Atlanta’s downtrodden neighborhoods proved a gold mine for Omni National Bank and its founders, who amassed tens of millions of dollars’ worth of mansions, company stock and a private jet after launching an unusual bank that financed renovations of inner-city houses.

Four men in total were arrested of bank fraud in which they routinely doctored their records to hide losses, and a loan officer took kickbacks in return for doling out loans. Omni allowed people to “flip” houses three, four and even five times, artificially inflating their value, Georgia prosecutors said.

“This is just the tip of the iceberg,” said Ralph Roberts, a Macomb real estate broker and author of a book on mortgage fraud who tipped off authorities about the Omni National Bank case. “You’re going to be seeing more cases. When the economy suffers, people start to do bad things.”

Ralph Roberts, said people across the country told him they were victims of the scheme. “Everyone I talked to lost everything they put in,” said Roberts. “It wasn’t set up to make [them] money. It was set up to make inner-city real estate broker, Delroy Davy money.” Some related to Roberts that they were chauffeured around Atlanta on a tour bus that included a stop at Davy’s sprawling mansion.

Davy recruited “straw buyers” to obtain fraudulent loans. For years, Omni was a magnet for these so-called property flippers, some of whom made superficial repairs and then resold the homes at inflated prices.

Roberts, a Realtor from Macomb daily researches these cases involving mortgage fraud throughout North America, is aware of the rising frequency of fraud in the nation. His daily blog, FlippingFrenzy.com, from Macomb exposes hundreds of fraud cases. “I want families to understand one thing,” alerts Roberts. “Real estate fraud is not a victimless crime. The bank loses money. The seller loses money on the house. But, even more significantly, the entire community loses value, and ultimately, the tax base erodes.

“When people are trying to sell their homes and they have foreclosures on their street, it lowers their value and makes it harder to sell their home,” Roberts continued. “Some folks won’t buy into a neighborhood with foreclosed homes. This is the spreading ripple effect.”

Macomb County’s foreclosure expert was instrumental in exposing a mortgage fraud ring in 2008 and 2009 when four Michigan men were accused of mortgage fraud in which they illegally made more than $300,000 by selling two upscale homes at inflated values to a “straw buyer.”

The case, involved homes in Washington and Shelby townships that went into foreclosure, was part of a rising frequency of real estate fraud in Michigan and the nation, according to Roberts.

The growing problem prompted the Michigan Attorney General, Michael Cox and the Michigan State Police two years ago to form a mortgage fraud task force, which investigates these cases in our state.

Formally charged in 41B District Court in Clinton Township with racketeering, which carries a penalty of up to 20 years, and two counts each of false pretenses, a 10-year felony, were Dequincy Hyatt, 27, of Detroit, a managing partner in J.B.Homes and Construction; Seaesther Thompson-Hayes, 50, of Flat Rock, a mortgage broker; and Aaron Brooks Jr., 26, of Southgate, a former service representative for the People’s Trust Credit Union.

A fourth man, builder Pietro Biundo, 35, who built the Washington Township house and lived in the same subdivision, was charged in a warrant with a lesser degree of false pretenses but has not been formally charged.

In the Washington Township case, the Adams Drive home in Washington Pointe subdivision near 28 Mile and Mound roads initially listed for $679,000 but eventually dropped to $530,000.

The straw buyer obtained a mortgage for $785,000, $225,000 more than the asking price, according to Roberts. Investigators never determined amount taken or how the defendants used the additional $225,000.

Biundo reported on the deed that the home sold for $140,000, which drastically decreased the assessed value and surrounding property taxes.

In the Shelby Township case, defendants skimmed about $163,000 from the transaction in which a $510,000 home was sold for $710,000 to the same straw buyer, according to Cox.

Gina Patrona, who lives across the street from the Washington Township home, said the home was in “terrible shape” with no grass, window treatments or furniture. Together with a second foreclosed home nearby, her home’s property value was negatively affected.

“I don’t think we could sell our home for half of what we put into it,” she said Wednesday.

Cox in a prepared statement echoed the words of Ralph Roberts by pointing out the negative impact on the economy as a whole.

“The housing market, consumers and mortgage lenders suffer when scam artists limit the ability of law-abiding citizens to obtain loans,” Cox said. “With those loans, consumers would be buying a home or a car, something our economy desperately needs for recovery.”

The Atlanta Case Mirrors Detroit

“Such schemes have worsened the damage in some of Atlanta’s struggling neighborhoods,” said Brent Brewer, a civil engineer turned neighborhood activist.

Several houses flipped with Omni National Bank financing have driven up property taxes in his West End neighborhood, he said. Yet the homes mostly sit vacant, attracting criminals and squatters.

The most explosive charge in the Atlanta case alleges Delroy Davy paid kickbacks to an unnamed loan officer at Omni who gave approval for funding to investors who wanted to buy his inner-city properties.

In a flipping case with Michigan connections, an East Point man, Mark Anthony McBride, pleaded guilty to falsifying his identity and using straw borrowers to obtain millions in loans from Omni only days after his release from prison.

Omni is “the most egregious of the lenders because they’re local. They know if the appraisals are correct,” said Brewer

Brewer said Omni repossessed, sold and financed one house near him three separate times, even though for much of that time it sat vacant and windowless, with huge sections of its exterior walls torn away.

Property records confirm Omni took possession and resold the house three times in two years at rising values, following a pattern that allowed the bank to hide its growing number of foreclosures.

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To update a story I wrote on May 29, 2008 (”Real Estate Fraud and the Real Estate Investor: Banks can be victims too!“), Omni Financial Services Inc., the bank holding company for Omni National Bank, is now officially operating under a mandatory regulatory oversight plan put into place by the Federal Reserve Bank of Atlanta.

For anyone interested in diving deep into this one, here’s the exact text from the written agreement between the Federal Reserve Bank of Atlanta and Omni Financial Services, Inc.:

UNITED STATES OF AMERICA
BEFORE THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C.

Written Agreement by and between

OMNI FINANCIAL SERVICES, INC.
Atlanta, Georgia

and

FEDERAL RESERVE BANK OF ATLANTA
Atlanta, Georgia

Docket No. 09-022-WA/RB-HC

WHEREAS, Omni Financial Services, Inc., Atlanta, Georgia (“Omni”), a registered bank holding company, owns and controls Omni National Bank, Atlanta, Georgia (the “Bank”), a national bank, and various nonbank subsidiaries;

WHEREAS, it is the common goal of Omni and the Federal Reserve Bank of Atlanta (the “Reserve Bank”) to maintain the financial soundness of Omni so that Omni may serve as a source of strength to the Bank;

WHEREAS, Omni and the Reserve Bank have mutually agreed to enter into this Written Agreement (the “Agreement”); and

WHEREAS, on March 16, 2009, the board of directors of Omni, at a duly constituted meeting, adopted a resolution authorizing and directing Stephen M. Klein to enter into this Agreement on behalf of Omni, and consenting to compliance with each and every provision of this Agreement by Omni and its institution-affiliated parties, as defined in sections 3(u) and 8(b)(3) of the Federal Deposit Insurance Act, as amended (the “FDI Act”) (12 U.S.C. §§ 1813(u) and 1818(b)(3)).

NOW, THEREFORE, Omni and the Reserve Bank agree as follows:

Capital Plan

1. Within 30 days of this Agreement, Omni shall submit to the Reserve Bank an acceptable written plan to maintain sufficient capital at Omni, on a consolidated basis, and the Bank, as a separate legal entity on a stand-alone basis. The plan shall, at a minimum, address, consider, and include:

(a) The consolidated organization’s and the Bank’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of Governors of the Federal Reserve System (the “Board of Governors”) (12 C.F.R. Part 225, App. A and D) and the applicable capital adequacy guidelines for the Bank issued by the Bank’s federal regulator;

(b) the adequacy of the Bank’s capital, taking into account the volume of classified credits, concentrations of credit, allowance for loan and lease losses (“ALLL”), current and projected asset growth, and projected retained earnings;

(c) the source and timing of additional funds to fulfill the consolidated organization’s and the Bank’s future capital requirements;

(d) supervisory requests for additional capital at the Bank or the requirements of any supervisory action imposed on the Bank by its federal regulator;

(e) the requirements of section 225.4(a) of Regulation Y of the Board of Governors (12 C.F.R. § 225.4(a)) that Omni serve as a source of strength to the Bank; and

(f) procedures for Omni to: (i) notify the Reserve Bank, in writing, no more than 30 days after the end of any quarter in which Omni’s consolidated capital ratios or the Bank’s capital ratios (total risk-based, tier 1 risk-based, or leverage) fall below the plan’s minimum ratios; and (ii) submit simultaneously to the Reserve Bank an acceptable written plan that details the steps Omni will take to increase its and the Bank’s capital ratios above the plan’s minimums.

Accounting Policies and Procedures

2. Within 30 days of this Agreement, Omni shall submit to the Reserve Bank acceptable written accounting policies and procedures for the consolidated organization that are designed to enhance the accounting controls over Omni’s books and records and to ensure the accuracy of Omni’s books and records, which shall, among other things include, but not be limited to:

(a) A separate general ledger system which shall track Omni’s assets and liabilities, and shareholders’ equity separately from the Bank’s; and

(b) segregation of and physical control over Omni’s assets separate and apart from the Bank’s assets.

Affiliate and Insider Transactions

3. (a) Omni shall take all necessary actions to ensure that the Bank complies with sections 23A and 23B of the Federal Reserve Act (12 U.S.C. §§ 371c and 371c-1) and Regulation W of the Board of Governors (12 C.F.R. Part 223) in all transactions between the Bank and its affiliates, including, but not limited to, Omni, and its nonbank subsidiaries. Omni shall maintain a written record of each transaction between Omni, its nonbank subsidiaries, and the Bank and make such record available for subsequent supervisory review.

(b) For the purposes of this paragraph, the terms: (i) “transaction” shall include, but not be limited to, the transfer, contribution, sale or purchase of any Bank asset, the direct or indirect payment of any Omni expense or obligation, the direct or indirect assumption of any Omni liability, the payment by the Bank of a management or service fee of any nature to Omni, or any extension of credit by the Bank to Omni, including overdrafts; and (ii) “extension of credit” shall be defined as set forth in section 215.3 of Regulation O of the Board of Governors (12 C.F.R. 215.3).

4. (a) Omni shall not, directly or indirectly, enter into, participate, or, in any other manner, engage in any financial transaction with any of Omni’s or the Bank’s current or former executive officers, directors, principal shareholders or related interest thereof without the prior written approval of the Reserve Bank.

(b) Any request for prior approval shall be accompanied by adequate documentation that provides details of each proposed transaction, including a full description of the proposal, the purpose(s) of the transaction, the amounts involved, the benefits to be derived by the Omni, the Bank, or the current or former executive officer, director, principal shareholder or related interest thereof and such other matters that may be pertinent to the proposed payment or transaction to assist the Reserve Bank’s review of each proposal.

(c) For the purposes of this paragraph, the terms: (i) “director,” “executive officer,” “principal shareholder,” and “related interest” shall be defined as set forth in section 215.2 of Regulation O of the Board of Governors (12 C.F.R. 215.2); and (ii) “financial transaction” shall include, but is not limited to: an extension of credit; the use of Omni’s credit card for personal expenses; the payment of money; the transfer, sale or purchase of any asset; a contract; or Omni’s payment of any obligation of Omni’s or the Bank’s current or former executive officers, directors, principal shareholders or related interest thereof. Notwithstanding the foregoing definition of “financial transaction,” for the purposes of this paragraph, “financial transaction” shall not include the payment of fees and salaries to executive officers and directors and the reimbursement of expenses provided that similar types and amounts of payments have previously been made and fully documented on Omni’s books and records.

Compensation

5. (a) Omni shall not, directly or indirectly, increase salaries, bonuses, or directors’ fees, or make any other payments, including, but not limited to, reimbursement of expenses or payment of indebtedness, to or on behalf of any of Omni’s directors or executive officers without the prior written approval of the Reserve Bank.

(b) Notwithstanding the provisions of this paragraph, Omni does not need to obtain the prior written approval of the Reserve Bank for the reimbursement of reasonable expenses that aggregate no more than $500 per month for each executive officer, provided that such reasonable expenses are incurred in performing routine duties, which have been adequately documented and reported on Omni’s books and records.

Dividends and Distributions

6. (a) Omni shall not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors (the “Director”).

(b) Omni shall not directly or indirectly take dividends or any other form of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank.

(c) Omni and its nonbank subsidiaries shall not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director.

(d) All requests for prior approval shall be received by the Reserve Bank at least 30 days prior to the proposed dividend declaration date, proposed distribution on subordinated debentures, and required notice of deferral on trust preferred securities. All requests shall contain, at a minimum, current and projected information on Omni’s capital, earnings, and cash flow; the Bank’s capital, asset quality, earnings, and ALLL; and identification of the sources of funds for the proposed payment or distribution. For requests to declare or pay dividends, Omni must also demonstrate that the requested declaration or payment of dividends is consistent with the Board of Governors’ Policy Statement on the Payment of Cash Dividends by State Member Banks and Bank Holding Companies, dated November 14, 1985 (Federal Reserve Regulatory Service, 4-877 at page 4-323).

Debt and Stock Redemption

7. (a) Omni and any nonbank subsidiary shall not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank. All requests for prior written approval shall contain, but not be limited to, a statement regarding the purpose of the debt, the terms of the debt, and the planned source(s) for debt repayment, and an analysis of the cash flow resources available to meet such debt repayment.

(b) Omni shall not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.

Compliance with Laws and Regulations

8. (a) In appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, Omni shall comply with the notice provisions of section 32 of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of Governors (12 C.F.R. §§ 225.71 et seq.).

(b) Omni shall comply with the restrictions on indemnification and severance payments of section 18(k) of the FDI Act (12 U.S.C. § 1828(k)) and Part 359 of the Federal Deposit Insurance Corporation’s regulations (12 C.F.R. Part 359).

Progress Reports

9. Within 30 days after the end of each calendar quarter following the date of this Agreement, the board of directors shall submit to the Reserve Bank written progress reports detailing the form and manner of all actions taken to secure compliance with the provisions of this Agreement and the results thereof, and a parent company only balance sheet, income statement, and, as applicable, a report of changes in stockholders’ equity.

Approval and Implementation of Plan, Policies, and Procedures

10. (a) Omni shall submit a written capital plan and accounting policies and procedures that are acceptable to the Reserve Bank within the applicable time periods set forth in paragraphs 1 and 2 of this Agreement.

(b) Within 10 days of approval by the Reserve Bank, Omni shall adopt the approved capital plan and accounting policies and procedures. Upon adoption, Omni shall promptly implement the approved plan and policies and procedures, and thereafter fully comply with them.

(c) During the term of this Agreement, the approved capital plan and accounting policies and procedures shall not be amended or rescinded without the prior written approval of the Reserve Bank.

Communications

11. All communications regarding this Agreement shall be sent to:

(a) Mr. Robert D. Hawkins
Assistant Vice President
Federal Reserve Bank of Atlanta
1000 Peachtree Street, N.E.
Atlanta, Georgia 30309-4470

(b) Stephen M. Klein
Chairman and CEO
Omni Financial Services, Inc.
Six Concourse Parkway, Suite 2300
Atlanta, Georgia 30328

Miscellaneous

12. Notwithstanding any provision of this Agreement, the Reserve Bank may, in its sole discretion, grant written extensions of time to Omni to comply with any provision of this Agreement.

13. The provisions of this Agreement shall be binding upon Omni and its institution- affiliated parties, in their capacities as such, and their successors and assigns.

14. Each provision of this Agreement shall remain effective and enforceable until stayed, modified, terminated, or suspended in writing by the Reserve Bank.

15. The provisions of this Agreement shall not bar, estop, or otherwise prevent the Board of Governors, the Reserve Bank, or any other federal or state agency from taking any other action affecting Omni, the Bank, any nonbank subsidiary of Omni, or any of their current or former institution-affiliated parties and their successors and assigns.

16. Pursuant to section 50 of the FDI Act (12 U.S.C. § 1831aa), this Agreement is enforceable by the Board of Governors under section 8 of the FDI Act (12 U.S.C. § 1818).

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the 16th day of March, 2009.

Signed by Stephen M. Klein
Chairman and CEO, Omni Financial Services, Inc.

Signed by Robert D. Hawkins
Assistant Vice President,
Federal Reserve Bank of Atlanta

According to the FDIC’s latest Summary of Deposits for Omni National Bank (June 30, 2008), the bank’s holding company, Omni Financial Services, Inc., had $846,839,000 in customer deposits in 10 offices spread across five different states (Georgia, Florida, Illinois, North Carolina, and Texas). Capital Bank, a subsidiary of Capital Bank Corporation, acquired Omni’s four branches in Fayetteville, North Carolina in mid-December, 2008.

Omni National Bank is now participating in the FDIC’s Transaction Account Guarantee Program. Under that program, through December 31, 2009, all of the Bank’s noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account.

Finally, according to numerous comments left here on FlippingFrenzy.com, many home owners and investors who became acquainted with Omni National Bank through Delroy Davy are still searching for answers and justice in their quest to recover from their business dealings with Delroy Davy.

It is rare that an opportunity like this presents itself.

Earlier today I received the following message from Special Agent Michelle Ahmad in the Office of Inspector General at the U.S. Department of Housing and Urban Development.

NOTE: For anyone interested in following through with Ms. Ahmad’s offer, please note that the offer itself is made ONLY in connection with claims involving Delroy Davy and/or DNK Investment Group, as outlined in my May 29, 2008 blog entry here on FlippingFrenzy.com titled “Real Estate Fraud and the Real Estate Investor: Banks can be victims too!”

Ralph,

You may post on your website, my information as follows:

If you have been a victim (Editor’s Note: of Delroy Davy or DNK Investment Group) and want to file a complaint, please contact me via email only: mahmad@hudoig.gov

Thanks,

Michelle Ahmad, Special Agent
US Department of Housing and Urban Development
Office of Inspector General, Investigations
75 Spring Street SW, Suite 346
Atlanta, Georgia 30303 USA

Tips for Contacting Special Agent Ahmed

• Do not contact Special Agent Ahmad unless you have a claim related to the details outlined in the following Flipping Frenzy blog post: “Real Estate Fraud and the Real Estate Investor: Banks can be victims too!“
• Be specific in your email communication (do not ramble or provide incomplete or unrelated information).
• Be sure to include your contact information, including: Your Name, Your Mailing Address, Your Telephone Number, Your Preferred Email Address for Replies, etc.).
• Provide as much information as possible but DO NOT include attachments (attachments are often blocked when sent to government email addresses; wait for a reply suggesting that you send additional materials before doing so).

Thank you, Special Agent Ahmad, for making yourself available like this. And thank you to everyone who plays a role in spotting, reporting and stopping real estate and mortgage fraud.

= = = = =
Update: You may also call Special Agent Ahmad’s office at (678) 732-2050.

Corrected 8/6/08 — 2:50 p.m. ET

To follow up on my post from last Thursday (”Real Estate Fraud and the Real Estate Investor“), on February 7 of this year, Omni Financial Services, Inc. (NASDAQ: OFSI)–the publicly held bank holding company for Omni National Bank–issued a press release stating there would be a delay in the release of its December 31st, 2007 financial results because the company detected “lending policy violations and internal control deficiencies.” However, nearly four months later, at least one bank employee accused of fostering an environment where such policy violations thrived, is still working at the company’s full-service branch in Atlanta, according to the company’s own website.

In the same press release, accessible here, Omni Financial Services, Inc. stated it had made “certain personnel changes and provided additional staff training and support predominantly in the community lending division.” If by “community lending division” Omni means its “Redevelopment Lending Division” (there is no “community lending division” listed on the Omni corporate site… only a “Redevelopment Lending Division” that the company’s website states has “…provided thousands of redevelopment loans to a wide range of investors.”), my sense is the training didn’t take!

If in fact Omni Financial Services provided such staff training, why did it not stress to bank employee and redevelopment specialist Greg Patten–or his supervisors–that demanding that a loan applicant engage the services of DNK Investment Group and Delroy Davy only or their loan application would be denied is a flagrant abuse of his position and the bank’s standing in the greater Atlanta community. As I stated in my post from last Thursday, as a Federally Chartered Bank, Omni and its employees should be familiar with the RESPA rules, and might be expected to follow them as good compliance procedures or “Best Practices.” At the very least, Greg Patten’s actions are questionable and may lead us to believe that there could have been some sort of transactional/kickback arrangement between himself, Delroy Davy, and perhaps even Omni Financial Services itself.

I mean, come on… think about it for a second. Internal auditors should have called into question how and why out-of-town investors from California gained access to tiny Atlanta-based DNK Real Estate Investment Group and Delroy Davy. And then, one would think, internal auditors would investigate the relationship to the point where they’d come to learn that Delroy Davy had never held a Georgia Real Estate Commission Certification of Licensure, and that DNK Real Estate Investment Group similarly held no such validating credentials from the State of Georgia; two omissions which in and of itself should have been blazing red flags right in front of any internal auditing team’s own noses.

Perhaps all of this is for not. Just two weeks ago, Omni Financial Services, Inc. received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market notifying the company that it currently fails to comply with Nasdaq’s filing requirement for continued listing set forth in Nasdaq Marketplace Rule, which by the way requires timely filing of periodic SEC reports, and that its common stock is therefore subject to delisting from The Nasdaq Global Market. As of this evening, Omni Financial Services, Inc’s stock was trading at 80 cents, which is nearly $10 below its most recent 52-week high of $10.52.

Omni Financial Services, Inc. has for a Thursday (tomorrow) hearing before a Nasdaq Listing Qualifications Panel, at which it says will present a plan for regaining compliance. As you might expect, I’ll be watching for relevant information from the Thursday meeting, and if anything new surfaces, you can count on learning about here on FlippingFrenzy.com.

Updated 5/29/08 — 9:04 a.m. PT
Corrected 8/6/08 — 2:44 p.m. ET
Corrected 9/18/08 – 9:35 p.m. ET

The American dream of homeownership and the promise of legitimate real estate investment opportunities has long been under siege by a growing army of con artists, wannabe real estate professionals, and ill-informed homeowners and investors who honestly believe in the credentials of some so-called real estate professionals (real estate professionals, mind you, who regularly take no hostages—including banks—when they commit their bad acts).

Wannabe real estate professionals and opportunists like them are chipping away at the very foundation of homeownership and honest investment wealth in America. Their actions have fleeced honest homeowners and investors out of billions of dollars, artificially inflated housing prices and property taxes, made homes less accessible to honest citizens, and continue to drive homes into foreclosure at alarming rates.

Recently, a FlippingFrenzy.com reader from California contacted me to share her family’s allegations and suspicions about a potentially fraudulent real estate investment scheme that she believes involves a bank employee, an investment company, a rehab operation, and a so-called real estate management firm, all in Atlanta, Georgia. After participating in an expensive real estate investment seminar offered by the Trump organization, Dianne and Rob Alexander decided to take what they learned and invest in what they thought was a reasonable and honest out-of-state real estate investment. What they allegedly encountered is a different story.

In their own words (reprinted with Dianne and Rob Alexander’s permission):

Back in January of 2007, my husband Rob and I invested about $6,000 - $8,000 into Trump Real Estate Training. We decided that we wanted to be educated and become real estate investors. We attended two three-day weekends (six days total) of intensive training from the Trump organization on how to find, buy, rehab, and sell foreclosures. Trump’s trainers stressed the importance of having a whole team in place–from a banker you can trust to a skilled rehab team.

After doing some initial research, Rob and I decided that we wanted to make our first purchase in the Atlanta, Georgia area because the foreclosure properties there are so much less expensive than those in California where we live. Rob and I visited Atlanta in March of 2007 to see what was available. While we were there, we met Greg Patten from Omni National Bank - Atlanta to apply for a hard money loan in order to make our first purchase. We met in Greg Patten’s office and filled out an application. He took a copy of our driver’s licenses and social security cards. He ran our credit and approved us on the spot. (While in his presence, Greg discussed how Omni National Bank had been burned many times in 2006 by out of state investors and how he was reluctant to do business with non-Georgia resident investors again. However, my credit score was 809, so Greg said he would take a chance with us.)

(Greg Patten of Omni National Bank)

Greg Patten told us there would be a 15% down payment required on the first two homes we buy. Then, once we get “in and out of two deals with no problems” (Gregg’s words, not ours), we would no longer need a down payment.

After we returned home to California, we used the Internet to research specific homes available for purchase. We contacted Greg Patten by phone and showed him one home that we were interested in purchasing (on Dunning Street in Atlanta). It was a duplex that was built in 1965, and had an asking price of $115,000. The comps in that area of town were showing similar homes selling for around $170,000, and with a new sports stadium nearby, Dunning Street seemed like the perfect investment.

When we discussed the opportunity further with Greg Patten, he told us that Omni National Bank - Atlanta would only fund deals with out of state investors who went through someone named Delroy Davy (of DNK Investment Group), because Davy—according to Patten–was in and out of 17 deals with Patten/Omni National Bank without a single problem. Patton explained to us that Delroy Davy only bought and sold newer homes, which he said meant they never needed much rehab work. He also said that Davy had his own experienced and exclusive rehab team comprised of master carpenters from Romania. That was the first time that we heard of Delroy Davy or his rehab crew.

Editor’s note: Omni National Bank has informed Flipping Frenzy that although Omni does require a local presence before it will loan to out of state investors, it does not require any investor to work with Delroy Davy or other contractors specifically.

(Delroy Davy of DNK Investment Group/(c)2006 JiMiFLiX!)

I contacted Mr. Davy via email, and he immediately started sending us homes to look at as possible investment properties. (Note: As a result of Greg Patten’s demand that we work through Delroy Davy, we decided against purchasing the Dunning Street property). Davy’s assistant, someone named Dee Bryant, sent us pictures and comparables for several of Delroy’s recommended homes. He said they were all new homes, built after the year 2000, so they would not need much rehab. Compared to the homes Rob and I saw when we were in Atlanta on our own (including the Dunning Street property), Delroy’s recommended homes were perfect. They were newer and just as his assistant said, they did not require much work.

Based on Delroy’s information and Greg Patten’s instance on using Delroy, we decided to buy two homes from Davy: 1059 Garibaldi St. and 940 Eugenia Place, both in Atlanta.

(1059 Garibaldi St.)

At this point we convinced my cousin and her husband, John and Cheryl Beech, who were about to attend the same Trump workshop we went to back in January, not to attend the Trump training (which cost around $6,000); we instead told them that we had a real estate investment program that was awesome and well worth their time and money. We also talked another friend of ours, Rick Matthew, into considering investing with Delroy Davy.

Interestingly, when we talked to Delroy Davy about others wanting to buy homes from him as investment properties, he said he charged $15,000 one time to do business with anyone else. He said that the $15k would include airfare and a two-night hotel stay to fly the prospective investors to Atlanta to see his homes, meet with Greg Patten at Omni National Bank, and to get approved for loans. This was a one-time initiation fee, according to Davy (the new investors would never have to pay this fee again for any other homes they bought). Even more interesting, Delroy said he would split that fee with my husband and I just for finding these new investors. After we took the airfare and hotel stay out of the proceeds, we split $6,500 with Delroy.

Greg Patten and Omni National Bank - Atlanta approved the new investors for loans and even managed the appraisals (the appraisals yielded values of over $250,000 per home). Based on these appraisals, we all bought investment properties from Delroy Davy.

Rob and I flew out separately to meet with Delroy, pay our down payments amounting to $23,000, open Omni National Bank checking accounts, and sign closing documents. John Beech and Rick Matthews did the same. We each spent the weekend at a nearby hotel, and we all met with Delroy Davy and his partner Charles Bonney for two solid days. Davy and Bonny showed each of us several of Davy’s personal high-end homes (most were under construction at the time), then we went to see our homes. Davy and Bonney explained that the same crews who were building Delroy Davy’s $2 million personal homes were also doing the rehab on our homes. Delroy said he had his “A Team” working on these homes and his “B Team” working on our smaller properties, but he called his “A Team” down when he needed them. Rob and I felt like our rehab team was solid. Delroy Davy’s own homes were absolutely amazing, like dream mansions.

(Delroy Davy’s home in Atlanta / (c)2006 JiMiFLiX!)

On my trip, Delroy Davy took me to Bank of America to open a home equity line of credit (HELOC) since there was “so much equity” in the Garibaldi Street home. Mr. Davy said that he was taking 30% of my HELOC for finding me this home.

At Bank of America we met with Tamir Morris who did a desktop appraisal of our new investment home and said it had a high value of $404,000, and that I would easily be able to get a HELOC for $200,000. I was not comfortable giving Mr. Davy 30% of $200,000 so I said I wanted only $100,000.

Delroy Davy sat there and showed me the numbers right at Tamir Morris’ desk. He showed me what my loan payment would be once I refied through Bank of America. With the 1st and the HELOC, I should easily be able to find a renter who could cover both these loans. Delroy Davy told me I would receive $1,200 from Section 8 renters and might even have some positive cash flow each month. He said that I should never have to make a payment to Omni National Bank because it would be refied before the first payment was due.

The HELOC closed within the month without a problem. Money was deposited directly into my Bank of America account, and I approved the bank to give Delroy Davy his money.

Our refi was started with Leshia Jackson of Bank of America (whom I never actually met in person). We spoke by phone and she told me what she needed from Rob and myself, which I immediately sent from my home in California to a processing office in Jacksonville, Florida. Ms. Jackson confirmed by phone that she had everything she needed and that I should be closing soon. Then I waited, and waited, and waited some more. I called Leshia Jackson at Bank of America several times, but for some unknown reason at the time, she would not take my calls, nor would she return any of my many initial messages. I spoke with her once after that, when she apologized for not contacting me sooner, stating that she was on vacation and that things were just about finished on my refi.

I never heard from Leshia Jackson at Bank of America again.

I called Bank of America’s service center in Jacksonville a month later and was told our refi was declined due to the value of the home being too low. In stark contrast to what Delroy Davy told me in the presence of Tamir Morris at Bank of America, neither of the investment properties was eligible for refi due to value.

OK, so we had the repair work for these homes built into the loans through Omni National Bank. Delroy Davy and his repair team did all the rehab work. Once he completed the work, Greg Patten from Omni National Bank needed to sign off that all the repairs were in fact complete and correct, and then he could release payment for the rehab work to Delroy.

As a side note, Greg Patten admitted to us that he never actually checks to make sure that the appliances, electricity, air conditioning unit, or any of the lights actually work. In fact, the power to the properties in question was not even on turned on when he did his walkthrough! He only checks to make sure that appliances are in the structures. As it turns out, many of the appliances, water heaters, air conditioning and wiring have been faulty in several of our properties. Our friend, Rick Matthew (one of the other people we convinced to invest) has receipts showing that all of his appliances have been replaced in his two houses. As of today, we learned that there is absolutely no electricity running to the AC unit in one house!

I believe I even have photos of John and Cheryl Beech’s home (purchased from Delroy Davy also) with sleek black appliances, yet the tenant living there says the appliances are white and most do not work properly. I just happened to take pictures of the house so I could show my cousin how beautiful it was. This proves to us that Delroy Davy places new appliances in his home to show to and impress potential buyers, then switches them out once we had approved them.

My husband and I have called Greg Patten about the fact that he and Omni National Bank signed of on work that was not done, not completed, or done improperly. He has never assumed responsibility for any of this, and Rick Matthew has paid for his own investment property repairs out of pocket. Greg Patten actually said that he contacted the tenant in John and Cheryl Beech’s investment property to ask about the appliances and he told us that the tenant indicated that everything was fine. That tenant, however, tells us that she never told anyone that everything was fine, because in fact, it is not fine.

Next up: We signed lease agreements with a Delroy Davy-controlled property management entity called “Sedona Realty Group” to find renters for our investment homes. Sedona did all the work with Section 8 to get tenants placed in three of the investment properties. They sent us signed leasing agreements from our prospective tenants stating the two of the properties were getting $1,200 per month. Long story short, that was not true!

Our tenant–the one in the Garibaldi Street property–said she never agreed to pay $1,200 per month. My husband and I are receiving $758.00 per month through Section 8 and John Beech receives around $799, I believe. Delroy Davy went to the Section 8 office and completed paperwork on these properties as the owner of our investment homes. I believe his wife–Keesha Davy–may have even been listed as the owner on one of the homes.

(Keesha Davy (on left) / (c)2006 JiMiFLiX!!)

Once we ended our management agreements with Davy’s Sedona Realty Group, we found all this out. We all had to complete change of ownership papers with the Atlanta Housing Authority and send them HUDs to prove that we were owners and that they should be sending the monthly rent payments directly to us. I filed a complaint against Delroy Davy with the Section 8 office in Atlanta.

That’s our story in a nutshell. I hope that reading this helps others avoid a similar situation.

~ Dianne Alexander

Thank you, Dianne, for sharing your story. I know it’s not easy re-living these events. I assure you that at least one other person will come across your account of what happened to you and your friends and family, and whether they leave a comment here on the blog or not, your story will have inspired them to either not do business with the people mentioned in your story, or, like you said, think twice about entering into a similar situation themselves.

In the meantime, there is a lot of ground to cover here, so let’s get started. To summarize:

• Delroy Davy, Keesha Davy, Charles Boney and others run a real estate company in Atlanta, Georgia, called DNK Investment Group.
• Davy matches investors with investment properties for a $15,000 sign-up fee. Davy will split the fee for referrals given to him.
• Delroy Davy has a relationship with Omni National Bank - Atlanta and Omni Atlanta loan officer Greg Patten.
• Omni National Bank - Atlanta will only work with out-of-state investors if they go through Davy to find properties.
• The appraised value of Alexander’s home–per Omni at the time hard money was loaned–was $250,000.
• Delroy Davy took Dianne Alexander to Bank of America and Tamir Morris to secure a HELOC (home equity loan) on one of her properties. At this time, Bank of America’s desktop appraisal set the house’s value at $404,000. Dianne Alexander was told she could take out up to $200,000. Delroy Davy told Dianne Alexander that he would take 30% of whatever equity they drew out as a finder’s fee.
• Dianne Alexander took out $100,000 of the “equity.” Bank of America transferred $30,000 to Delroy Davy.
• Bank of America (BOA) was to refinance property to wrap the hard money loan (Omni) and the HELOC loan (BOA) into a single mortgage loan with BOA. This was never done and the house never qualified. The reason given by BOA’s refinance loan officer was that there was not enough value in the home to refinance it (i.e., loan to value ratio was too high).
• The Alexander’s escrowed the rehab money with Omni National Bank (Greg Patten). Greg Patten was to sign off on all repairs before releasing monies to contractors. Delroy Davy and his repair team were the “contractors” used on the rehab. (Editor’s Note: Omni National Bank has informed Flipping Frenzy that all necessary inspections were done, and that it has the records and certifications of those inspections.) Nonetheless, according to Diane Alexander, rehab monies were released by Patten to Delroy Davy, without proper inspections. Again, according to Diane Alexander, appliances were faulty and there was no power to parts of the house. She also claims many appliances had to be replaced at additional cost to investors. (Editor’s Note: Omni Bank also informed Flipping Frenzy that it does not know if inspections were done as they should have been done.)
• Several of the investment properties were rented “Section 8” through Davy’s Sedona Realty Group. The lease agreements sent to the Alexander’s by Sedona reflected $1,200 monthly rent. These agreements were signed by prospective tenants; the true rent was less than $800.
• Finally, Delroy Davy held himself out as owner of the units to the Section 8 office (Atlanta Housing Authority) and registered as such with them. The Alexander’s had to provide closing statements and proof of ownership to have the Atlanta Housing Authority send the rent monies to them instead of Delroy Davy or Davy’s associates or one of his companies.

Analysis

1. Unlicensed REALTOR®: In Georgia, according to the Georgia Real Estate Commission, in order to promote and sell real estate, you must have a real estate license. According to the Georgia Real Estate Commission’s “Find a Real Estate Agent” searchable online database (free to the public, by the way), no one named Delroy Davy has ever held a Georgia Real Estate Commission Certification of Licensure. To be safe, we ran a similar search on Davy’s wife, Keesha Davy, who is described on Davy’s real estate investment firm website as the “dynamic self-starter” President of Sedona Realty, and “the backbone” of Davy’s DNK Investment Group. Here too, we found no record of Mrs. Davy ever having held a Georgia Real Estate Commission Certification of Licensure (which is odd, because on the same website, Keesha Davy is hailed for her real estate sales prowess while working in another Atlanta real estate firm–EDJ Realty–where she is positioned as having joined the “Millionaire Club” after only a few months on the job… I wonder what EDJ Realty owner, DeShawn Snow, would say about having had an unlicensed REALTOR® in her firm’s prestigious Millionaire Club?)

   Now its quite possible that Keesha Davy’s maiden name is Keesha Legrand, which the Georgia Real Estate Commission’s “Find a Real Estate Agent” online searchable database says is a licensed real estate agent in the state of Georgia (9/2/05 - Present: Status is listed as “Active”). However, the DNK Investment Group website does not list anyone named Keesha Legrand under its “The Company” section (only Delroy Davy, Keesha Davy, Ples Bruce, Marsha Evans-Younger, and Charles Bonney), and the State of Georgia listing for Legrand is associated instead with an entity called Allure Realty Group, which similarly does not list a Keesha Legrand on its website.

2. Unlicensed Real Estate Company: Similarly, the Georgia Real Estate Commission has no record in its “Find a Real Estate Company” searchable online database of Davy’s investment company, DNK Investment Group (3355 Lenox Rd, Ste 750, Atlanta, GA 30326), or his real estate management firm, Sedona Realty Group (address unknown or perhaps the same as DNK’s). Again, in Georgia, according to the Georgia Real Estate Commission, in order to manage real estate, you must have a license.

   Additionally, it should be noted that the State of Georgia’s “Search for a Business Entity” database does include a “Active/Compliance” status listing for Sedona Realty Group, but here again, being a registered LLC in the state of Georgia does not supersede or set aside the Georgia Real Estate Commission’s licensing requirements for companies.

3. Steering: Greg Patten of Omni National Bank allegedly demanded that a loan applicant (the Alexander’s) engage the services of a particular entity or their loan application would be denied. If true, such tactics—steering loan applicants in the direction of one REALTOR®, appraiser, contractor, what have you—are problematic. (Editor’s note: According to Omni National Bank, it does require a local presence before lending to out-of-state investors, however Omni does not demand that an applicant engage the services of a particular entity as a term of approval.)
4. Cutting Corners: Greg Patten allegedly told the Alexander’s that he does not verify that work to a property has actually been done before releasing funds. Checks and balances exist for a very good reason. For the bank employee responsible for ensuring his bank’s funds have been properly spent to say this, as the Alexander’s claim, is remarkable. In my experience, real estate industry insiders who cut corners usually do so on a frequent basis, especially when they have special (i.e., exclusive) relationships with Realtors, contractors, appraisers, and other industry insiders. (Editor’s note: Omni National Bank has informed Flipping Frenzy that it regularly performs inspections and that inspections were performed in this instance as well, and that they had never been given any reason to question the way the inspections were handled.)
5. Section 8 Silliness: As I mention in the summary above, Delroy Davy held himself out as owner of the Alexander’s investment properties (the properties that were presented to the Atlanta Housing Authority (AHA) as being available for Section 8-qualified tenants). Registering the Alexander’s rental units with the AHA under false representations surely is a violation of the law and is something that the Housing Authority of the City of Atlanta will want to look into.

Real estate is a multitrillion-dollar-a-year industry. It fuels the American economy; builds personal wealth; and employs millions of mortgage bankers, real estate professionals (including licensed Realtors), contractors, and others who make an honest living financing, buying, selling, and improving homes.

Unfortunately, money attracts more than homeowners, investors, and honest professionals. It also attracts thieves–people who are looking to score large amounts of quick cash by cheating others out of their hard-earned and invested money. Through various clever scams and schemes, con artists have figured ways to pick the pockets of the real estate industry, real estate investors, and individual homeowners, often with the assistance of the very professionals who stand to suffer most from the industry’s demise.

Copyright 2008 Ralph R. Roberts