Mick Mulvaney, the acting White House chief of staff, is facing accusations over his role in a failed real estate deal near Charlotte that could cost an investor $2.5 million.
A civil case raises questions about whether a company tied to Mulvaney, who’s also director of the Office of Management and Budget, used a legal maneuver to put his interests ahead of a lender.
The focus of the complex case is a 15-acre tract along U.S. 521 in Indian Land, a fast-growing community just below the state line. Plans to develop a shopping center at the site began in 2007, when Mulvaney, a lawyer and real estate developer, served in the South Carolina legislature before his 2010 election to Congress.
The case involves two limited-liability companies in which Mulvaney was a part owner. Limited liability companies are corporate structures, common in real estate investment, whose members are not personally liable for their debts.
In an odd twist, one of those companies is foreclosing on a mortgage held by the other company for the shopping center site. As Mulvaney explained during his 2017 confirmation hearings as OMB director, he’s a minority owner of both the debtor and the creditor.
Mulvaney said steps leading to the foreclosure were taken to avoid his being associated with a company in default to a bank.
Fonville & Co., a Charlotte firm that invests in real estate and also loaned money for the site’s purchase, claims in a legal filing there was another reason for the foreclosure: to cut Fonville out of collecting its debt.
A South Carolina judge has put the foreclosure on hold in order to study the “novel legal questions” Fonville raised.
Here’s how a series of transactions involving the Indian Land site unfolded over the past decade, according to South Carolina court documents.
Lancaster Collins Road LLC, an entity partly owned by another company that Mulvaney owns, bought the site in 2007 for the planned shopping center. Paragon Commercial Bank loaned Lancaster Collins $3.7 million to buy the land.
What’s become known as the Great Recession began late that year, crushing development. While a convenience store was built on 2 acres of the original tract, the shopping center was never built.
Lancaster Collins wasn’t able to pay the balance of the loan that was due in October 2016. A second company, Indian Land Ventures LLC, formed that September. In October, Indian Land Ventures bought the Paragon Bank mortgage before it went into default.
A month later, Indian Land Ventures filed court papers to foreclose, saying Lancaster Collins owed $2.1 million.
The transactions occurred because “I did not want a company in which I was an owner to default on a bank loan,” Mulvaney said in written responses to questions during his 2017 Senate confirmation as OMB director.
The foreclosure papers named Fonville & Co. as a party to the case because it was also a creditor of Lancaster Collins.
Fonville had loaned Lancaster Collins $1.4 million to help buy the Indian Land site in 2007, court documents say.
That has grown to $2.5 million with interest, Fonville says. If Indian Land Venture’s foreclosure is granted, Fonville likely wouldn’t recover the money because it’s second in line to be repaid, according to foreclosure papers.
Mulvaney appeared to acknowledge that in written testimony before the Senate confirmed his nomination to lead OMB in 2017. As a result of the foreclosure, he wrote, “the mezzanine financing provided by the Fonville & Co. will go unpaid and may be foreclosed.” Fonville could itself choose to bid for the property, he added.
Three months after the foreclosure papers were filed, Fonville fired back with a counterclaim.
The filing doesn’t name Mulvaney. Instead, it refers to an unidentified person — “Member A” — who Fonville said was a member of both Lancaster Collins and Indian Land Ventures. Indian Land, in court filings, said no such person exists.
Member A had helped entice Fonville into loaning money for the Indian Land site in 2007, Fonville’s counterclaim said. When Lancaster Collins was unable to pay its mortgage in 2016, the document says, Fonville chose not to foreclose because it still expected Lancaster to repay the loan.
Fonville didn’t know Member A was forming Indian Land Ventures, according to the counterclaim. Member A intended to eliminate the Fonville debt by buying the Paragon Bank loan and foreclosing on the mortgage, Fonville says.
Fonville’s counterclaim called the transactions “an intentional scheme by Member A to receive proceeds from the sale of Lancaster’s property to the exclusion of Fonville.”
Fonville asks in its counterclaim to be repaid before Indian Land Ventures when the property is sold.
Lawyers for Indian Land Ventures responded that South Carolina law allows such court-ordered changes only in bankruptcy cases. Indian Land denied that any of its members took action that was meant to be deceptive.
Indian Land also argued that, because Fonville had previously agreed to be a secondary lender, it would have been second in line for repayment even if Indian Land hadn’t bought the loan.
Last June, a judge denied Indian Land’s motion to dismiss Fonville’s counterclaim.
Conflict of interest?
In an interview with The Charlotte Observer, Fonville’s founder and president, Charles Fonville, said he had previously invested in a Charlotte subdivision, Winget Pond, in which Mulvaney was involved and that it had “worked out fine.”
In the Indian Land case, Fonville said, Mulvaney never contacted him before the foreclosure papers were filed.
Fonville said Mulvaney had a conflict of interest in helping transfer the original bank loan to Indian Land Ventures. Indian Land includes relatives of Mulvaney, he said.
John Buric, a Charlotte attorney representing Mulvaney, said “a couple” of Mulvaney’s relatives are members of Indian Land Ventures.
The lawyer representing Fonville & Co., Stephen Cox in Rock Hill, wouldn’t comment on the case. Lawyers representing Indian Land Ventures and Lancaster Collins Road didn’t return Observer calls.
Buric, who joined the case in December, said he doesn’t know whether Mulvaney is Member A. But he said Mulvaney, who has been deposed in the case, did nothing wrong. Mulvaney and Charles Fonville, he added, “had not one conversation about this loan.”
Importantly, Buric said, Mulvaney did not have a role in managing Lancaster Collins. Mulvaney has said he was a “member-manager” of Indian Land Ventures.
The foreclosure filed by Indian Land Ventures, if granted, would wipe out Fonville’s security interest in the property, Buric said. Any proceeds from a sale of the property would go to the forecloser, Indian Land Ventures, with any money left after satisfying the first debt going to the lender next in line, Fonville.
“That’s not Mr. Mulvaney’s decision,” Buric added. “That’s law.”
Ethics investigation sought
Last April, the nonprofit group Citizens for Responsibility and Ethics in Washington asked Senate Budget Committee leaders and the inspector general of the Federal Reserve System to investigate Mulvaney’s conduct regarding the foreclosure. Neither responded, the group says.
CREW asserted that Mulvaney “violated his ethical obligations by taking complex, unusual and potentially dishonest steps to avoid paying debts his company owed related to the property at issue in the foreclosure.”
CREW maintains that Mulvaney inaccurately testified during his Senate confirmation hearing as OMB director that the foreclosure was uncontested, when he knew Fonville had an interest in the case and could challenge the proceeding. Mulvaney’s responses to written questions are included in hearing testimony dated Jan. 24 and Feb. 2, 2017. Fonville filed its claims on Feb. 13 that year.
“When you look at the totality of what he represented, it looked to me like a misrepresentation because it looked like a friendly foreclosure, and that was not the case,” said Virginia Canter, CREW’s chief ethics counsel.
Another soured land deal in Indian Land became a campaign issue ahead of the 2010 election that sent him to Congress.
Mulvaney had announced plans for a community of 2,300 homes in 2002, The (Rock Hill) Herald reported, and lobbied Lancaster County Council members to approve $30 million in bonds to pay for roads and water lines. After the bonds were approved, The Herald reported, Mulvaney sold the property to another company.
Democratic Rep. John Spratt, who later lost the race, claimed that Mulvaney made $7 million from the sale and walked away as financial and environmental problems plagued the housing development, despite pledges to stay involved in the project. Mulvaney denied making that much profit on the property and blamed the problems on the 2008 recession.
“We never moved a piece of dirt on this property,” Mulvaney said at a news conference. “This was not our development. This was a piece of property we sold to a new owner.”
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