http://www3.signonsandiego.com/stories/2009/apr/24/bn25condos23215-linda-vista-condos-tied-alleged-sc/?metro&zIndex=88447

Linda Vista condos tied to alleged scheme
Fourth local complex drowning in defaults
By Mike Freeman (Contact) Union-Tribune Staff Writer, Lori Weisberg (Contact) Union-Tribune Staff Writer

11:02 p.m. April 24, 2009
OVERVIEW

Background: A Northern California businessman recruited investors throughout California to take out loans on condos in three North County complexes in exchange for a fee, with the promise they would not be responsible for the mortgage payments. In many cases, the fees were not paid, only a few loan payments were made and nearly all the units are facing foreclosure.

What’s happening now: A wave of defaults has hit a fourth complex, this one in Linda Vista, linked to the same businessman. At that property, investors were paid thousands of dollars each in exchange for taking out loans on multiple units purchased in 2006 and 2007.

A wave of loan defaults that has swamped a 42-unit Linda Vista condo-conversion project makes it the fourth complex in the county linked to a Bay Area man to be overwhelmed by pending foreclosures.

Kearny Mesa Townhomes, at 7555 Linda Vista Road, was converted from apartments by Diamond House Development, a company linked to James McConville of Fremont. About 35 units in the complex are in the process of being taken back by lenders.

Investors who bought into the Linda Vista complex and have now seen their credit badly damaged described an arrangement similar to the one McConville allegedly used in three condo conversions in North County. The San Diego Union-Tribune reported on those deals earlier this month.

At all four properties, investors with good credit were recruited to take out mortgages to buy units owned or found by McConville. They were to receive a fee, usually $5,000 to $10,000 per unit.

McConville would rent out the units and make mortgage payments. In some cases, investors said they were promised that the units would be transferred out of their names within a few months. In other instances, investors expected to share a percentage of the profits when the units sold.

Instead, the units remained in the investors’ names. Since this winter, mortgages have not been paid for many of the Kearny Mesa Townhomes units or about 80 units that investors purchased through McConville in three other conversion projects in North County – Sommerset Woods, Sommerset Villas and Westlake Ranch.

“I had some doubts in the beginning,” said Cristy Voss, a tax preparer from San Jose who invested in the Linda Vista project. “And I asked him, ‘Don’t you think we should have a contract because what if you default on the loans,’ and he said, ‘Oh no, that’ll never happen. I’ve been doing this for 30 years. This is completely legal.’ ”

In the North County cases, documents showed that a McConville company received a hefty fee on each unit sold to investors he brought to the complex. In Linda Vista, McConville’s company owned the building and thus received the full sale price.

Now investors can’t get ahold of McConville. Lenders are foreclosing on the units, leaving the investor buyers with shattered credit.

Efforts to reach McConville were unsuccessful. Prosecutors in San Diego and Alameda counties declined to say whether they are investigating.

It’s the latest chapter in a complex scheme that appears to be collapsing in San Diego and elsewhere in the state. In Kern County, a lender has filed a lawsuit against McConville, as well as some investors.

Investors also say they purchased units in a Fresno project that are now tumbling into default.

The Linda Vista scheme differed somewhat from the later North County deals, in that McConville made mortgage payments for nearly two years on some Linda Vista units, purchased at a time when the housing market was much stronger. Investors in the North County complexes say very few payments were made on their mortgages, forcing their units into default faster.

Voss, the tax preparer, said she met McConville through a friend who recruited investors for his real estate deals. She was told her good credit would be used to secure loans for two San Diego condos, she would be paid a $10,000 fee for each and the properties would be flipped in six months to two years, Voss said.

She was also assured that shortly after loans totaling more than $630,000 were taken out in her name, the title on the condos would be transferred out of her name. That never happened.

More than a year later, she learned her name was still on the deeds for the two condos, purchased in December 2006 for $355,000 each. She also learned that rent on one of her two units was being collected by Concord Management, the same San Diego firm that was collecting rent payments at the North County complexes.

Voss said McConville paid her the promised $20,000 fee and continued making payments on the two condos until last August. Both are heading toward foreclosure.

A McConville company bought Kearny Mesa Townhomes in November 2006 for $7.4 million, or about $176,000 per unit, according to deed records and the previous owner. At least some units were improved with granite countertops, said Stephen Norton, who rents a unit.

Many of the sales to investors occurred in late 2006 and 2007. The prices were unusually high even at that time. For example, a one-bedroom, one-bath unit sold in fall 2007 for $305,000. About the same time, a larger unit down the street on Linda Vista Road sold for $139,000.

“Especially in late 2007, well after the subprime meltdown, these lenders should have known a 554-square-foot unit in Linda Vista was not worth $305,000,” said Todd Lackner, a San Diego appraiser who has tracked thousands of unusual sales.

Vazgen Davoudi, a Northern California investor, said his credit was used to purchase five condos in the Linda Vista complex, and the mortgage payments were made consistently until late last year. Now the loans are in default, he said. Each of the condos in his name were purchased in the $300,000 range, and nearly all of the sales closed in December 2006.

Davoudi said he recalled being paid a fee of about $4,000 per unit.

“One (McConville) employee called in December and said, ‘We’re almost ready to pay the loans and clear up your names,’ ” Davoudi said. “Then we couldn’t reach him anymore. I’m so mad. He’s ruined everybody’s credit.”