Shell Game (Stand Alone 2) (2 page)

“I’m so sorry about your loss, Katherine,” Paul told her. “I can’t believe he’s gone. Frank and I used to talk nearly every day. I feel a void I can’t seem to fill.”

“Thank you, Paul. I know you and Frank were close. He thought the world of you.”

“He was my best friend.”

“Mine, too,”

Paul nodded and sighed. “Well, shall we take care of business?”

Katherine nodded back.

Paul pulled out a chair in front of his desk for Katherine, then walked around to the other side and sat down. He cleared his throat and opened a file on his desk.

“Frank accumulated significant assets—real estate primarily.” He paused and cleared his throat again, looking at Katherine uncomfortably. “Unfortunately, nearly everything is mortgaged. With the recent downturn in real estate values due to the Tax Reform Act passed two years ago and the recent acceleration in interest rates, there isn’t much equity left.”

“What does that mean, Paul?” Katherine asked, feeling suddenly flushed. She shifted in her seat.

“It means Frank borrowed to get into real estate deals with a promoter. He even took out mortgages on your Cape May place and your residence here in Philadelphia. In the current market environment, any sale of these properties would yield almost nothing after paying closing costs.

“Our home, too? She paused, taking his silence as her answer.

“How’s that possible?”

Paul didn’t look her in the eyes. “You signed all the loan documents, Katherine.”

“I didn’t know what I was signing. Frank managed these things.”

“I know”

“What about the bank accounts?” she asked.

“Well, of course there is
some
cash.” He riffled through the file and clarified: “$23,000 and change in a checking account, and $188,000 in Frank’s retirement account.”

“At least there’s the bank stock,” Katherine said. “We—”

Paul interrupted. “He used the bank stock to collateralize the real estate debt. The dividends from the stock have covered part of the losses from the real estate holdings over the last couple of years. Half his salary was being used for the same purpose. He even borrowed against his life insurance policies to support the real estate deals. So, there’s little you can expect to get from those policies. With Frank gone, without his salary, the banks he borrowed from have started to protect themselves. They want to know how you’re going to keep the loans current.”

“How can I make those payments? I have no income of my own.”

“If you can’t make the payments, the banks will foreclose on the real estate and the bank stock, which will involve a protracted, expensive legal process.”

Katherine covered her face with her hands. She sat silently for several seconds, then dropped her hands and stared blankly at Paul. “What does this mean?”

“I’ve had appraisal reviews done on all the real estate: Apartment houses, warehouses, one office building. I asked a realtor to write up a market analysis on your home here and the Cape May place. The only property that has any real equity is your primary residence. Trying to hold on to any of the properties will make your financial situation worse. Because of the economy, the commercial properties have a lot of vacancies, meaning the rents don’t cover the expenses. With no other income, you have no way to cover the mortgage payments and other expenses. The upshot is you can pull about $25,000 from your home, the $23,000 in the checking account, $27,000 from the insurance policies, and the $188,000 from Frank’s retirement account. That’s $263,000 in total. There will be taxes and expenses to pay on that, income and probate. You might have $200,000 after all is said and done.”

Katherine steeled herself for her next question. “What about all the real estate loans you referred to?”

“I’ve contacted the lenders. They seemed amenable to taking title to the properties and writing off the loans against them if they can avoid going through the foreclosure process. It’s called taking deeds in lieu of foreclosure. This will avoid legal fees and months, if not years, of aggravation and legal wrangling.”

“Does this mean I’ll lose all of the real estate, including our homes?”

“That’s exactly what it means.” Paul hesitated a moment and added, “Frank wasn’t stupid, Katherine. He made excellent investments that, in the long run, would have paid off. With his job, he kept the payments current. He just got whipsawed in the current real estate cycle.” Frank rubbed his temples and then added, “When those idiots in Congress passed the 1986 Tax Reform Act, they ruined the commercial real estate market.”

“You mentioned a promoter a minute ago.”

“Yeah, the guy who put Frank into all of these real estate deals. Fellow named Gerald Folsom.”

An electric jolt ripped through Katherine. Gerald Folsom. She hadn’t thought about that bastard in at least fifteen years, and now she learns it was Folsom who had put Frank into the real estate deals that had ruined them. Katherine felt disoriented and nauseated. It wasn’t possible. Frank had never mentioned Folsom to her. But Frank had never brought business matters home.

“What’s wrong, Katherine?” Paul asked.

“I . . . nothing.” She brushed away a tear and said, “Paul, I won’t pretend to understand any of this, but still . . .. How could I not have had a clue about any of this? How could I have been so unaware? Frank had to be under tremendous stress.”

“Don’t beat yourself up. How could you have known if Frank didn’t share his problems with you?”

Katherine stood, took in a big breath and let it rattle out slowly. She tucked her handbag under her left arm and shook Paul’s hand. “I appreciate what you have done. Please make the arrangements with the lenders. I’ll sign the . . . what did you call them?”

“Deeds in lieu of foreclosure.”

“I’ll sign the deeds in lieu of foreclosure. Please act on the house first. I don’t want to live there any longer than necessary. Too many memories.”

“I’ll take care of everything.”

Katherine released Paul’s hand and forced a smile. “I know you will, Paul.”

He hustled to reach the office door before her. In a quiet voice, he said, “You know he thought he’d live forever. All he ever thought about was doing the right thing for you and the children. The investments were intended to make your futures secure.”

“Thanks, Paul.”

Katherine left the office and walked stiffly to her car. Leaning against the car door, the events of the last week broke through her mental dam: Frank’s death, her children’s terrible withdrawal and heartbreak, and the realization their life style was about to change in dramatic fashion. And a thought pierced her brain like a red-hot spike: What if all that had happened had been because of what happened between her and Gerald Folsom fifteen years ago? Tears pushed through the cracks. What was she going to do? How was she going to tell her son and daughter they had just lost their home? How was she going to live with the guilt?

Paul had looked out his window and watched Katherine Winter in her car. She could have been crying but he couldn’t be certain. He thought about going outside to comfort her. He badly wanted to hold her in his arms and tell her that everything would be fine, that he would see to it. But what could he say to her that would make a difference? That would be appropriate? Sorry, Frank Winter had screwed up? Sure Frank was intelligent, but he was also naïve. Too naïve to be a successful investor. The man knew how to lend and provide great service to his bank customers; he should have stuck to that. He was too trusting. Especially in the case of doing business with Gerald Folsom.

There was nothing Paul could legally pin on Folsom, but the man always seemed to come out ahead of his partners in any deal. That was the scuttlebutt, anyway. When Frank came to him with Folsom’s prospectuses, Paul told him to walk away. Frank was putting up all the equity; Folsom was getting a significant percent of the deals in return for sweat equity and managing the properties. But Frank ignored his advice. And, to make matters worse, Frank had borrowed much of the equity he’d invested.

Paul reflected on how quickly the banks had indicated they would consider taking over the properties. He’d expected a bigger battle. None of the bankers even hesitated in offering to write off the loans if Katherine signed the properties over to them. He scratched his head and wondered if there was something sinister behind their decisions. Even the banks holding Frank’s First Savings Bank stock were quick to strike a deal in return for Katherine signing away her interest in the stock. Normally, the stock would have had significant equity over and above the loans against the shares. But First Savings Bank’s loan portfolio had deteriorated with the real estate depression brought on by the Tax Reform Act of 1986, so its stock value had declined as well.

Paul told himself he would have to look into all of this at some point. Maybe after things were settled for Katherine and her children.

THURSDAY

JULY 14, 2011

Katherine Winter looked up at the dais and felt warmth of pride in her son course through her. Twenty-two years had passed since her husband had died, and her son had not wasted one minute on self-pity, nor used his father’s death as an excuse for not giving his best.

Edward attended Central High School, finishing at the top of his class. Then he attended the University of Pennsylvania on a full scholarship, and received his MBA from Harvard Business School, again on a full ride. And he’d always held down a job, even while in school, to cover his out of pocket expenses. Carrie too, had soared, earning her own scholarship. The money Katherine had put aside for their educations had not been needed.

After graduate school, Edward joined the U.S. Army, went to Infantry School at Fort Benning, Georgia, and graduated first in his officer candidate class. His three-year hitch was almost up when Islamic extremists crashed airplanes into the World Trade Center towers and the Pentagon on September 11th. He extended his tour for one year and was assigned to Iraq, where he earned two Purple Hearts, a Silver Star, a Bronze Star, and a Meritorious Service Medal.

The night Edward returned to Philadelphia and civilian life from Iraq, Katherine disclosed to her children she had $425,000, half for each of them. She’d invested the money from Frank’s insurance wisely. But neither of them wanted the money. Katherine was adamant, however. “Just tell me when you want it and it’s yours,” she told them.

Two months later, Edward and Carrie came to her with a proposal. The family of one of Edward’s Harvard classmates owned a chain of fast food restaurants named Hot N’ Chili, specializing in Mexican food in the New Mexico style. Edward’s friend, Peter Mora, had worked in the company’s Santa Fe headquarters since he’d graduated from Harvard and was now in charge of national franchising. Mora had contacted Edward with a proposal to take over the franchise rights for all of Pennsylvania, along with two restaurants that were floundering. He made them a sweetheart deal, waiving the franchise fees in return for them assuming two $250,000 delinquent loans at a local bank covering the costs of the two existing restaurant locations.

Carrie partnered with Edward in the restaurant investment, and both of them agreed to take the money from Katherine only if she joined them as a one-third partner. That was in January 2002.

Carrie worked in the business for two years, but then decided it wasn’t what she wanted. The business was just starting to take off when she announced she was going to join the Army. She went to Officer Candidate School, graduated with her commission as a Second Lieutenant, and was recruited by Special Forces, being promoted to First Lieutenant within the year. She had quickly earned her green beret, jump wings, and a reputation as a rising star. After a year of language training in Arabic, she was assigned to Iraq in an intelligence role. Although women were not permitted to serve in Special Operations assignments, she came as close to being a Special Ops officer as a woman could.

A noise brought Katherine abruptly back to the present. Someone had tapped the microphone on the dais. She refocused on the day’s event and Edward’s recognition for his achievements with Winter Enterprises. Now nine years since forming the company, they owned twenty-four restaurants in and around Philadelphia. The business grossed over $58,000,000 annually and employed four hundred people. Katherine’s dividends from the business enabled her to move from the tiny bungalow in Germantown to a new three-bedroom home on five acres on Philadelphia’s Main Line. Edward and his wife, Betsy, owned their own home in Chestnut Hill. Betsy was pregnant and due in less than four weeks. Carrie was still happily single at twenty-nine years of age and running around the world doing God-knows-what for the Army.

Katherine smiled at Betsy, seated to her left, and then turned to the right to smile at Paul Sanders. Paul had bloomed into a dear friend since Frank died and he now handled Edward’s legal affairs.

“Quite a ride, Kat,” Paul said. “Frank would be proud of all of you.”

FRIDAY

JULY 15, 2011

Edward Winter was still riding an emotional high from the Chamber of Commerce luncheon yesterday when he arrived for his appointment with Stanley Burns, his account officer and Senior Credit Officer at Broad Street National Bank. He stopped outside the bank entrance and buttoned his suit jacket. He’d worn his banker’s outfit for the appointment today: Blue pinstripe suit, red power tie, and black Ferragamo tasseled loafers. Shifting his black leather briefcase to his left hand, he walked confidently through the entrance to the elevator at the back of the lobby, then rode up one floor to the mezzanine to stop at Burns’ secretary’s desk on the edge of the bank’s executive level. The building dated back to the 1920s and looked like what Edward always thought banks should look like: Marble floors and counters, brass teller cages, and lots of heavy mahogany furniture. He smirked to himself. Considering the amount of interest he paid to the bank on his loans, the least the bank could do was create a plush environment for the customers.