Shell Game (Stand Alone 2) (4 page)

After another quiet pause, Levin said, “Things are changing, Edward. I suspect the Feds are going to take over the bank. If they do, they’ll wipe out our shareholders and bring in a new owner. Don’t trust the Feds or any new owner of the bank; don’t tell them anything more than you absolutely have to. You have no friends at the government or at the investor the Feds bring in to take over the bank.”

Gerald Folsom, at sixty-two, had accumulated wealth beyond even his voracious appetite for it. He had been a scrapper since he was a kid growing up in the Germantown section of Philadelphia. His parents couldn’t afford to join the “white flight” to the suburbs, so Gerald learned to fight or get along with the black kids in the neighborhood. Those he fought learned to respect him; those he got along with found out he was a straight up kind of guy. None of them understood that Gerald didn’t care about any of them. He had his sights set on a different element of Philadelphia society.

Folsom began thinking about the future after graduating from high school in 1966 and beginning work as a waiter at a restaurant in Chestnut Hill. The difference between the residents on “The Hill” and the people in Germantown, despite being only a few miles apart, was like the difference between a developed country and a third world backwater swamp. He fantasized about the rich girls he served in the restaurant. He conjured up the scent of their perfume, envisioned the creamy-white texture of their skin under their sweaters, bending as close to them as possible when he served their meals and bussed their dishes. He admired their confidence and the way they talked, but it ate at him that he had to wait on these girls instead of throwing them on the floor and screwing their brains out. He could tell from the way some of them eyed him that they liked his dark good looks, and he suspected one or two were intrigued with him in the same way they might find a wild, dangerous animal in a cage intriguing. But he soon came to the realization that, without money, he’d never have a prayer connecting with girls like these. Maybe if he had gone to college, that would have helped, but he’d never had the patience for school work. Money. That was the thing. . That much he knew for sure. He had no doubt about where he wanted to go; the question was how to get there.

One Saturday, he overheard a customer talking about a commission he’d just made on the sale of an office building: $58,000. The guy didn’t own the building; all he did was sell it. It was that day in 1967 that Gerald Folsom found his direction. He began reading everything he could find about real estate: How it was bought and sold, how it was appraised. He studied for the real estate licensing exam, even though he couldn’t take the test until he was twenty-one. He began attending open houses to learn what buyers wanted and to meet real estate agents. He grilled agents about the business, and when they ran out of answers, he found others. He was a few days past his nineteenth birthday when the owner of a real estate agency stopped by an open house and was so impressed with the young man that he offered him a job doing maintenance work on his properties. Two years later, in 1969, Gerald earned his real estate license and began assisting other agents in the company with their listings.

In the first year after receiving his license, Gerald made four times what he’d made at the restaurant in any one year. But he was frustrated by the fact that most residential buyers and sellers weren’t comfortable doing business with someone his age. He was stuck backing up the more senior agents, sitting their open houses on weekends and doing grunt work, for a small portion of the sales commissions. Then one day, while sitting an open house, a couple walked in and everything changed.

“I want to confirm that the mortgage on this place is an FHA loan,” the man said.

“That’s correct, sir,” Gerald responded. “It’s a $31,000 balance with a six percent interest rate. The asking price is $35,000, so you’d need four grand to put down, plus closing costs.”

The man laughed. “I was born at night, but I wasn’t born
last night
. The owner of this place is out of work. He’s late on his mortgage payments. He needs out from under the mortgage bad. So, that’s what we’re prepared to do for him -- save his financial ass. We’ll assume the mortgage. He can cover the closing costs out of
his
pocket.”

“Well, I can always present your offer,” Gerald said, suppressing an urge to laugh at the guy’s arrogance. “There’s no guarantee he’ll accept it.”

“How much you wanna bet he’ll kiss your feet when he sees our offer?”

Gerald just shrugged and wrote up the offer; sure it was a waste of everyone’s time.

When the seller saw the offer, he didn’t kiss Gerald’s feet, but he looked like he might hug him.

“Damn, I was afraid we’d never sell the house in this awful market,”
the seller said. “With the economy down and interest rates going up, I thought we’d have to declare bankruptcy.”

“You realize you’re going to have to write a check at the closing table to cover closing costs?” Gerald asked.

“Yeah, I understand. But it’s better than ruining our credit.”

When Gerald called the buyer to let him know he’d made a deal, the man said, “No shit, Sherlock. It’s like stealing candy from a baby.”

What an asshole, Gerald thought. But he was captivated. “You sound like you’ve done this before.”

“Twenty-three purchases in less than six months.”

“Holy . . .” Gerald couldn’t complete his phrase.

“You heard right,” the man said. “Twenty-three houses at an average price of $33,000, with an average interest rate of five and three quarters percent, and no money down. As long as the FHA allows buyers to assume mortgages without having to qualify financially, I’m going to buy these places hand over fist.”

“What’re you doing with them?”

“What do you think I’m doing with them? I’m renting them out. People got to have a place to live. Most families would rather rent a house than an apartment, any day. Hell, I’ve rented some houses back to the people I bought them from. Even gave them an option to buy the places back down the road when they get back on their feet. At a profit, of course.” He chuckled at that. “I’ll hold the houses for seven to ten years and then sell them for at least twice what I paid for them. Mark my words. With the federal government spending money on Vietnam and the Great Society, inflation’s going to be the name of the game. Meanwhile, the schmucks who rent the houses pay down the mortgages.”

“You looking to buy more of these FHA deals?”

“Is the Pope Catholic, boy? Damn straight. Call me if you find any more.”

Gerald wound up selling thirty houses to Warren Tatum, who he began calling The FHA King. Tatum was thrilled with Gerald, who was thrilled with the sales commissions, which he didn’t have to share. And for every house Gerald sold to Tatum, he bought one for himself.

Then Gerald took the next step. He introduced himself to real estate lenders at local banks and savings & loans and convinced a couple of them, based on his success selling so many FHA properties, to list their foreclosed real estate properties with him. Gerald put together real estate limited partnerships that made low-ball offers on the best ones. He acted as the general partner of the partnerships, while investors – the limited partners – put up cash to cover upfront expenses, repairs, and operating costs until the places were rented. As general partner, Gerald made all the decisions and had full control over the properties. The banks were happy to dump real estate they’d taken through foreclosure from borrowers who fell behind on their payments, treating whatever money they got from Gerald as found money, having already written the loans off their books. In return for finding the deals and managing the properties, Gerald took a ten percent ownership interest without putting up any cash, and a six percent management fee. In just a few years, he went from having no net worth and making five grand a year as a waiter in a restaurant, to having a $2 million net worth and an annual income of $200,000.

Gerald Folsom had come a long way from those early days, but he still loved reflecting on those days, thinking about his journey from having nothing to being super wealthy. Now here he sat, attorney in tow, at a table with a bunch of federal government bureaucrats who were about to turn over to him the goose that would lay golden eggs. He briefly met Donald Matson’s gaze and almost imperceptibly tipped his head at the man. Gerald knew if Matson was a woman, he’d sleep with her to get what he wanted, even though he was an ugly man, with a flat, large-nostrilled nose, beady black eyes, clumps of hair growing out of his ears, and what appeared to be bits of food imbedded in his bushy, untrimmed mustache. God, Gerald thought, Matson would be one god-awful looking woman.

But looks aside, Matson had been a patron saint for Gerald. He’d first met him when Matson was a functionary at the Federal Housing Administration, during Gerald’s “FHA phase.” Matson wanted to meet the sales agent who was disposing of so many FHA properties, turning delinquent mortgage loans into good assets, and their friendship grew over the years. That friendship had paid off for Gerald when Matson took a job with the Resolution Trust Corporation. The RTC was a federally-created organization established to dispose of the assets of financial institutions the federal government took over after the 1986 Tax Reform Act had helped destroy the commercial real estate market. Matson’s first big gift to his friend Gerald Folsom came in 1988 when he brought Gerald in to take over some of the assets of Wyndmoor Savings & Loan.

Wyndmoor Savings & Loan had aggressively loaned to real estate investors and developers, and when the real estate market crashed, many of their loans were in jeopardy. One of Wyndmoor’s borrowers was Frank Winter, Edward Winter’s father. The loan was secured by real estate and the elder Winter’s controlling interest in First Savings Bank. When Frank Winter died in 1988, however, his estate couldn’t keep current on the loan payments. When the RTC began liquidating Wyndmoor’s assets, including its loan to Frank Winter, Donald Matson devised a way to assist the federal government and to help his friend, Gerald Folsom at the same time.

Matson structured a deal whereby Folsom bought Winter’s loans for fifty cents on the dollar, getting one hundred percent ownership of all of the real estate collateral and Winter’s bank stock securing the loan. Like a shark cruising for prey, Folsom voraciously took over all of Frank Winter’s loans at other banks, as well. Folsom knew where all of these loans were housed; after all, he’d sold the real estate deals to Winter in the first place. On the day Folsom became control stockholder of Winter’s First Savings Bank, Donald Matson was given the key to a safety deposit box at that bank that just happened to hold $100,000 in cash.

Edward slapped the file closed on his desk and looked at Katherine and Nick. “Well, that does it. We’ve got three appointments next week: Van Snowden at Curtis Bank & Trust on Monday morning, Victoria Watts at Pennsylvania Industrial Bank on Monday afternoon, and Ernest Deakyne at Philadelphia Savings & Trust on Tuesday morning.”

“Good idea going with three banks instead of just one,” Nick said. “The market’s in turmoil right now. Better to be safe. I’ll have the loan presentations, including updated financials, finished by tomorrow morning. For all intents and purposes, they’re already done, but I want to review everything one more time. I’ll drop them off at your house by 2 p.m.”

“Don’t bother. I’ll be here. Paul Sanders is coming in at 9 in the morning to go over whatever legal options we might have with Broad Street Bank. You and I can go over the loan presentation whenever you’re finished tomorrow. And you’ll need to clear your schedule for Monday and Tuesday. You should come along when I meet with the bankers.” Edward looked at Katherine. “Maybe you should join us.”

Katherine shook her head. “Our restaurant employees make deposits every night into Broad Street branches. They surely have heard the news about the bank. Some of them might wonder if the bank’s problems could cause trouble for them. I’m going to spend the next few days touring all of our locations, talking to the managers and employees. Keeping things calm.”

“You were supposed to be retired. Just sitting on the board of directors.”

“So, what’s your point?” Katherine asked, arching an eyebrow at her son.

“Nothing,” Edward said. “Thanks for your help. Going to the restaurants is a good idea.” Edward looked at his watch. “Well, it’s 6:15. It’s been a long week. I’m going to go have dinner with Betsy. I’ll be back here after. Nick, maybe you should spend some time with Annie and the kids.”

Nick smiled. “She’s still angry about postponing the vacation. She understands. But that doesn’t change the fact she’s working me over. I think I’ll order a pizza and stay right here.”

Edward opened his mouth to apologize again for the price Nick was paying for the company’s problems, but before he could, a knock sounded on his door. “Come in,” he called.

Edward’s assistant came in. “Mr. Scarfatti has visitors.” She stepped aside and Annie Scarfatti stood in the doorway, holding a warming tray. Her two sons stood beside her holding paper bags.

“I figured you all would be working late tonight. The least we could do was make sure you had a decent meal.”

Edward, Katherine, and Nick stood. “This is great,” Edward said, “but I was going home for a couple hours.

“No, you’re not,” a voice said. Edward’s wife, Betsy, stepped around Annie and her boys. “I figured you’d drive over an hour to eat with me and then come back here. I thought I’d save you the drive.” She put on a stern face and added, “Besides, this bank problem affects all of us. Focus your attention on that.”