The offices of Monroe Capital, 311 S. Wacker Dr.
Pat Nabong / Sun-Times
A Chicago investment firm lent millions to a South Florida real estate company that’s now being sued by Illinois Attorney General Kwame Raoul for enticing struggling homeowners to sign 40-year contracts he says were designed to grab their homes’ equity.
MV Realty, which filed for Chapter 11 bankruptcy protection last year, deceptively targeted people who had equity in their homes but needed cash, locking them into decades-long contracts that carried hidden fees and limited their ability to refinance or sell, Raoul says in a newly filed lawsuit.
Authorities in nine other states, including Indiana, also have filed lawsuits, and the U.S. Department of Housing and Urban Development and the federal Consumer Financial Protection Bureau are investigating.
The unusual scheme was “predatory” and “deceptive,” court filings say.
According to Raoul’s lawsuit and bankruptcy documents, the business worked like this:
MV Realty offered “financially distressed” homeowners a onetime cash payment if they signed an “MVR Homeowner Benefit Agreement” designating the company as the exclusive real estate listing agent when the homeowner decided to sell.
Upfront payments were about 0.3% of a home’s value — as low as $365 to a couple of thousand dollars.
But there were a few big catches:
If the homeowner died, the complicated, 40-year listing agreements extended to the homeowner’s heirs.
Also, if the homeowner or the heirs listed the home with another agent, that violated the deal, and MV Realty was entitled to 3% of the home’s sale price.
Consumer groups say that, in some cases, homeowners forgot they’d signed the agreements, or their heirs, unaware of the agreements, used other agents, resulting in surprise demands for thousands of dollars.
MV Realty filed memorandums of the contracts with county offices. And the agreements clouded property titles, making refinancing difficult for some homeowners.
Reality TV connection
The company operates in 33 states and has 34,000 agreements with homeowners, including more than 750 in Illinois. It says it stopped signing new contracts in 2022.
The “harsh and one-sided contract terms act to hamstring consumers, induce defaults and are calculated to trigger an unfair penalty provision that ensure a revenue stream,” Raoul says in the lawsuit filed Tuesday, which seeks civil penalties and the voiding of all contracts signed by Illinois consumers.
The suit names corporate managers Amanda Zachman — known to reality TV fans as the “villain” from season 15 of CBS’ “Big Brother” — and Antony Mitchell and David Manchester.
Money for the operation came largely from a $40 million investment in July 2021 by Monroe Capital Management Advisors, according to MV Realty’s bankruptcy filing in Florida. The company is seeking to reorganize and continue “harvesting” existing homeowner agreements to pay back creditors, including Monroe Capital.
Monroe says its “primary business over our 20-year history is making senior secured loans to small- and medium-sized businesses. In 2021, Monroe made a loan to MV Realty, and we are actively seeking repayment of our loan.”
MV Realty, based in Boca Raton, Florida, did not respond to a request for comment.
Monroe, which has offices downtown at 311 S. Wacker Dr., says it has $18.4 billion in committed and managed capital in a range of industries.
Theodore Koenig, the company’s president and chief executive officer, is co-founder of Hope Chicago, a nonprofit “seeking to reduce economic and social inequity” by awarding college scholarships to Chicago Public Schools graduates and their adult family members.
HUD has filed a claim for $81.3 million with the bankruptcy court for potential civil and punitive damages that could arise from its investigation. The federal housing agency notes in its filing that it enforces civil rights laws against discriminatory housing practices.
John Rao, a senior attorney with the nonprofit National Consumer Law Center, which filed a friend-of-the-court brief in the bankruptcy case, says MV Realty’s methods are “beyond the pale” and wonders why the lender didn’t see red flags.
Of Monroe Capital, Rao says: “They’re obviously aware of the business model. It had to raise some questions of — were they comfortable with the legality of it?”
In its filing, the consumer legal group says it heard from legal aid lawyers around the country who said the scheme preyed upon low-income, vulnerable people.
Under its proposed Chapter 11 reorganization, MV Realty would offer consumers 120 days to buy out their contracts or prove they were impaired or coerced.
The U.S. bankruptcy trustee is asking a judge to dismiss the Chapter 11 reorganization bid or convert it to Chapter 7, liquidating the company.
Meanwhile, at the urging of groups that include the AARP and American Land Title Association, 22 states have passed laws aimed at preventing similar listing schemes.