Possible Ponzi scheme

[Crazeesharon1]

This may get me banned, which is why I won’t name any names, but hopefully the monitor of this site will see the benefit of this post and allow people to read it.

The late Sam Zell showed us that mobile home park investing is a solid trend for building investment portfolios. But it also creates an environment for possible misconduct.

I have been investigating the history of the park I live in. It was a family owned park for decades, until they sold out to an “investor.”

That original investor filed an LLC in our state that he operates the park under. He also made a second filing on the same day under a slightly different name as an incorporated holding company to sell off shares to other investors.

On the date of the sale, this investor signed a mortgage equal to the purchase price. He signed as “managing member.” Research has shown that a managing member can own as little as 10 per cent of the LLC.

I did a search of public records in our county where the park is located. Over the nine years since the park was acquired, he has taken out a total of three mortgages for millions of dollars. You must look not only for mortgages, but UCC filings too that do not come up as traditional mortgages on searches.

We have been told that most of the park’s rental income goes to pay these mortgages, which is why there is no money to repair anything.

As most of you already know, an LLC has an accompanying Operating Agreement, which identifies the actual owners of the LLC and what percentage they own. Unfortunately these are not public record. There is no way to get a copy unless you are a member of that LLC.

In a subsequent lawsuit, this managing member’s office admitted that investors own our park, not just himself as he had pretended to for years.

There are no “Satisfaction of Mortgage” on file in our county to show that when a new mortgage was taken out, the old one was paid off. Maybe its different with commercial loans than residential ones.

The lawsuit was dismissed by the court, so we did not get to fully identify who the owners were.

So it appears this managing member (who may own as little as 10%) has pretty much free rein to mortgage properties over and over, as well as sell off shares to investors. My question is: where did the investors money go when they bought in over the years, because the mortgages are still being paid out of the rental income?

And these chunks of money were definitely not put into repairing or improving the park. So where did the money go?

If I get banned, I sign off to this valuable forum with the hope that a message of caution made its way to some of you to look closely into your investments and who has control over your money.

You can research LLCs and corporations online by going to OpenCorporates. Search by company name or officer name. If you search by Officer, all the companies that person is listed with will come up.

[mPark]

You did not provide enough clarity for others to understand the situation. If the property is owned by an LLC then it is not owned by a “he.” Also, there is not any restriction for how many times you can refinance a property. To take out three mortgages in 10 years is not a crime or a sign of a Ponzi scheme. I am not saying that you are incorrect. I am only saying that you did not provide enough information to make this clear. Perhaps it is because you were afraid to be banned from this forum. If you would like, send a private message to me, and I will provide some guidance to you if possible.

I happen to be involved in legal efforts against another investment fund that may be a Ponzi scheme, but it is unrelated to the manufactured housing space.

[SDGuy]

It seems like there might be some missing details here. In the world of LLCs, a Managing Member can actually be someone hired to manage without owning a stake in the LLC. LLCs can function as either Member Manager or Manager Managed setups.

Commercial lenders thoroughly scrutinize properties and the LLC members before extending loans. When dealing with “Hard Money” loans, there could be scenarios where multiple loans exist on a property. However, Mobile Home Parks generally qualify for more favorable financing terms. Lenders usually set a Loan-to-value ratio (LTV) and require sufficient cash flow (DSCR - Debt Service Coverage Ratio) to cover mortgage payments and provide a cushion.

Typically, lenders do not permit secondary financing (first and second mortgages), but if they do, the combined loan value is capped based on the appraised property value.

Some park owners follow the BRRR strategy (Buy-Rehab-Rent-Refinance-Repeat), but it seems like in this case, the outfit might be skipping the rehab phase and replacing it with “raise” before refinancing and pulling out cash. This cash could be reinvested or returned to the original LLC investors.

In today’s market, syndicators often receive “Waterfall profits.” LLC members might get a fixed return (e.g., 8%), and once the overall fund return surpasses that, the Manager receives a share of the additional profits. For instance, if investors received an 8% dividend in year one and the manager got a management fee (e.g., 5% of Gross), as the park’s profit increases, investors might see a higher return, and eventually, the manager might receive a share of profits exceeding the agreed-upon return.

This structure can be quite lucrative for both investors and managers. Managers might enter the deal without investing any capital and earn a substantial return based on their expertise.

It’s unlikely this individual is operating a Ponzi scheme given these dynamics.

Hope this clarifies things a bit!