William Zappas got to know Kansas City con man Brent Barber through a classified ad in The Wall Street Journal. The ad, which Barber placed in 2001, was looking for partners to invest in commercial real estate in Kansas City.
Answering Barber's ad cost Zappas more than $1 million, Zappas says today. Prolific in the art of mortgage fraud, Barber is serving time in a federal prison for scams that, in the words of the U.S. Attorney, tore "like a hurricane" through low-income neighborhoods.
Zappas, who lives in Torrance, California, has filed a civil suit to try to recover his losses. I wasn't surprised when I came across the bit about the classified ad. I've read that The Wall Street Journal classifieds are so popular with con artists that the FBI assigns an agent to the section.
But what really interests me about Zappas' case is his target: He's going after the closing agent on the deals, a woman named Diane Henthorne, and her employer, Kansas City Title. Zappas (whose Kansas City attorney issued a "no comment" when I e-mailed him) accuses Henthorne of greasing Barber's criminal endeavors. Henthorne was never charged as one of Barber's accomplices. In court papers, she denies having helped Barber. Chris Kelly, an attorney for Kansas City Title, tells me it was "unfortunate" that Henthorne became involved with Barber. But it just so happens that Henthorne played a role in an unrelated but also suspicious real-estate transaction that I wrote about last week ("Trick or Treat," October 25).
In 2004, Henthorne closed two different sales on the same downtown building in less than a week. The Brookfield Building, at 11th Street and Baltimore, sold for $810,000 on a Friday and again for $5.5 million the next Wednesday. The building is the subject of a civil suit alleging tax fraud.
Henthorne is not a defendant in the civil suit over the Brookfield Building. Still, as a representative of a large title company, she is supposed to act like a grown-up. And one thing we've learned in the recent mortgage meltdown is that the real-estate business seems to lack individuals eager to speak up when a financial document doesn't look right.
Let's start with Brent Barber, a man who pleaded guilty to more than 100 counts in two federal indictments last year.
After meeting through the classifieds, Zappas and Barber started buying old buildings in Kansas City's urban core early in 2002. Their first play was for the Hawthorne, a large apartment building at 38th Street and Main.
Zappas says Barber convinced him that the building was worth $2 million. Zappas put up $1.2 million toward the purchase price, believing that Barber was kicking in $800,000. But the building wasn't worth $2 million. In fact, a month before his joint venture with Zappas, Barber had entered into a contract to buy it from the owner, Hawthorne Plaza Associates, for $950,000. Court papers allege that Barber created a straw man to hide the $950,000 purchase. A company called Hawthorne Plaza Association (note the close but not exact match to the original seller's name) made the buy. Hawthorne Plaza Association then sold the building, at the inflated price, to the Zappas-Barber venture.
Real-estate fraud doesn't take place in dark alleys. Property sales are recorded by notary publics. And Zappas contends that Henthorne should have sounded an alarm.
Zappas paid $1.2 million to Kansas City Title. According to the suit, the title company then used $950,000 to pay off the original seller. Barber pocketed the remaining $250,000.
The suit claims that Henthorne and Kansas City Title, acting as agents for Chicago Title, were aware of and participated in the scheme, known as a "double escrow" or "flip." Zappas says he wasn't told about the other closing, the discrepancy in the purchase prices or how Barber had failed to contribute $800,000 to the venture.
Zappas claims that Barber repeated the trick with apartment houses along Armour Boulevard and at Lucas Place, a building near Eighth Street and Central. The Zappas suit accuses Henthorne, Kansas City Title and Chicago Title of fraud, negligence and racketeering.
The defendants deny the allegations in court papers.
I can't tell you what Henthorne knew about Barber. I do know that she isn't his only closing agent to be accused of wrongdoing. In 2002, the lender Ameriquest alleged that Pinnacle Title had paid Barber out of bad loans made on houses on Kansas City's east side. (That case was settled.) In connection with Barber's activities, a closing agent named Daryl Daniel entered a guilty plea in federal court. Daniel served a short house-arrest sentence and remains on probation; she was ordered to pay $82,546 in restitution.
With the Brookfield Building, Henthorne signed sale documents telling the improbable tale of a building that appreciated by more than $1 million a day.
As I wrote last week, the Brookfield Building was purchased in 2004 by an accountant named Dick Turner, a longtime associate of G. Wayne Reeder, a wheeler-dealer convicted in 1996 of looting two insurance companies. Together they worked on The View condo-tower redevelopment in downtown Kansas City ("He's No Angel," September 16, 2004). A contractor named Timothy Bowman is suing Turner and Reeder for a share of the Brookfield Building that Bowman believes he is owed. Bowman's attorney has suggested in court papers that the sale was structured to evade taxes, a charge that Turner denies.
Henthorne closed both sales of the Brookfield Building. She signed a certificate of value with Jackson County stating that the second sale was between unrelated parties, even though buyer and seller both listed the same Ward Parkway apartment building as their address. I find no record that Henthorne sounded alarms when a piece of property returned to her desk having increased in value 579 percent in four days.
The sales Henthorne closed left gashes in the landscape. The Brookfield Building stands empty in the midst of downtown's renaissance, as does Lucas Place. (I walked by Lucas Place last week and noticed that someone had written "penis" in the window grime. Classy.) At 38th and Main, the Hawthorne is boarded up.
Other pieces of property appear headed for happier endings. An investment company in New Jersey rescued the historic Bellerive and other Armour Boulevard apartments that had once been in Barber's clutches. The properties are being renovated with help from a tax break.
When Barber and Zappas owned the Bellerive, residents complained that it was becoming a slum ("The Bellerive Tolls," September 25, 2003). Barber claimed to be doing his best, but his days were numbered. He was indicted in 2004, two and a half years after closing agent Diane Henthorne missed an opportunity to stop a thief at the scene of a crime.