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Hundreds of house flippers bilked out of investments by local firm with 'alter egos,' lawsuit says

Posted: 5:00 AM, Sep 19, 2019
Updated: 2019-09-19 19:03:07-04
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CINCINNATI — Brothers Dwight Price and Darryll Smith take pride in their general contracting business, A Priceless Renovation. They've fixed up nearly 30 houses in the Cincinnati area.

When a friend introduced them to Build Realty two years ago, they thought it was a good investment and partnered with the Blue Ash-based company to remodel a North Avondale home on an up-and-coming street.

Like hundreds of other house flippers throughout the Tri-State, Price and Smith wrote a $10,000 check to partner with Build Realty. The company bills itself as a one-stop shop for home-flippers looking for help with financing, including rehab costs, without a credit check.

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“We thought it was a good deal, that we could find a house that we would be able to flip and make a lot of money off it,” Price said.

Nine months later, the brothers walked away from the project. Unexpected repair costs had ballooned, and they couldn’t afford to make $1,800 interest-only loan payments any longer.

Their total loss: $30,000, plus hundreds of hours of sweat equity, they said.

“The scope of work that they give you is not accurate with all of the things that need to be done,” Price said. “Every investor, whoever we spoke with … they all went through the same exact thing. When it comes to this company, something is not right.”

Darryll Smith and Dwight Price say they lost $30,000 on a housing rehab with Build Realty.

The brothers want to join a federal racketeering lawsuit filed against Build Realty, which also does business as Greenleaf Funding, in hopes of recouping their money.

“It was a fraud at basically every step of the process,” said Bill Markovitiz, an attorney for the plaintiffs.

Three limited liability companies, all owned by local residents who say they lost thousands in housing flips with Build Realty, filed a lawsuit in U.S. District Court in February. They describe a wide-reaching scheme that allegedly involved lenders, a title company, real estate agents and contractors.

Now U.S. District Court Judge Michael Barrett must decide whether to give the lawsuit class-action status, which could open it up to what lawyers say are more than 600 alleged victims throughout Northern Kentucky, Southern Indiana and Southwest Ohio, and at least $5 million in damages.

“The current lawsuit is baseless, and we will vigorously defend ourselves in court,” said Build Realty spokesman Paul Flannigan, in a written statement to WCPO. “We will continue creating jobs and opportunities for small business customers, and we are undeterred by the plaintiffs’ false accusations.”

Build Realty and the other 12 companies and three individuals who are named as defendants in the lawsuit all declined an interview with WCPO or did not respond to interview requests made to their attorneys.

According to Flannigan’s statement, Build Realty has been in operation for almost 11 years, helping to create small-business jobs for local families and workers, leading to more than $75 million in property improvements across 1,000 successful business deals.

A Build Realty sign in front of a Madisonville home.

“In doing so, we’ve helped beautify a number of local neighborhoods. We work very closely with our small business customers, because if they are not successful, neither is Build Realty, as we lose money when a house is not sold,” Flannigan wrote.

But many unhappy investors believe Build Realty took advantage, leaving them with nothing to show for months of rehab work, loan payments and a $10,000 start-up investment.

“I think there are portions that may be legitimate, but overall the way that they sell it could be close to a scam,” said Lacrisha Hicks, who said she lost $70,000 on two houses in Deer Park after partnering with Build Realty. She wants to join the suit if it's granted class-action status.

It may be up to a jury to decide whether this is a legitimate business model or a wide-reaching fraud scheme.

What is RICO?

The Racketeer Influenced and Corrupt Organizations Act, better known as RICO, is most often used by federal prosecutors to fight organized crime.

However, RICO also contains a civil portion that lawyers can use to bring business disputes into federal court. If successful, attorneys can win triple damages plus legal fees.

“This was a very sophisticated scheme that caught in its net a lot of people — professional people, doctors, psychologists, rehabbers who … got caught up in this scheme because it seems like it’s a good idea,” Markovitz said. “And it would be a good idea if it were done legally and professionally.”

Bill Markovitz, an attorney for three investors suing Build Realty and other companies.

The case started when the local residents behind three small companies — Compound Property Management, Leone1 and R&G Cincy Investments — filed a lawsuit after a business dispute with Build Realty. The suit was filed in the Hamilton County Court of Common Pleas in February 2017.

“A year and a half after the case was filed, and after the state court judge sanctioned Build $10,000 for delaying discovery, plaintiffs were able to obtain documents that showed the depth and breadth to which the federal RICO Act was implicated,” Markovitz said. “When it became clear that this case was centrally a federal RICO case, plaintiffs voluntarily dismissed the state-court action and filed in federal court.”

The alleged scheme began in 2012, according to the lawsuit.

It was advertised through roadside signs, websites, social media, direct mail and free seminars, all offering to show people how to profit by flipping homes with little money and no credit checks, according to the lawsuit.

Build Realty, doing business as Greenleaf Funding, has signs like this one across the Tri-State.

The lawsuit states that Gary Bailey, of Hyde Park, taught monthly investment seminars which were also posted on Build Realty’s website and uploaded to YouTube. He is allegedly at the center of the scheme and is named as a defendant in the lawsuit.

“They make it seem like just anybody can do it,” said Price, who watched videos of the seminars.

Build also relied on roadside signs advertising that for $10,000 down, a prospective house-flipper can obtain financing, including rehab costs, without a credit check, according to the lawsuit.

“Build employs several people at a time to place road signs all around the Greater Cincinnati, Dayton, Columbus and Northern Kentucky areas, with a goal of planting 75-100 signs per week. Between 2015 and mid-2018, Build planted more than 5,000 signs,” according to the lawsuit.

Hicks noticed the signs in West Chester and Mason and decided to call Build Realty. She and her husband had successfully flipped houses in Cleveland and were looking for a new investment.

“I talked to them, I went in for a presentation; it all seemed legit,” Hicks said. “They had general contractors they could recommend, they did the funding, they had this list of properties. It seemed like a one-stop shop, good idea.”

Lacrisha Hicks said she and her husband lost $70,000 on two housing rehabs with Build Realty.

It took Hicks six months to decide on a property. She felt as if she took her time to investigate, even visiting the prospective contractor at another job site to see his work.

Work on her first house initially went so well that Hicks decided to invest on a second housing renovation in the same neighborhood.

But at the three-month mark on the verge of winter, she worried that work was moving slower than expected.

“They got most of the major things done, but it’s the finishing … the small things, the caulking, the paint,” Hicks said. “The contractors were not coming back, and most of the money had ran out.”

She called her father in Cleveland to help finish the renovation, then took out a personal loan and used credit cards to finish the project.

When the first house sold, she said she got zero profit on the deal, despite the house selling for thousands more than purchase price.

She said she lost three buyers on the second home because it repeatedly failed inspections because the contractor had improperly rewired the home’s electric and other problems.

Hicks was never able to sell the second house and Build Realty took it back, she said.

“They set up trusts for our LLCs and we’re supposed to be the beneficiary,” Hicks said. “When they make money on these houses, they’re supposed to give money back to these trusts. Well obviously that never happened.”

Even now, Hicks wonders how she and her husband, who is an engineer, were able to lose $70,000.

“So you’ve got an engineer, you’ve got a project manager, right? We manage millions of dollars for our companies that we work for, and yet we still managed to get duped by Build Realty because they put on a very good presentation,” Hicks said.

Who are the defendants?

The very thing that attracted Hicks to Build Realty — that it could provide everything from a list of properties to a contractor and a lender — is what Markovitz says makes it a racketeering case.

“On the surface it felt like, 'Wow that’s a little bit less work for me,'” Hicks said. “But really it feels like they were all in cahoots.”

The RICO Act allows a variety of defendants to be sued by claiming they acted together.

And the list of defendants in this case is long.

Three individuals are being sued: Bailey, co-trustee and sole beneficiary of the Bailey Investment Trust, which is also the sole member and owner of Build Realty; George Triantafilou of North Bend, co-trustee of the Bailey Investment Trust and a financier; and Stephen D. King of Sandy Springs, Georgia, a member of the Build Executive Leadership team, according to the lawsuit.

Also named as defendants are Build Realty and seven limited liability companies: Edgar Construction; Cincy Construction; Cowtown Holdings; McGregor Holdings; Greenleaf Support Services; Build SWO; and Build NKY. Also named is G2 Technologies, which is an alleged alter ego of Build.

“(They) share profits, commingle funds, have the same business address, have the same employees and independent contractors, provide loans to one another … they are all alter egos of one another and of their principal, Gary Bailey,” according to the lawsuit.

Named as co-conspirators in the suit are: GT Financial, LLC, with George and Eleni Triantafilou as sole members, who allegedly provide a revolving line of credit to Build to buy homes from third-parties, according to the lawsuit.

Connecticut-based Five Mile Capital Partners LLC, and Smith Graham & Co Investment Advisors, L.P, which has offices in New York and Texas, are both named in the lawsuit as lenders to Build Realty.

First Title Agency, Inc., with offices in Hamilton County, is named as a defendant and accused of inflating settlement costs, creating fraudulent paperwork, and helping to misrepresent to investors that they were “buying” the properties, when they were not, according to the lawsuit.

“First Title Agency, Inc. has conducted real estate closings throughout the Tri-State area and beyond for over 30 years. First Title denies the allegations and intends to vigorously defend the case,” according to a written statement from First Title’s attorney Tyler Tarney.

Darryll Smith and Dwight Price, owners of A Priceless Renovation.

But Markovitz said investors put plenty of sweat equity and additional money into properties that they thought they owned. They didn't.

“And the problem is while they’re doing this … they’re paying 15% interest, which is a very high interest rate, in addition to a 4.9% acquisition fee, in addition to closing costs, which coincidentally almost always we allege, total that 10 thousand dollars … that’s not a down payment,” Markovitz said.

The lawsuit claims that co-conspirators used, “bait-and-switch tactics, duplicitous real estate agents, calculated misrepresentations, unlawful trust structures, self-dealing, falsified documents, violations of basic mortgage rights, fraudulent estimates and appraisals and lenders who agreed to violate the law for large returns.”

Build Realty advertises that it sells homes to investors at a discount, but it actually buys properties in bulk and then marks up the sale price by several thousand dollars each, the lawsuit alleges.

Rehab estimates are “typically lower than what it will actually cost,” and after-repair values “are generally higher than the investor can reasonably expect,” because Build Realty uses a single appraiser, according to the lawsuit.

The North Avondale home that Price and Smith began to rehab with Build Realty before they said skyrocketing costs caused them to walk away.

A few weeks into the rehab of their 1926 brick two-story home, Price and Smith discovered problems behind the walls — a rotted plumbing stack, sagging floor joists and outdated electrical wiring throughout the house.

The escrow account for rehab work they had with Build Realty was tens of thousands of dollars short of what was needed to make the home livable, Smith said.

“They give you a scope of work but, as most investors are seeing, the scope of work that they give you is not accurate with all of the things that need to be done,” Price said.

Some investors who worked with Build Realty did have good experiences.

Three companies — MHC, LLC; Arrowhead Investments, LLC; and DP Black Investments, LLC — filed a motion to intervene in the lawsuit in June after they were unable to sell their homes because title companies had “blacklisted” Build Realty properties as a result of the allegations. The motion represented 140 other satisfied real estate customers.

“The intervenors have established profitable businesses which are being destroyed by plaintiffs’ complaint,” according to the motion. “They are perfectly happy with the profits they made, they certainly do not want those past transactions rescinded …but most importantly, their businesses are being ruined by the claim that their transactions with Build are invalid.”

Attorneys for both sides agreed to a stipulation that is allowing the sale of current Build properties to continue while the lawsuit is ongoing.

“Are there people who have made money? Yes, there are people who have made money,” Markovitz admitted. “We believe that the vast majority of people have lost money and that everyone made less — even if they made some money on a transaction — they made less than they would have if they hadn’t been defrauded."

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