An anticipated $30 million loan from the City of Detroit Policeman and Fireman Retirement Systems, which had already loaned the company about $60 million, similarly fell through, he says.
Then RIMCOs project to refurbish 400 Highland Park homes proved more costly and time-consuming than anticipated. RIMCO fell behind on repaying loans to MCA.
It was the first time RIMCO had a down year, says Quinlan. "That was the one-two punch."
In January 1999, MCA closed 40 branch offices, locked its Southfield doors, and laid off 900 employees without notice. RIMCO laid off 100 employees of its own.
In a court order, the Michigan Financial Institutions Bureau (FIB), a state regulatory agency, described MCAs downward spiral: Mortgage loan and land contract payments werent properly serviced, and consequently, home buyers accounts were not credited. Property taxes and homeowners insurance were not paid, placing "these borrowers in a potentially catastrophic situation, which threatens their home and financial well-being."
The company closed "approximately 190 loans across the country for which no funding source exists. Over 80 of these loans are on Michigan properties."
And about $14.3 million in mortgages that served as collateral to the companys lenders was also pledged as collateral to other lenders or did not exist.
Asked how this happened, Quinlan says that "it would have to be an error in (MCAs) back office. Its a big error and I think those people will have to be held accountable."
On January 28, the FIB called in conservator B.N. Bahadur, CEO of BBK Ltd. At 11 p.m., he and his staffers arrived at MCAs Southfield offices to find that thousands of documents and pieces of mail, including mortgage payments, had not been processed. Bahadur and his associates brought in private guards, changed locks and began salvaging what they could.
To protect MCAs estimated 28,000 creditors, the safest route was Chapter 11 bankruptcy. Since February 10, MCA and its 11 affiliate companies have been in the care of the federal court system.
Bill Murphy and his wife Kathy Mathis attended the first MCA bankruptcy hearing at the City-County Building in downtown Detroit last month. Every seat in the auditorium was filled, and the aisles were crowded with people anxious to know how they will be affected by the bankruptcy of MCA and RIMCO. Many became frustrated; Bahadur, who has been putting companies back on track for 20 years, didnt have many answers. "This is the most complicated one Ive handled," he says. "People have very important and real questions, but the answers arent simple."
Hours passed and tempers flared.
Murphy and Mathis explained to Bahadur that it wasnt until the winter storm damaged their home last January that they discovered how MCAs economic woes created problems for them.
Murphy and Mathis told Bahadur about the damage to their home in last Januarys snow storm, but they alleged that MCA may wind up hurting them even more.
In 1996, Murphy and Mathis purchased their ranch home in Inkster with a loan from MCA. Included in their monthly mortgage payment were their property taxes and home owners insurance, which MCA was supposed to place in an escrow account. But according to Pat McQueen, Financial Institutions Bureau banking commissioner, the mortgage company put the couples money as well as taxes and insurance money from 3,000 to 4,000 others into the general operations account. The money was used to keep MCA running while Murphy and Mathis home owners insurance went unpaid for eight months.
"It definitely should not have happened," says McQueen. "The funds that were paid in escrow for taxes and insurance should have been segregated." Though McQueen said he does not believe that taxes and insurance money "left the company fraudulently," he says that the company did have a fiduciary duty to not use the funds for any other purpose.
When Murphy and Mathis tried to file an insurance claim for storm damage, they found that the home insurance hadnt been paid since June, around the time MCA started having financial difficulties. "It makes me sick thinking about it," says Murphy.
He estimates repairs to windows, gutters, the roof and interior walls will cost about $10,000 that he and Mathis dont have. So the walls are left sagging, and Murphy fears the mold growing between the roof and drywall will aggravate his sons asthma.
Murphy and Mathis filed a creditors claim with the bankruptcy court, as have thousands of others, hoping to collect on damage to their homes and the home owners insurance that was never paid.
"We have a complaint form," says Murphy, "but the state needs to be doing some investigating on criminal charges."
Criminal charges could be one of the results of MCAs financial debacle, says Chris DeWitt, spokesperson for the Michigan Attorney Generals Office.
"If one is taking in escrow money and they are not paying those monies and using them for another purpose that very likely could end up in criminal charges," says DeWitt.
Scores of others at the March meeting said they feared they could wind up homeless. Most were concerned that if the taxes on the homes were overdue, the City of Detroit might foreclose and force them out.
"It puts a lot of uncertainty in ones life," says Michelle Oliver, who has been renting a MCA-owned home since 1996. "What if they want to liquidate the assets or they havent paid the taxes on this property? There is nothing scarier than having two children and not knowing where you might go."
When one renter suggested that the tenants be allowed to purchase the homes by paying off overdue property taxes, the crowd cheered.
"I think I can take care of the home better than this big corporation," insisted the renter.
Bahadur, the conservator, says he may consider this option, although it would need approval by the bankruptcy court and the City of Detroit. So far, the Archer administration has been silent on the MCA calamity; there was no response despite repeated calls from the Metro Times.
At a Detroit City Council hearing last week, Bahadur laid out some problems with selling the homes, including that many were in disrepair, that money was not available to tend to them, and that their values were inflated.
Many, including Mahaffey, compared MCA to the HUD scandal in the 1970s. Then, Detroit homeowners were charged inflated prices for homes with major repair problems. The home owners eventually fell behind on payment and defaulted to HUD, which provided mortgages. Meanwhile, real estate agents, who had bribed HUD appraisers to jack up the prices, made out with millions. As a result, thousands of homes were abandoned and torn down.
"I would rather sell to a renter for what they can pay, than have the homes sit there vacant," says Mahaffey, who fears particularly for blighted communities with lots of MCA homes.
"I have been pointing out the companys record for years and what it has been doing to our community, our neighborhoods," she says of RIMCO. "You just get ignored, then it hits you in the face with terrible consequences."
The consequences haunt Hudson, too. After spending the last five years improving Brightmoor, she wonders whether her efforts will be bulldozed by the bankruptcy. MCA was the largest landlord in the area and RIMCO its property manager. It was difficult to get them to take care of the homes when they were in business, she says. "I fear we are going to go backwards on what we have managed to accomplish. Will there be more houses left unattended?
What we found:
The collapse of MCA could have a devastating effect on Detroit. Property taxes may be lost, and property values in struggling neighborhoods could be driven lower as homes are liquidated. Areas striving to eliminate blight could be dealt a severe setback because there is no apparent source of money for needed repairs on thousands of aging homes.
An ambitious Highland Park housing project has come to a halt; the 191 homes RIMCO purchased from the city were to be refurbished and sold to home buyers. But with the collapse of MCA, which funded the project, there is no plan to complete the project.
Southfield-based MCA diverted to other purposes homeowners money that should have gone into escrow accounts dedicated to home insurance and taxes, according to state regulators.
In 1994, MCA set up Detroit Revitalization Inc., a nonprofit with the stated purpose of creating housing opportunities for low income buyers. According to the United States Department of Housing and Urban Development, MCA used the nonprofit to funnel money into for-profit affiliates. HUD issued a report accusing MCA affiliates of charging for repairs that were never made, and of overcharging low-income buyers.
MCA also pledged single properties as loan collateral to multiple lenders, according to state regulators.
MCAs debts exceed its assets by as much as $90 million, according to the conservator appointed to oversee the bankrupt company. Among the creditors who may never see their money returned is the City of Detroit Policeman and Fireman Retirement Systems, which provided MCA with a $60 million unsecured loan.
Highland Park project in limbo
According to Highland Park Mayor Linsey Porter, the recent bankruptcy of RIMCO Financial Corp. will merely slow progress on the citys home renovation program. But if you ask the former owner of the company about it, you get another answer.
RIMCO, a real estate, home improvement and financing company closely affiliated with the failed mortgage company MCA, purchased 191 homes from Highland Park for about $700,000 last year. RIMCO was to renovate and sell a majority of the properties to home buyers; about 25 others that could not be saved were to be demolished. The goal was to improve Highland Parks housing stock, says Porter.
But RIMCO founder Lee Rogers says the housing project, which was financed by MCA, cant continue in the wake of MCAs bankruptcy filing. RIMCO, which did about 95 percent of its business with MCA and shared directors with the company, has also filed for bankruptcy.
Rogers says that RIMCO owes the city of Highland Park $103,000 for the housing project. The second phase of the project included purchasing and renovating another 200 homes, but Rogers says that is no longer possible. Some expect Rogers to establish another corporation and complete the project, but he declined to comment on his plans.
"I am sorry to see it fall apart," says Harriet Saperstein, president of HP Devco, a nonprofit economic development agency for the city.
"We know that neighborhood development is crucial to retail development, and to that extent we are very concerned," she says.
A critical audit
Nearly five years ago MCA Financial Corp. and RIMCO Financial Corp. established a nonprofit housing development corporation, Detroit Revitalization, Inc., or DRI. Its goal was to provide affordable housing to low-income home buyers in Detroit.
But a Department of Housing and Urban Development report accused DRI of charging for rehabilitation work it didnt perform, selling property it didnt have title to and funneling money into for-profit companies headed by the nonprofits founders. The report also showed that DRI sold homes for excessive amounts and charged interest above the market rate. HUD audited DRI because it was using special government loans and discounts to purchase and renovate homes.
Clifton Crockatt, DRIs president during some of the audit period, disputes the allegations.
"DRI is the best thing MCA did," says Crockatt. MCA and RIMCO wanted to do large volumes of home renovations and sales through DRI because Detroit lacks decent affordable housing, he says.
MCA and RIMCO "did not see anything that was effective in the nonprofit sector that was filling that gap," says Crockatt.
According to DRI board member the Rev. David Wick, whether the nonprofit did or did not do right by the community may be a moot point. He says that with the bankruptcy of MCA Financial Corp., there is little funding to keep it afloat. DRI does own about 200 homes, and its unclear whether another funding source can be found, says Wick.
Wick says that there is great need for decent city housing and wants to see DRI survive. "Lets pull this out of the fire ... lets make it work for the people of Detroit," he says.
Calling all creditors
Creditors claims must be filed with the U.S. Bankruptcy Court by July 15.
For more information regarding this or any MCA Financial Corp.-related matters, call 1-800-688-4398 or see the Web site at www.aeg1.com/bbk/mca.htm.
Pension fund hit for millions
The many ways the bankruptcy of MCA Financial Corp. and RIMCO Financial Corp. will affect Detroit are stacking up. Adding to the pile is the big hit the City of Detroit Policemen and Firemen Retirement System board may take for the $60 million it loaned the now-defunct mortgage corporation.
B.N. Bahadur, the state-appointed conservator of MCA, says company liabilities exceed assets by about $90 million and many creditors may not be paid.
Retirement system officials did not return Metro Times phone calls, but a board statement issued in January says MCA paid the system approximately $11.8 million in interest and other payments. The unsecured loans, minus the payments made, "represent less than 1 1/2 percent of the $3.67 billion dollars in assets of the system."
The statement calls the retirement system "one of the most financially sound public employee pension funds in the country by virtue of the fact that the system is funded well in excess of 100 percent. In the event that there are any losses on its loans to MCA, the system will remain funded in excess of 100 percent and will continue to be one of the best-funded systems in the country."
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