by Joseph Badal
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
CHAPTER ONE
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, b
eing 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
CHAPTER TWO
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.
“Hello, Helen. How are you today? Is Mr. Burns treating you well?” This was a standard part of the banter between Edward and Helen. He always told her she could come work for him if she wasn’t being treated well.
“Everything’s fine, Mr. Winter,” the woman said in a monotone, dry voice. “I’ll tell Mr. Burns you’re here.”
Edward was surprised at Helen. She must be having a particularly bad day, he thought. Helen returned a few seconds later.
“You can go in now, Mr. Winter,” she said, an apologetic look on her face.
Edward walked past Helen’s desk into Stanley Burns’ office. Burns stood and greeted him, then ushered him into his usual chair. “Please sit down, Edward,” Burns said, closing the office door and seating himself opposite Edward.
“You look beat, Stan,” Edward said.
Burns shrugged. “The economy’s impacting a lot of our clients.”
Edward passed Burns a financial report his Chief Financial Officer, Nick Scarfatti, had prepared for the second quarter ending June 30. “Thank God our business hasn’t been impacted.” He didn’t want to gloat, especially when so many other businesses were suffering, but Edward was more than pleased with the condition of Winter Enterprises, Inc. “You will see in those reports that our sales are up. We’re requesting an increase in our credit to finance the acquisition of seven new sites and the construction of new restaurant buildings in Pittsburg. We’ve already identified the managers for all seven of those stores. We—”
Burns held up a hand, stopping him. “Before you get too far along with this, I need to tell you there are a lot of changes going on around here. We’re . . . I’m sorry to tell you, we will not be able to finance any more of your sites.”
Edward felt as though he’d been punched in the gut. “What are you talking about? Our financial condition has never been better.”
“We just can’t extend you any more credit. That’s it. Plain and simple.”
Edward tried to calm his anger. “Stan, do I recall correctly that you begged me to move my business to Broad Street National three years ago and told me at that time your bank had a statutory loan limit of $40 million to any one customer? We currently owe you $20 million, secured by at least $50 million worth of real estate. We’ve never been late a day on any of our loan payments, and we keep several million dollars in deposits with you. So what the hell’s going on?”
“It’s a different environment out there, Edward. We can’t do what we used to do. It’s just that simple.”
“You keep saying that, Stan. But it’s not simple. We’ve got a huge growth opportunity here. We’re growing market share as our competition is falling by the wayside, closing locations, or going out of business entirely. There’s never been a market more conducive to growth, and now you’re telling me you don’t want to be our financing partner anymore?” Edward stood and looked down at Burns fiercely. “This is a hell of a shot out of left field, Stan. I’ve already signed purchase agreements, put down forfeitable earnest money deposits on lots in Pittsburgh, and signed employment contracts with the seven store managers based on your past assurances of financing support.” He turned to leave the office when Burns’ tired voice halted him.
“Edward, please sit down. I haven’t told you everything.”
He whipped back around. “What more could there be?”
“The bank’s under a great deal of pressure. The Federal bank regulators ordered us to reduce our exposure to commercial real estate. You’re one of our largest commercial real estate borrowers, so the loan committee has instructed me to reduce our commitment to your company specifically.”
Edward, still standing, glared malevolently at Burns. “You’ve already explained that to me.”
“No. You misunderstand. We want you to pay off all of your loans as soon as possible.”
Edward laughed bitterly. “What are you smoking, Stan? The bank is making a lot of money off my business. You probably don’t have a better client than Winter Enterprises. We’ve got a large amount of equity in the real estate you’ve financed and we pay our bills on time. Is this a joke?”
Burns’ face had turned beet red. “This is no joke. I can’t tell you how badly I feel about this. I’m just following orders.”
“We have a loan commitment from the bank. We signed a master note with a twenty-year maturity on it, backed by all twenty-four of our restaurant properties.”
“That’s true, Edward, but the bank has the right to call that note at the end of each five-year anniversary of the note. The first five-year anniversary is July 29 of this year. We will need you to make other arrangements so you can pay us off entirely by no later than that date.”
“That’s two weeks from now. Impossible.”
“Nevertheless, that’s the way it’s got to be.”
“I want to talk to Sol Levin.”
Burns sighed. “That won’t do you any good.”
“I’ll be the judge of that,” Edward said.
“The regulators ordered our board of directors to terminate Mr. Levin this morning. He’s no longer the president of the bank.”
CHAPTER THREE
Edward was as angry as he could remember ever being. He didn’t quite understand the machinations behind the bank’s actions, but he sure as hell understood the implications. Now he had to go through the painful process of establishing another banking relationship in two weeks, putting together a massive loan application package and then schmoozing some new banker who knew nothing of his b
usiness and escorting the new banker to some or all twenty-four of his restaurant locations. By the time he reached his dark-blue Corvette parked in the bank parking lot, he’d calmed down enough to plot out a course of action. It would take a lot of time and effort to get together the package, but there had to be at least half a dozen banks in the area big enough to handle Winter Enterprise’s business and which would salivate at the opportunity.
After driving out of downturn and getting on the Schuylkill Expressway back to his office in Mt. Airy, Edward called Nick Scarfatti, his CFO, on his cell phone to ask him to clear his schedule that afternoon.
“What’s up?” Nick asked.
“Broad Street National Bank just dumped us as a client. I’ll explain when I get there.” He paused for a second and added, “You should call Paul Sanders; have him come in about three this afternoon. And you’ll need to start working on a finance package.”
Edward signed off and slammed his palm against the steering wheel, knowing the poor position he’d put Nick in. Nick Scarfatti was scheduled to go to Hawaii at the end of the week for a two-week, well-deserved vacation, but there was no way Nick could be out of the office at this time. “Damn bankers,” he growled, hitting the steering wheel again for good measure.