Before the auctioneer could begin the first trustee sale bid on the Bay Point property that sweltering June afternoon, Andy Narraway handed him a flyer: “This foreclosure sale is fraudulent because the underlying Trust Deed was fraudulently created and is being investigated by the FBI.”
The message was directed at potential bidders — roughly 20 representatives from banks and real estate agencies who had gathered at the Martinez courthouse steps for the sale.
In addition to the flyer, 46-year-old Narraway had brought newspaper clippings implicating James D. McConville, who ran the company that owned the property being foreclosed upon. They alleged that McConville had conspired in an elaborate mortgage fraud scheme in Southern California. Narraway had also brought a letter from Contra Costa County Deputy District Attorney Ken McCormick confirming the FBI's investigation of McConville.
Narraway hoped Wells Fargo might postpone the foreclosure because its bankers felt threatened or sympathetic — he'd take either one — by his claims that he had been a victim of mortgage fraud. But it didn't work. Just after Narraway's interruption, the auctioneer stopped, made a quick phone call, and returned 10 minutes later with news that the sale would continue.
“Property is commonly known as 39 North Broadway in Bay Point,” the auctioneer said. “At this time I'm authorized to pose an opening bid on behalf of the beneficiary in the amount of $1 million even.”
The moment Narraway had been dreading the past five months had finally arrived. His dark glasses did little to disguise his nervousness, given the incessant tapping of his foot on the courthouse steps.
Narraway had $750,000 — nearly half his life savings — invested in the apartment complex. Wells Fargo had more than $2.75 million invested in the same property, and when mortgage payments stopped coming last fall, the bank initiated foreclosure. The market's decline meant Wells Fargo stood to lose a chunk of change. But Narraway was about to lose everything.
He watched helplessly as bidders wearing Bluetooth headsets conferred with their bosses about prices. It was, Narraway explained later, like watching torturers decide what implements to use.
The bid for the Bay Point complex may have started at $1 million on this day in 2009, but in 2006, the same property had been appraised, according to loan application documents, at $6.5 million. At that time, Narraway had another $1 million invested in four other Bay Area properties, owned by three companies controlled by McConville. Narraway had expectations of making a moderate profit and retiring in comfort and security.
All five properties are now going into foreclosure, and Narraway stands to lose his entire retirement savings. Banks like Wells Fargo, which foreclosed on the Bay Point property, have some recourse with the federal government through bailout money. But private lenders like Narraway, who believe they've been deceived and have sought help at every level of government, are coming up empty-handed.
Recent media reports about McConville paint a narrative of one villain orbited by hundreds of victims. They largely ignore the role played by institutional lenders and the title companies that provided insurance to investors like Narraway. McConville became an easy scapegoat after it came out that he may have funneled his allegedly fraudulent profits into a slasher film (to be released on DVD later this month) and a lavish lifestyle that included a fleet of valuable muscle cars.
But McConville didn't work alone. He was able to depend on the negligence of lenders, developers, mortgage brokers, and title companies, which real estate experts say were pushing deals through as fast as they could during the housing boom to feed the hungry mortgage market on Wall Street.
No one knows this better than Narraway. During the housing boom, he and countless other private lenders trusted institutional lenders and title companies to reduce risk by doing their due diligence to find and expose signs of fraud on title documents and loan applications.
But Narraway says that, among other things, these entities failed to check whether the person signing the title documents on behalf of a given corporation was an actual officer of that corporation. That would have been as easy as calling the California Secretary of State's office, with which corporations are required to have that information on file. Lenders also failed to check the veracity of information reported on loan applications — including appraisals and monthly rental income — which would have been as easy as plugging the property address into an online appraisal site.
Narraway knew that handing his life savings to McConville was risky. But he also had reason to believe that the risk would be mitigated by a mile-wide safety net. In the past six months, he's had to learn the hard way that the net was full of gaping holes.
Back at the courthouse steps, the auctioneer closed the bid. “This property is hereby sold back to the beneficiary for $1.4 million,” he said. Wells Fargo had just bought back the property it foreclosed on.
“Bam! There you go,” Narraway said, snapping his fingers at the moment of sale. “Seven hundred and fifty thousand, wiped out.”
Narraway arrived at San Francisco's Greyhound bus station in 1987 with $72 in his pocket and his best friend, John Lundy. Both transplants from the U.K., they lived in the Tenderloin, drove beaters, and barely scraped by for years. Flash forward to 2003: Narraway still lived in San Francisco. After more than 15 years running his own advertising businesses, he was looking for a place to invest his savings.
Lundy, who was working as a real estate broker in Marin, suggested that Narraway invest with three companies: Emerald Park House Corporation, Sapphire Park House Corporation, and Diamond House Development. Lundy said that the guy who ran the bejeweled trifecta had a solid reputation for paying on time and paying well — 10 percent interest on loan payments — and his Bay Area properties would act as collateral to insure the loan. The guy was James D. McConville.
Lundy assured his friend that this would be a safe investment, in part because his loans would be piggybacked onto larger loans from institutional investors, a lending practice commonly known as “second” financing.
Property owners like McConville can take out any number of loans using their property as collateral, but the loans should add up to only a percentage — usually 70 to 90 percent — of the assessed value of that property. The higher the appraisal, the bigger the loan. Should borrowers start defaulting on payments, first lenders are paid first, second lenders second, and so on (based on the sequence their loans are filed with the county). All the lenders have the right to initiate a foreclosure.
Second financing is risky because in the event of a foreclosure, if the property has fallen sufficiently in value, there will be no money left to pay the second. It's called being “wiped out,” and it's happening to a lot of people these days.
But Narraway trusted that the lenders on which he was piggybacking his loans had done their due diligence to check for indications of fraud before shelling out. His best friend Lundy already had $400,000 of his own invested with McConville's companies, and had recruited three other friends and clients to do the same. Plus, all of the loans would be insured by title companies, which would be liable if any forgery was later found on the title documents.
Narraway said his first mistake was relying on others to research McConville and his companies. If he had done it himself, he might have come across McConville's 1998 criminal conviction in Alameda County for reportedly siphoning insurance payments into his own bank account after a fire destroyed a hotel he owned in Richmond, instead of paying off debts he owed. One trip to the Alameda County Clerk-Recorder's Office would have revealed that McConville owed what is now roughly $1.3 million in state taxes.
In December 2003, Narraway loaned $300,000 to one of McConville's companies, secured by a multiplex in Oakland. County records indicate that in 2004, Narraway made two more loans to McConville's companies, one for $345,000 secured by a property in San Francisco, and another for $130,000 secured by one in Pleasant Hill. In 2005, he loaned $350,000, which was secured by a house in Fremont.
In October 2005, after Narraway made his final $750,000 loan to Emerald, he had $1.875 million invested with McConville, secured by five Bay Area properties. Narraway expected to see $180,000 per year in payments from McConville's companies, which included the 10 percent interest on each loan.
Narraway's final loan was secured by a 41-unit rental building in Bay Point. County records show that Emerald already had a $2.75 million loan from LaSalle Bank (later bought by Wells Fargo) secured by the same property, which according to a 2006 loan application was appraised at $6.5 million and brought in $62,000 per month in rent at full capacity.
For more than three years, Narraway received regular checks, and thought he was on his way to retirement. Then, last October, Narraway said the checks stopped coming. He went to Lundy, who said that McConville promised it was just a hiccup. Narraway didn't realize it at the time, but other investors were trying to reach McConville for the same reason. They wanted to know what happened to their checks, especially if McConville was still collecting rent on the properties.
Two months and no checks later, Narraway decided to do some of his own digging. He drove from his home in San Francisco to the Contra Costa County Clerk-Recorder's Office and looked up the deeds related to the properties that, in essence, represented his life savings.
Narraway says that in the first 15 minutes of his research, he found a document stating that the Pleasant Hill property that had been acting as collateral for Narraway's $130,000 loan to Emerald had been sold to someone named Marcus Campagna in March 2008. He says he was never told about the sale, and was never paid back his $130,000. Narraway figured that if Emerald no longer owned the property that was supposedly acting as collateral for his loan, the company might have little incentive to pay it back.
After sitting down with Lundy and a lawyer to look over the documents, Narraway learned that it indeed appeared the Pleasant Hill property had been sold without his knowing. He called the new owner to ask what was going on. Narraway says that Campagna told him that he had no idea there were any other claims on the property. It was, Narraway said, his “Oh my God” moment.
Narraway tried to contact Independent Closings, the escrow service paid to handle paperwork for the real estate transaction, to ask how a loan for $130,000 could go unnoticed at the closing of the sale, but his e-mails were not returned. Representatives from Independent Closings also have not returned calls from SF Weekly.
It soon dawned on Narraway that if McConville had sold one property and left him unprotected, it may have happened to others. Sure enough, a little more digging revealed more unpleasant surprises.
Narraway found that the title documents for the Bay Point property had not been signed by McConville, but were instead signed by someone named Jack Thomas, who claimed to be CEO of Emerald Park House Corporation. Narraway had never heard of Thomas; his name did not appear on any of the California Secretary of State's filings as being an officer for Emerald with legal capacity to sign. A phone call to Thomas revealed that he was a foreman who had worked on McConville's properties. Thomas said he had been promised a kickback from McConville for signing — $20,000 for anything over $1 million, $10,000 for anything under.
Thomas subsequently wrote a statement that Narraway included in the packet he sent to Wells Fargo before the foreclosure sale. “I believe I was duped into signing the documents by McConville,” it reads, “and now insist the contract be deemed void.”
More digging revealed other holes in the records. When he looked at McConville's 2006 loan application describing appraised values and monthly rents, Narraway said he saw numerous discrepancies. For instance, according to one appraiser for the Bay Point property, $6.5 million was a highly inflated value — even in 2006. The receiver for the property confirmed that the rents for the building at full capacity were closer to $32,000, rather than the $62,000 written on loan documents.
This, Narraway said, had to be more than just negligence.
Marcus Johnson clutched a clipboard holding process-serving papers and stepped over a fluorescent orange piece of plastic sheeting that hung between two posts at the entryway of the Castro Valley ranch. As he walked slowly up the wide, palm-lined driveway, he stopped to snap photos of the knee-high weeds, scattered trash, and abandoned buildings dotting the browned hillside.
He shook his head. “It looks like a fucking ghost town up here,” he said.
Pictures taken in mid-May reveal a starkly different scene: manicured lawns, ornate bronze sculptures, fountains built into a terraced garden, stables, an auto body shop, and enough garages to house at least 15 cars. According to a court declaration from Jack Thomas, McConville had more than 20 expensive cars, including two Lamborghinis, a Hummer, a vintage Cougar, and an El Camino.
Jason Piette, a former employee for McConville in charge of business development, claims he had access to financial documents that his boss told him to show lenders to obtain loans. Piette also declared in a court document that McConville had cars worth more than $1.5 million, plus jewelry, art, and furniture worth $6.2 million. Those assets included, according to court documents, more than 40 bronze statues, an extensive comic book collection, a life-sized statue of the Predator character (claimed to be worth about $10,000), six pinball machines, and three full-sized automobile hydraulic lifts.
Although the buildings still stood, by Johnson's visit on July 4, the McConville property was completely stripped. Even doorbells appeared to have been ripped out. Thomas said in his declaration that in late March he observed workers moving personal property into a 35-foot truck. A couple of months later, he returned and found that air conditioning units, ceiling lights, fans, and light fixtures had been torn out.
This didn't make Johnson's job any easier. As a process server, Johnson was supposed to serve a court summons to McConville, or prove to his client, Narraway, that McConville couldn't be found at the ranch in Castro Valley where he was purported to live. He had served McConville's daughter, Nicole — who is also implicated in the lawsuits — at a hair salon in Fremont where she worked as a stylist.
Although her name appears on documents as management for the Emerald, Sapphire, and Diamond House companies, among others, Nicole said in a deposition that her father was the one in charge. He later relayed a message to Narraway through her that the financial documents Narraway requested for all of the companies had been stolen. SF Weekly tried contacting James and Nicole McConville several times, with no response from either.
Johnson wasn't the first process server Narraway hired to find McConville. According to court documents, the first server he hired in January made 10 attempts — the first four at the Castro Valley ranch. Narraway also isn't the only one looking. Narraway's suits against McConville and various associated companies are among several filed in Bay Area county courts. Most of these involve angry investors like Narraway who are now swimming in foreclosures.
A lawsuit filed by Kim Sung, a former employee of McConville's, alleges that the six corporations named — including Sapphire and Emerald Park House Corporations and Diamond House Development — are “shells without capital, assets, stock, or stockholders.” It goes on to say that the corporations were “so inadequately capitalized that its capitalization was illusory.” The lawsuit alleges that the father and daughter took the assets of the corporations for personal uses, and ran them into the ground on purpose to avoid future financial obligations.
Narraway said he has lost roughly $2 million to McConville's companies. Greg Righetti, a hardware store owner in San Francisco, says he has lost $100,000. Lundy says he lost $400,000.
Dave Neseralla, an investor in Petaluma, wouldn't say exactly how much he lost, but he said it was enough. McConville “had it down to a science,” he said. “He'd buy real estate that had different parcels, like five parcels on one purchase contract, and then split them up.” Then, Neseralla said, he'd get inflated loans on all five. When the market was good, he says, everyone got paid: “But soon as the money stopped, it was painfully obvious that he was floating everyone's money.”
Media in San Diego have reported that McConville made $12.5 million buying up condos in bulk at discounted prices and then recruiting buyers to purchase one or more condos at inflated prices to collect an inflated loan for each unit. Purchasers, called “straw” buyers, were promised payment for allowing use of their good credit to buy property and to secure loans on behalf of the companies paying them to sign. Straw buyers were told they would never have to make loan payments — that would be taken care of. All they had to do for the kickback was sign on the dotted line. McConville then allegedly never paid the buyers, pocketed the loan money, defaulted on payments, and sent the properties into foreclosure — leaving straw buyers with no credit and almost worthless properties.
Vicki Jenkins, one of these straw buyers in San Diego, said that McConville met with her and 15 of her friends in January 2008 and told them they would each get $10,000 cash merely for signing a few documents. She said he explained that they would be his co-investors, and that he had more than 40 years of real estate experience and owned more than 1,000 properties. He was charming and humble and seemed to know what he was doing, she said. Three of the 15, including Jenkins, ended up signing.
Jenkins and the others secured what are known as owner-occupied loans, which require borrowers to live in the properties they purchase. These loans are often easier to obtain, according to industry experts, because lenders assume borrowers won't walk away from their primary residences. They also allow borrowers to take a higher percentage than usual of the appraised properties. Jenkins, who lives in Orange County, says she didn't know she was applying for this kind of loan and never planned to live in the property, even though records show she applied for five owner-occupied loans.
Less than a year later, Jenkins said the condos she and her friends purchased are all in foreclosure. The buyers never saw their promised money, she said, and their credit is in shambles. According to San Diego County records, the units bore different names on the grant deeds, but shared the same Hayward address — one of McConville's properties.
Although McConville allegedly recruited buyers, records show that in one instance, developers selling the properties gave $180,454 of the loan, more than half the selling price, to one of McConville's companies, 3 Mac Asset Portfolio. This was described on the documents as a “marketing fee”; developers told the news media they instructed the escrow officer to show buyers an addendum about the fee. Jenkins said neither she nor her friends saw it. When Jenkins contacted the escrow officer, she said the officer indicated that she had never seen that instruction.
Closing documents also show that in at least one of the straw buyer transactions, $5,000 of the loan went to a company called United Equity for “broker fees.” According to the California Department of Real Estate, United Equity is another business name for Global Financial Group, Inc., headed by Anton Ewing, who was arrested by the FBI in early April along with 24 others for alleged racketeering in a mortgage fraud scheme involving gang members, brokers, appraisers, accountants, and notaries.
An FBI press release said that defendants in the Ewing case recruited straw buyers to purchase cheap Southern California properties at inflated values; submitted falsified loan applications to get inflated loans secured by those properties unbeknown to the buyers; and arranged to have the amount of the loans that exceeded the asking price funneled into a shell company. Ewing's case is still pending in San Diego.
The FBI's Web site says roughly 80 percent of all reported mortgage fraud losses involve collaboration or collusion by industry insiders. One of the most unacknowledged of those insiders is the escrow officer. Cases involving escrow officers are also some of the hardest to prosecute, according to William Denny, Alameda County's lead real estate fraud investigator.
An escrow account is opened at the start of a real estate transaction. An assigned escrow officer controls it throughout the process by ensuring all of the title documents are filed properly and in the right order, according to instructions from the parties. In Northern California, escrow is commonly handled by title companies.
In June, Denny's fellow investigator, David Lim, successfully prosecuted an escrow officer involved in mortgage fraud — but he says it wasn't easy. Escrow officers commonly argue that their job is to take directions, not act as police officers.
The state's laws make it difficult to prove conspiracy among title company employees, Denny says, because according to the state's insurance statute, title companies in charge of escrow files — where all of the transactions should be documented — have no record retention requirements.
“The escrow file is the mother's milk of proving criminal fraud,” he said. Where records rule in the court of law, he added, it is ridiculous that title companies can make their records disappear and not be held accountable.
Denny said that a year ago, thousands of escrow files went missing after a South Bay company, Alliance Title, suddenly declared bankruptcy. This didn't help him in a case he was trying to build against an escrow officer employed by Alliance. He says much of the real estate transaction process revolves around the organization, honesty, and integrity of the escrow officer — yet those disappearing files make it difficult to prove involvement.
According to records, McConville used the same escrow officers for many of his transactions. One was Agnes Kantere, a Pacifica resident. Records show that she disregarded instructions from the broker and lender several times. In one instance, documents show that Wachovia loaned McConville $1.1 million after Narraway had already loaned him $345,000 — both loans were secured by a San Francisco property. Kantere closed the deal, even though according to Wachovia's instructions, no second financing was permitted on top of its loan.
Although escrow officers are not supposed to have financial interests with any party they work for, Kantere bought property from one of McConville's companies in 2006. Records also show that in January 2008, she sold four properties in Kern County to another of McConville's companies. Around that same time, she was also notarizing documents for McConville's companies, according to county records. A civil suit Narraway brought against Stewart Title in December alleges that Kantere neglected to follow instructions from the broker. A company spokesman responded that Stewart has an “open inquiry on this matter” and thus could not comment publicly.
Narraway said that, despite the complexities, he refuses to let industry insiders off the hook, as he says some of the other investors have done. When asked what he thought should happen next, Narraway didn't skip a beat: “We can cause a fucking ruckus,” he said. “That's what we can do.”
As Narraway started to explain the details of said ruckus, he got a phone call. It was a representative from Nancy Pelosi's office.
He listened intently. “Okay,” he said finally. “Even though there's fraud involved?”
Face drawn, lips taut, he put his free hand to his forehead. “Okay, so any suggestions as to what I can do short of having to pay a lawyer another $150,000 in fees to go after Wells Fargo?” he asked.
The woman on the other end of the phone had no suggestions. Narraway flipped his phone shut and explained: “It's a legal matter — separation of legislative from legal, so they can't do anything.”
He didn't seem surprised. Same walls he had been hitting all week, he said.
When Narraway first discovered that he may have been a victim of mortgage fraud, his first instinct was to sue everyone. He sued McConville, he sued Stewart Title — he even thought about suing some of the notaries who he claims processed his loan documents incorrectly. But notaries are required by the state only to have $15,000 to cover their liabilities, which is the first month of lawyer fees right there, Narraway says. And after paying more than $60,000 to lawyers already, he says that's out of the question.
With his funds drying up, Narraway has started seeking help from government agencies. But so far, he hasn't had much luck. He contacted Ken McCormick, the deputy district attorney in Contra Costa County, about investigating McConville. McCormick responded in a letter: “These are times of dwindling resources, and I am not going to waste the resources of this office when the FBI have taken the lead in this matter.” The FBI says it can neither confirm nor deny this investigation.
Narraway said he was livid. “If I went into a bank and stole $150,000, I bet they would be after me quicker than you can say, 'Fuck off, Jim McConville,'” he says.
Roughly three weeks after filing a claim with Stewart Title, the insurance company named on his deed of trust for the Bay Point property, Narraway received a response from a Stewart representative: “The issue of fraud or forgery would fall under the coverage of title insurance,” the letter read. But “in review of the escrow file, I see that the title insurance was actually handled and issued through New Century Title.” Three years ago, New Century Title went under and was eventually taken over by Fidelity. Narraway says that a representative from Fidelity told him it has no record of his file.
Narraway filed a complaint about Stewart Title with the California Department of Insurance, which is responsible for handling complaints against title companies. The inspector on the case is looking into whether the company has broken rules in the state's insurance statute; otherwise it cannot take action.
When Narraway contacted the Office of the Comptroller of the Currency — which regulates the national banks — with a complaint about Wells Fargo, he received a letter a few weeks later stating that it had passed the information to the Federal Trade Commission because it wasn't Wells Fargo that should be investigated. When he contacted the Comptroller to ask why and on whose authority, Narraway said a representative told him the decision was based on a letter from Wells Fargo. So Narraway filed a request to see that letter under the Freedom of Information Act. A few weeks later, he learned that his request had been denied.
Despite the obstructions, Narraway still wants the responsible parties to be held accountable, especially as holes in the records continue to appear. He claimed his recent visit to the Contra Costa County Clerk-Recorder's Office revealed that Wells Fargo had failed to file an important document that would have given it the right to foreclose on the Bay Point property.
But he said it isn't easy to keep fighting, knowing that McConville and everyone who profited from his alleged frauds are still walking around out there — probably not so far away.
At the end of this month, Narraway may even be forced to watch as Red Velvet, the slasher film McConville and his family helped produce, comes out on DVD. He has already watched the accompanying music video, which features McConville himself in one scene as a coach training his students the correct way to stab someone in the back.