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Home / Articles / News / Cover Story /  House of Cards? Page 3
Cover Story

House of Cards? Page 3

Anxious investors fear “Free Capitalist” Rick Koerber’s real estate investment empire is folding

By Eric S. Peterson
Posted // March 5,2008 - A Sure Bet
Koerber’s “equity mill,” as he describes it, involves two of his real-estate holding companies, Hill Erickson and New Castle Holdings. These companies work together under the watch of Koerber’s parent company, FranklinSquires Investments. Koerber’s school, American Founders University, also plays a role. Certain graduates of the school help Hill Erickson find “distressed properties”—homes that have been priced below market value—to invite a quick sale. Students who find these properties get nominal finders’ fees from Hill Erickson. They get a title, too: “Real estate acquisition specialists.”

Hill Erickson then uses its capital to buy the property. Meanwhile, other Koerber graduates are ready to purchase the property back from Hill Erickson at ideal market value. These students are part of a “preferred buyers” program, Koerber says.

For example, Hill Erickson buys a distressed property listed at $500,000. Under better market conditions, it might go for $600,000. Then, a “preferred” buyer steps in and buys the property back from Hill Erickson, for the increased value.

This may seem like a raw deal for the preferred buyer. But that is when Koerber’s other company—New Castle Holdings—buys a lease option from the preferred buyer and seeks renters for the property.

“It doesn’t remove the [preferred buyer] from liability, but there is a cash flow of a couple hundred bucks a month,” Koerber says. That’s on top of the cash from the lease option of “good and valuable consideration”—a sort of down payment on the lease, which could be tens of thousands of dollars or more, depending on the sale.

“If New Castle defaults, worst case scenario is you got a house that you can still sell,” Koerber says, adding that buyers “prefer” this arrangement. “Our preferred buyers are usually high-end professionals: doctors, lawyers with good credit.”

Usually, but not always. In 2004, when real estate agent George Bible came across a “preferred buyer” from Koerber’s school, he soon realized he wasn’t so lucky.

In less than a month and a half during the fall of 2004, Bible stood to earn more money in commissions than most real-estate agents would clear in a year—more than $130,000 from seven properties. He says now a thought lingered in the back of his mind—if something is too good to be true, it probably is.

In Bible’s Orem realty office, he has kept a file for four years labeled “FranklinSquires.” He considers it insurance against the day he might be called to account for the period between late September and November 2004, when Koerber’s real-estate investment company, FranklinSquires, enlisted him to find and close on residential homes.

“I have no quarrels with anyone making money. I love making money,” says Bible, sitting back in his chair, smoothing out his cash-patterned tie. “But, at the same time, I have no interest in being involved in something that’s going to harm people in the long term.”

In the summer of 2004, Bible helped find a home for Gabriel Joseph, former vice president of FranklinSquires Investments. Bible impressed Joseph with his efficiency, and Joseph hired him to find investment properties.

The money Bible stood to acquire off fast turnarounds on the seven properties gnawed at him. He began more closely investigating the transactions. One of the homes— a ’70s vintage in Alpine—listed for $730,000. Bible says Joseph had arranged for a simultaneous close, which involves the property being simultaneously sold again to another buyer. (Such closings have since been outlawed in Utah without full disclosure to all parties involved.)

The second buyer was a secretary from Springville. She had been recruited into the “preferred buyers” program and had used her credit score in securing the loan to purchase the property. The home Joseph was going to buy for $730,000 would be sold immediately to the secretary—who earned a little over $38,000 annually—for $1.2 million.

Bible found out that the secretary regularly earned $3,200 per month—roughly the same amount she would be spending on house payments for a home she was not even living in.

Although Joseph and Koerber assured him the transaction was legal, Bible decided to walk away from it and the $130,000-plus in commissions.

If New Castle Holdings kept up with payments, Bible estimated the secretary might have banked an additional $3,000 to $4,000 annually—but if, for some reason, FranklinSquires couldn’t make payments, she would be left holding the bag. “She would likely go bankrupt or foreclosed on, or both.”

If the home wasn’t appraised at fair market value, if the value was inflated, the house wouldn’t sell on the open market. “If it’s artificially inflated by asking for 14 different appraisals and you go with the one that’s more than double what the others said, then you’ve got a problem,” Bible says.

Under good market conditions, it’s possible to cycle through appraisals until the buyer finds one offering a bloated value—equity pay dirt. But, if foreclosure occurs, the preferred buyer’s credit gets ruined. And the home gets dumped back on the market—pulling down property values in the surrounding area.

Such “straw buyer” deals can throw off the housing market and force banks to tighten loan requirements. That leaves some lower-income buyers no choice but to seek predatory subprime lenders.

“If it looks too good to be true, it probably is,” Bible says. “And, if anyone ever tells you that you can make a profit using your credit score, you should ask why aren’t they using their credit score then? The answer is because they’re skimming [the equity], and you’re going to pay the bill.”

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REPLY TO THIS COMMENT
Posted // September 21,2011 at 13:31 When Koerber lived in Casper WY he became known to the community as a liar, a cheat, and a thief. That was some time back. Has he changed his ways?

 

REPLY TO THIS COMMENT
Posted // June 21,2009 at 16:36

 

REPLY TO THIS COMMENT
Posted // June 3,2008 at 10:09 I can’t believe that A Little Bit Suprised could possibly think that people would think he’s being honest. Should have been signed Kool- Aid drinker. Wow.

 

REPLY TO THIS COMMENT
Posted // March 29,2008 at 20:35 you all suck quit being babies and just realize 25% APY is low and I can get You 76% APY just live the principals!

 

REPLY TO THIS COMMENT
Posted // March 20,2008 at 13:37 Hey P-DCR,nnYou sound just like one of those Koerber boys, bunch of wannabes with no real formal education but think that they’ve stumbled on the Secret of the Money Tree that us normal successful consumers that made our money the honest way using the true principles instilled on us by the Founding Fathers which involves HARD WORK and SACRIFICE did not. Let us all see how long can you keep up with your Ferraris, Million Dollar homes which don’t even belong to you but the folks whose life savings from years of back breaking labor you’ve fleeced! What now?- You’ve run out of credit partners, straw buyers, greedy investors, no more free money from the banks you’ve robbed and you’re starting an insurance scam!! Quit already!! Your arrogance will consume you !! Admit that you’ve made a terrible mistake and don’t drag more people into the oblivion with you. You are probably a member of the church yourself so your family members probably also own a PRIUS. There’s nothing wrong with that, remember the Word of Wisdom? Be prudent with your finances and live well below your means. The Koerber boys always preached The Book of Mormon this and Founding Fathers that, yet you boys trampled all over your own words and ’philosophy’. 13 Principles of Wealth = Hypocrisy + David Koresh like BS. And yes, I know Koerber and Gabriel personally. They are indeed HIDING from me. Where are my $225K? Been waiting since 03/07. And don’t post another one of your slapping your own face rebuttal like the one in your website. It’s just goes to show what con artists you really are. You know who I am and what my phone number is.

 

 
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