by Joseph Badal
* * *
Edward was back in his office by noon. He called Nick Scarfatti into his office. As usual, Nick looked as though he’d stepped off a page from Gentlemen’s Quarterly. His blue pinstriped suit showed no wrinkles, his white shirt was starched, and his red power tie was perfectly knotted. His black wingtip shoes were spit-shined and his hair and mustache were perfectly cut in a conservative style. He was dressed like a stereotypical Wall Street banker. Luckily for Edward and Winter Enterprises, Nick was as conscientious about preparing accurate financial reports as he was fastidious about his personal appearance.
“I hate to do this to you, Nick, but I need you here until we resolve this financing issue.”
“I figured that already,” Nick said with a wry grin. “My wife’s going to kill me.”
“I’m sorry, Nick. We’re on the ropes here. Stan Burns only gave us until the end of this month to pay off our loans at the bank.”
Nick waved a hand. “Annie’ll understand. Eventually. I’ll get started on a presentation for the banks. Which banker are you going to call first?”
“Probably Van Snowden over at Curtis Bank & Trust. He’s been after me for years to take some of our business over there.”
“He’s a good banker, Eddie. I think Curtis Bank & Trust would treat us right.”
Edward shook his head. “I just don’t get it. Broad Street was kissing our butts a couple years ago. Now they, in effect, kicked those same butts out into the street.”
Nick started to leave, but Edward stopped him. “Nick, don’t argue here, but the company’s going to pay for a trip to Hawaii for you and your family. Hopefully soon, right after we get past this hiccup. It’s the least we can do.”
Nick smiled, genuinely this time, at Edward. “That will take some of the heat off me when I talk to Annie. Thanks.” He hesitated a second and then said, “Can I convince you to call Annie and tell her about postponing our trip?”
“I’d sooner go back to Iraq.”
“Chicken.”
Edward laughed. “You got that right. When do you think you’ll have an updated financing package?”
“It’s Wednesday. Make an appointment with Van Snowden for Monday.”
“I’ll do it. Thanks.”
As Nick left the office, Katherine walked in.
“So, what happened at the bank?” she asked as she took a seat on the couch. “Nick told me right after you called him that they want us to pay off our loans.”
“Mom, I don’t have a clue. There’s something really wrong at Broad Street Bank. Burns told me the regulators ordered the directors to fire their president. Sol Levin’s been at the bank for twenty-five or thirty years. Wanting us to move our business can’t have anything to do with us; it’s got to be an internal problem at the bank. Our business is very profitable and we’ve always complied with the requirements of the loan agreement.”
“Maybe Paul will know something; he’s usually got his ear to the ground.”
“He’ll be here this afternoon,” Edward said, nodding.
“I pulled all the bank loan files for him to review,” Katherine said. “Maybe there’s something in there that will give us more time.”
“Good idea,” Edward said, “but don’t count on it. Burns wouldn’t have pulled the plug on us unless he’d done his homework.”
“You seem pretty calm about this.”
“I am really angry at the way Burns treated me. But I’m not worried. With our history and financial position, every bank in the area should be begging us for our business. This is just a little bump in the road, albeit a painful bump.” He grimaced and added, “I had to ask Nick to postpone his vacation.”
“That’s terrible. He’s put off taking a family vacation for three years now. I don’t envy—”
Nick Scarfatti entered the office quickly, without knocking, and turned on the television in the corner. “Sorry to interrupt, but I thought you’d want to see this.”
The screen showed a close up of a reporter holding a microphone. The sign on the building behind her read Broad Street National Bank. “ . . . but, according to a press release issued by the bank’s board of directors, Broad Street National Bank is in excellent financial condition, citing that the termination of Sol Levin, the bank’s long-term president, was due to deterioration in the bank’s commercial real estate loan portfolio. Broad Street is one of Philadelphia’s larger independent financial institutions and one of its largest commercial real estate lenders. We called the local office of the Federal Deposit Insurance Corporation to see if they had anything to add to the bank’s press release, but they declined to comment. As Eye Witness News has reported over the last two years, the Federal Deposit Insurance Corporation has taken over more than two hundred banks in the United States. We will keep our viewers informed of any further developments. This is Linda Reynolds, Eye Witness News.”
Nick turned off the television with the remote and gave Edward an open-armed gesture. “Very strange.”
“There’s more to this than ‘deterioration in the bank’s commercial real estate loan portfolio’,” Katherine offered. “That stupid reporter will probably start a run on the bank as a result of her spurious little statement about the FDIC.”
“I think replacing Broad Street will work out for us,” Edward said. “It sounds like they’ve got big problems.”
* * *
After Nick and Katherine left his office, Edward pulled up Sol Levin’s cell number from his BlackBerry and called him.
“Hello?” a woman answered.
“Patsy, it’s Edward Winter. I just heard the news about Sol and wanted to say how sorry I am.”
“Thanks, Edward,” Patsy Levin said. “Let me get Sol for you.”
Edward second-guessed his decision to call Sol as he waited. As bad as his problems were with the bank, Levin’s appeared infinitely worse.
“Hey, Eddie,” Levin said, his normal basso voice resonating over the telephone. “I appreciate the call.”
“I don’t know what to say or do, Sol. But if there’s any way I can be of assistance, I hope you’ll call me.”
“Patsy and I are going to our place in the Poconos for a couple weeks. When we get back, I’ll call you. Maybe we can get together for a drink.”
“I’ll look forward to it, Sol.”
Levin didn’t respond for a moment and Edward wasn’t sure what else to say. He was about to say goodbye when Levin said, “I’m not the only one with problems, Eddie. Before I left my office today, I found out about the edict the bank examiners had brought down on the bank. They’re forcing Broad Street Bank to slash its exposure to commercial real estate loans. That means companies like yours are going to be run out of the bank.”
“I know, Sol. Stan Burns broke the news to me today.”
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.”
CHAPTER FOUR
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 rest
aurant 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 Gera
ld 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.
CHAPTER FIVE
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.”