John Edwards's White Knight
By streiff Posted in Democrats — Comments (18) / Email this page » / Leave a comment »
It would seem that one of the benefits of being a Democrat presidential aspirant is that there are people prepared to spend perfectly good money to help you out of a jam. And to maybe help themselves out of a jam in the process.
John Edwards, self-described candidate for the 2008 Democrat nomination for president and widely renowned poseur, was the recent benefactor of such a deal.
Read on.
When former North Carolina senator and Democratic presidential candidate John Edwards finally succeeded last month in selling his imposing Georgetown mansion for $5.2 million after it had languished on the market, the names of the buyers were not publicly disclosed.
At the time, Edwards's spokeswoman told reporters that the house had been sold to an unidentified corporation. In reality, the buyers were Paul and Terry Klaassen, according to several sources and confirmed by Edwards's spokeswoman yesterday.
So Edwards has been able to unload a pricey house without any luck. Then lo and behold a buyer appears on the scene which pays Edwards $1.4 million more than he paid for the home four years ago. The deal is structured through a company, the P Street LLC, which was formed on December 22, 2006, just days before the purchase was culminated and which masks the names of the real buyers from the public.
And who might be behind this P Street LLC? Paul and Terry Klaassen, substantial contributors to the DNC and who each gave the legal maximum $2,000 to Kedwards ’04. And who also happen to be eye-deep in trouble with SEC.
Edwards spokescreature, Jennifer Palmieri says “move along, folks, nothing to see here.”
Edwards closed the deal in late December -- the night before he announced his presidential candidacy. Edwards aide Jennifer Palmieri said he left the details to real estate agent W. Ted Gossett. Gossett declined to reveal the Klaassens' identity but said the buyer decided to purchase the mansion as a "surprise Christmas gift" for his wife.
Edwards was told the Klaassens' name "in passing" around the time the offer came in on Dec. 18, Palmieri said last night, but he did not investigate further and had no knowledge of their business until a reporter's inquiry Wednesday. Palmieri said Edwards had not delved into the Klaassens' background: "They left it to be done at arm's length, real estate agent to real estate agent."
So the offer was made days before the purchasing limited liability corporation was formed. The Klaassens’s name was mentioned “in passing” to Edwards and since these were people who had given some thirty large to Edwards’s vice-presidential campaign and to the DNC during that campaign, Edwards was naturally “had no knowledge” of their business.
Maybe I just travel in the wrong circles, but if I’d received a $5.4 million offer on my house after it had been on the market over a year I’d damned sure have a lot of knowledge about the finances of the prospective buyer. And if I were a politician I’d also damned sure remember someone who had parted with that much money to support my attempt to run the country into the dirt. And if I were still seeking elective office, I’d probably do a bit of due diligence to make sure the buyer wasn’t too unsavory.
Regardless of Palmieri’s use of the word, arm’s length doesn’t refer to a transaction handled by real estate agents. It refers to the relationship between the buyer and the seller, in this case, that definition may or may not be accurate:
A colloquial description of a transaction where none of the parties are related to each other or have common interests -- they have each other at "arm's length". An arms-length transaction is generally at fair market value; in a "non-arm's-length" transaction, the relationship between the parties may cause one or the other to accept less than they are entitled or pay more than fair market value.
Perhaps Paul Klaassen did buy a $5.4 million house in Georgetown as a "surprise Christmas gift" for his wife. Perhaps Edwards truly didn’t recall a major contributor to his campaign. Perhaps everyone thought it was perfectly correct to arrange the purchase so as to obscure the identity of the real purchaser. Perhaps when the offer was made to Edwards’s real estate agent, and four days before the purchasing LLC was created, no one had any interest at all in ascertaining the source of the funds for the transaction or the bonafides of the purchaser. Perhaps the sinking of $5.4 million into a lush mansion at a time when the buyer was the target of an SEC probe of his business practices was considered a prudent move or sort of like chocolate for an anxiety stricken rich guy.
Coincidences do happen.
What we do know is this, Randy Cunningham is in jail today. A similar real estate transaction is one of the reasons he is in jail:
A defense contractor with ties to Rep. Randy "Duke" Cunningham took a $700,000 loss on the purchase of the congressman's Del Mar house while the congressman, a member of the influential defense appropriations subcommittee, was supporting the contractor's efforts to get tens of millions of dollars in contracts from the Pentagon.
Mitchell Wade bought the San Diego Republican's house for $1,675,000 in November 2003 and put it back on the market almost immediately for roughly the same price. But the Del Mar house languished unsold and vacant for 261 days before selling for $975,000.
While obviously not identical in all particulars, the high points are sufficiently similar to give pause: a politician receiving a financial bailout from a large campaign contributor.
Maybe this deal is entirely innocent and maybe there is a herd of flying pigs roosting in my silver maple.
« Corrupt Democrat Watch, July 10 Edition, Part One — Comments (20) | Nancy Pelosi: Jerk — Comments (48) »
John Edwards's White Knight 18 Comments (0 topical, 18 editorial, 0 hidden) Post a comment »
and use a bit of commonsense.
The offer was made before the company was created, hence the LLC could not have made the offer. The offer had to be made by the principals. And those principals would have had to provide financial disclosure to the agent, and through the agent to the seller.
If you are a real estate developer, you are correct, it limits liability. If you are buying a personal residence, of a single bit of property is the sole asset of the LLC it does nothing more to protect your assets than establishing an S-Corp. That is to say, nothing.
...the LLC is funded on or near the day of the transaction so it wouldn't be possible for the LLC to make the offer because it wouldn't have any assets or have a credit history if a mortgage was needed for the purchase. The fact that the principals and not the LLC made the offer is common.
If you are buying a personal residence, of a single bit of property is the sole asset of the LLC it does nothing more to protect your assets than establishing an S-Corp.
I disagree. If someone is injured on property held in an LLC the injured party would not be able to sue the LLC and recover assets owned by the LLC members individually. That is a big benefit and the main reason LLC's are so common in real estate transactions.
I would agree that it is a little weird to buy a personal residence through an LLC but I have come to find that wealthy people do many 'weird' things to avoid taxes and liability exposure.
The fact that the principals and not the LLC made the offer is common.
Except that is not what is being said. The official story is contradictory and at the best has their names floated "in passing." This is simply untrue on its face as the offer had to be made in the names of the principals, based on their financial statements, as the LLC wasn't registered until at least 4 days after the offer was tendered.
It isn't a question of funding it is a question of who is making the offer and why the broker and Palmieri are downplaying what was known about the buyers.
That is a big benefit and the main reason LLC's are so common in real estate transactions.
Except that it doesn't really work that way. If you set up a corporation or LLC for a single activity, like purchasing a residence, leaves you exposed.
I would agree that it is a little weird to buy a personal residence through an LLC but I have come to find that wealthy people do many 'weird' things to avoid taxes and liability exposure.
Agreed, they do. Martha Stewart went to jail for chump change. And a wealthy campaign contributor helping a politician a financial loss is hardly news.
...but unlikely that Edwards didn't know who the buyers were. If that is the point you are trying to make then I agree with you.
If you are claiming that there is anying unusual about creating an LLC four days before you buy a piece of property then we just disagree about that.
I also disagree that a single activity LLC leaves you exposed. The liability protection from an LLC is not absolute by any stretch but it is quite a bit better than one has if he buys an asset in his own name or through a partnership.
My bottom line, this transaction doesn't look crooked. The people who bought Edward's house may have some legal issues and then again they may not but that has nothing to do with Edwards.
but I will bet it soon gets unloaded for a loss in '09, or in '08 sometime either after Edwards loses a race or is elected president.
But I don't see them unloading it too quickly, for the very reason this blog got posted, it already doesn't quite pass the smell test, the property being sold for a loss would make an even bigger stink.
reality that you describe
- John Edwards has a VERY expensive house in Georgetown, a VERY high class neighborhood, not exactly the best place to connect with "the Other America"
- he kept the house after his senate term expired at the end of 2004, when the market was strong, and is selling it now when the market is weak. (not a great advertisement for his economic acumen)
- Regardless, he is so stinking rich that he uses an LLC to dispose of his home, an option not open to guys toting a lunch pail to work.
- The LLC is controlled by campaign contributors. Ah, yes, a new day has dawned as the shadows of the "Culture of Corruption" recede.
I imagine the transaction is legal if a trial lawyer of Edwards' stature is involved. (I'm not sure how the 'piercing the veil' concept is applied to LLC's). Whatever. It's pretty rich for Edwards to do this while lecturing America about the rich. Pun intended.
"- Regardless, he is so stinking rich that he uses an LLC to dispose of his home, an option not open to guys toting a lunch pail to work."
John Edwards didn't use an LLC at all. The people buying his house did.
"It's pretty rich for Edwards to do this while lecturing America about the rich. Pun intended."
John Edwards has never said it's unethical to be rich or to own an expensive home.
If you're going to accuse someone of hypocrisy, try to have it be actual hypocrisy, not just some crap you made up. Doubly so if you're going accuse someone of unethical or illegal activities.
But more literacy, please!
If you buy a house from someone, you take their money - i.e. you use them to sell your asset. Especially if the buyers, who are prominent contributors, set up an LLC to close the deal. This is not an arm's length transaction as it is commonly understood here in the RS community.
I specifically said I believed the transaction was legal, given Edward's status as a prominent trial lawyer and access to expert advice, which is unavailable to people with less elevated levels of net worth. But said people don't usually sell homes to LLC's set up by their rich campaign contributors.
But if you can't see the hypocrisy in preaching populism from Georgetown and then acting like any other rich guy representing a very rich lobby (the trial lawyers), that's your problem.
But for temporary relief of your problems, you may wish to look at the entry on RS where your guy primps for TV. It's a hoot!
But we know Edwards and Kerry are on the same side as us little people because they told us so again and again. Who the heck are the people on the "rich" side who made out like bandits under Bush? I'm soooooo confused!!
the purchasing LLC is in the District of Columbia. And we all know who currently lives at 1600 Pennsylvania Ave, in the District of Columbia. The District of Columbia sounds a lot like the nation of Colombia which is next door to the large oil producing nation of Venezuela. I am sure if you investigate this you will find the evil fingers of ChimpyMcBushHitler and Richard "Halliburton Dickie" Cheney to enrich their friends in the oli business. Mark my words, you heard it here first.
John
----------
Why would God create something like whiskey? To keep the Irish from ruling the world of course.
Disclaimer, I'm a mortgage banker in Arizona. I don't do business in DC or Virginia.
My guess is that this was a cash transaction. I'm basing that guess on a couple of reasons. First of all, there are a limited number of residential lenders who will loan to an LLC. Those that will, require more than a few days of due diligence on the finances of the LLC. If there was a mortgage involved, given that it would be in the $3-$4MM range, it is very likely that the lender would require a personal guarantee from someone (not necessarily the limited parters), but in any case, a loan like that does not get underwritten in a couple of days.
If the loan was a commercial loan, it is possible that the deal could have gotten done based on a relationship between the lender and the LLC principals. Commercial loans do not get the level of federal regulatory overwatch that a residential loan gets. Even so, if there is a loan on this property, I'd like to meet the banker that approved it. I've got access to some really nice swamp land just outside of Phoenix he'd love.
Bottom line, the deal stinks.
___________________
If "pro" is the opposite of "con", what is the opposite of "progress"...
Senior Writer
personally guarantee a loan to the LLC (commercial or residential), the likelihood is that any liability shield from the LLC would be history.
___________________
If "pro" is the opposite of "con", what is the opposite of "progress"...
Senior Writer
somebody I knew had 5 million in cash on hand to buy my home with. Of course I also don't live in the America where I a million dollar home much less a several million dollar home would be a considered purchase.
This is where Edwards' smarminess just rubs me the wrong way with his little trite "two Americas speech."
He doesn't want to take his largesse and help that other America, he wants to take yours and mine to help them. How considerate of him.
You bet! Also drawing docs on residential to commercial conversions, let alone state and local code issues, would take the better part of 30 - 60 days. Unless, the lender is giving a commercial loan on a residence, with a wink and a nod.
Regardless I'd also like to meet the banker that approved this loan!!!
of $2+MM in Arizona would look something like this. Starting from the time the application file is complete with the signed application and disclosures plus necessary financial documentation, preliminary title report and TWO appraisals. The appraisals would be the long lead item, probably two weeks from order to report (if the appraisers like you).
Submission to a conditional loan approval would be one week. If an appraisal desk review is required, add one week. If an appraisal field review is required, add 2-3 weeks. (Reviews are generally a function of the "loan-to-value" and the attitude of the underwriter on any particular day.) If no reviews are required, it's safe to assume that other administrative conditions would require at least one week. So, from conditional approval to final approval you have from one to three weeks.
After final approval, loan documents would be forwarded to the title company for signature, that takes two to three days. Signed loan documents are returned to the lender and the loan documents are reviewed for compliance and the loan is funded, one day.
Bottom line, best case scenario from a completed file to funding would be three weeks. Worst case would be six weeks.
___________________
If "pro" is the opposite of "con", what is the opposite of "progress"...
Senior Writer
You make a big deal about the LLC being created a mere four days before the transaction but that is standard procedure in the business world. This is especially true when we are discussing real estate transactions.
Also, creating a limited liability company in order to purhcase an investment property is done thousands of times a day. It has nothing to do with hiding the owners' identity and everything to do with limiting the liability of the owners.
There are plenty or reasons to dislike John Edwards but I don't think the fact that he engages in normal business practices should be one of them, but YMMV.