Misery of heartbreak motel
Cook Island families hope for mercy from banks they cannot hope to repay. Rob Stock reports.
PROPERTY DEVELOPER Glenn Cooper met the Sunday Star-Times in a cafe in Auckland's K Rd sporting a black eye, which he said had been inflicted on the doorstep of his isolated rural Pukekohe home. He described his attacker as being "an Island guy" and said he feared for his security.
He had also just suffered a break-in, and said he had been assaulted before by people who felt wronged by him.
Cooper is the man at the centre of a failed property development venture that is threatening the homes of a group of South Auckland Pacific Island families.
These low-income families borrowed large sums from three of our major banks to fund an investment in motel units in Taupo. Now the Serious Fraud Office is involved as lawyers for the families take their cases to the banks, saying the loans should never have been approved.
The families blame Cooper, but he denies any wrongdoing.
The close-knit group of South Auckland families has been left with massive debts and they are on the brink of losing their homes after buying into the speculative property scheme.
The families, all from the low-income Cook Island community in Mangere, have debts running into more than half a million dollars per family – debts they say they have no hope of paying off.
Some of the loans, funded by Westpac, Bank of New Zealand and National Bank, are scheduled to be paid off over 30 years. Given the borrowers are in their late 50s and early 60s, that would mean making repayments until they are in their 80s and 90s – even if they could earn enough.
Even Glenn Cooper, who organised the scheme, said he had been surprised some of the mortgage applications got through, and queried them with the mobile mortgage managers.
"I did ask the mobile mortgage managers how they were getting through and they said they were all credit approved."
His past experience had told him some of the loans were "borderline", similar to loan applications he had seen refused by banks.
But he denied he had a close relationship with any of the mobile mortgage managers.
The families, which include laundry workers, postal workers and cleaners, some supporting large numbers of children, have used their family homes as security for the loans and face mortgagee sales that could leave them homeless.
The banks have already threatened sales, but the families' lawyers say the loans are oppressive and would be overturned by the courts. They are calling on the banks to show mercy and forgive the debts incurred.
The families say the loans were taken out for them in mid to late 2009 as part of a scheme promoted within their church community. They were told it would clear the mortgages on their modest South Auckland homes.
The failed scheme
The families say the scheme was promoted to them as risk-free by Cooper, who was introduced to them as a "wealthy property developer".
They say Cooper told them they would be borrowing to buy units in a motel in Taupo which he would on-sell within nine months in "quarter shares" to people who wanted a bach but could not afford a whole one.
A glossy colour brochure projected a profit of $112,000 on the two-bedroom units. The profit from the deal would go to the families.
They say they were told they would never have to pay a cent towards the mortgages as income from the units would cover repayments. But their lawyer, Geoff Bilkey, says no rental income was paid.
The motel at 300 Lake Terrace is managed by Cooper-related company KAW Holdings, which did a deal over unpaid legal bills to law firm Duncan Cotterill to escape insolvency at a hearing in the High Court at Auckland this month.
Bilkey said the units cannot be rented out, even though they have been taken out of the "letting pool", as Cooper has removed the furniture.
Bilkey said Cooper personally guaranteed to buy the units back himself if he could not on-sell them, but has not done so.
Cooper said he had been contacted by the SFO, but had not been interviewed. He said he was at a loss over why Westpac and the investors might think he had committed fraud.
He admitted that he had bought and sold the units contemporaneously, and said he had not told the families of the large margins he was making, arguing that they were "not extraordinary" as he had bought the units as a bulk purchase from Dorchester. Cooper said the quarter-share scheme had been a good one, and had fallen foul of market conditions.
"The market just went dead in 2010," he said.
"It's not my fault, it's a combination of things," he said. "At the end of the day, they have got the property, and had they left them in the rental pool, there would be rental income coming in now."
Cooper denied that rental income had not been paid and said he did not know why the families and Dorchester had taken their properties out of the rental pool, but said there had been a slow period when occupancy was low.
He said he had also been misled about how much income the units would produce and denied breaking in or taking furniture from the units.
The situation was not irretrievable, he said, if the banks put their collections on hold until the market improved allowing him to carry through his quarter-share plan.
Cooper said had originally been looking for high net wealth investors, but was introduced to clients by a Cook Islands associate, Paul Rapana, who earned commission on the sales, he said.
Cooper admitted he had not lived up to his personal guarantees, but said he was not in a position to honour them, adding that the families "were not being particularly cooperative either".
The scheme had not made him wealthy, he said. If the guarantees were enforced, the likely outcome would be his personal bankruptcy.
The families bought the units for between $320,000 or $440,000 depending on whether they had one or two bedrooms.
Their current market value is somewhere between $165,000 and $335,000, less than the debts incurred to buy them, and less than Cooper paid to buy them from listed finance company Dorchester Pacific immediately before selling them to the families.
The families say they believe Cooper pocketed the difference, which in some cases appears to have been over $200,000.
One of the families, the Punas, bought a unit in the motel for $440,000. It is now worth $262,000. Property records show the unit was sold by Dorchester for just $234,000.
The 2009 valuations supporting the loan applications were done by a valuer recently criticised in relation to the valuation of assets associated with Hanover Finance. Bilkey said the valuations were inaccurate.
They appeared to show that the $3.17 million purchase price for the eight motel units represented market value. However, a recent valuation shows them to be worth closer to $2.13m in an ordinary sale and $1.48m in a firesale.
Sold on trust
Iro Puna, who has been the unifying force and the cooler of tempers in the families' fight-back, says they believed they were buying the units at market value.
The families are all drawn from the deeply religious Cook Islands community. They say they signed on trust for the units, which some had not even seen, because Cooper came with a recommendation from a minister at their church.
Bilkey, who is being advised by banking lawyer John Waugh, said it should have been obvious to the banks that the loans did not meet their usual home loan lending criteria. They were not ordinary home loans, but bridging finance for a high-risk property speculation in a distressed property market.
All say they are "praying for Mr Cooper", even though they do not believe he ever intended to carry through the quarter-share plan.
Ties of faith
There is talk of Cooper being punched, and his car damaged, but the eight families, some of which are related, say they are not seeking revenge.
The sales were made by Cooper and Rapana (whose "Integrity" group of companies went bust in 2008), using introductions made by deacon Rata Joseph, who now rues that decision.
Joseph bought a unit himself for $440,000, believing he could use the profit from the promised sale of the quarter shares to build a home in the Cook Islands.
Instead, he now has a mortgage of $495,000 with the BNZ. The unit is valued at $262,000, or $176,000 in a firesale.
Joseph says Rapana now says he had no idea this was going to happen.
"What really saddens me is all these people are in there because they are my church members and they trusted me.
"I feel guilty because it was me that brought them in and believing this would work out. These people came on board because they just look to me, that I was head of the church. I'm the man in the pulpit."
The congregation has forgiven him, Joseph says, which is humbling.
Ties of blood
The Cooper deals have caused much heartache in a community that is tied by blood as well as faith.
One of the couples, Ngateina and Yvette Mairi, who owe more than $360,000 on the unit they bought in Taupo, are Rapana's uncle and aunt.
They still talk to him, but Ngateina says they no longer laugh or talk like they used to.
Rapana told the Sunday Star-Times: "I'd turn back the clock, but I just can't. It just makes you stink. I feel bad because I introduced Glenn to these people. These are relatives of mine.
"I worked with Glenn believing this would be a positive outcome."
He now has a very different view of Cooper.
Cook Islanders are family-minded people. There are eight grandchildren living in the Mairi home, which is now at the mercy of the BNZ as they cannot meet mortgage repayments.
Forgiving does not mean there is no blame though, says Puna, who has the National Bank threatening to sell his home where 11 children live, some of whom he has taken in from troubled homes.
Some of the wives now blame their husbands, Puna said. Some of the husbands their wives. There are frequent tears, and there is much insomnia.
Puna says his wife cries every night. There is little he can say to comfort her.
The profits from the scheme were to pay to expand his home to provide the room the family needed. He borrowed $55,000 for the renovation, which has now stalled.
The frames of the walls in Puna's unfinished house are now covered in tarpaulins to keep the rain out. When the wind blows, family members have to shout to make themselves heard.
All the families claim that their loans from the banks were arranged under unusual circumstances with bank employees who seemed very close to Cooper, though the Sunday Star-Times has seen letters from the banks saying internal investigations had found no evidence of staff wrongdoing.
Bilkey says the loans were arranged by Rapana and Cooper, and the families signed documents unread and on trust in cafes and at McDonald's.
Loan applications were incomplete and inaccurate, overstating income and understating outgoings, said Bilkey. One of the families' applications appeared to show they did not eat or use power. Loans were also sometimes made through distant branches.
Joseph says one loan had to be organised quickly because the manager who was going to approve it would soon be leaving.
Guy Harrison, who is now labouring under a $450,000 debt on a Taupo unit, said no National Bank staff member checked a single detail with him on the loan application made on his behalf.
"They should have checked through everything. They should have looked at all the evidence in the application before they made the decision.
"Usually when you sign for a mortgage you have to go into the bank, but we never went into the bank."
Bilkey said there were clear signals the banks should have picked up.
"In 2009 the banks were suspicious of contemporaneous settlements and on-sales," he said.
Bilkey, who describes his clients as naive, financially unsophisticated and trusting, said the families are disappointed in the lack of support from the banks.
Harrison said: "If they had done their homework in the first place, this loan would have never been made."
Paul Byrnes, chief executive of NZX-listed Dorchester Pacific, said Dorchester sold units through real estate agents and had no knowledge of their onsale to the families.
Dorchester had ended up with the motel after the property's developer defaulted, and is trying to sell 10 units it still owns.
Byrnes said Dorchester had had problems with KAW Holdings' management of the motel.
"We weren't happy and as a result we have taken those units out of the letting pool," he said.
Byrnes said the units were well-made, but they are worth in the region of $200,000 to $300,000.
"They would never be worth more than that."
He was surprised the banks had funded purchases through contemporaneous settlements.
"I wouldn't have thought that the banks would have contemplated an arrangement like that [in 2009]."
He said there have been a couple of attempts where people have bought units or blocks and tried to market them as a quarter share arrangement.
"I can't think of any that have been successful."
Even Cooper's mother, real estate agent Annette Dempsey, who the quarter-share brochure said had been "chosen" to sell the quarter shares, told the Sunday Star-Times that this market was not thriving.
"You can only quarter-share them if the time was right."
Dempsey said quarter-share units had sold in the past, but not in recent years.
The brochure quotes her as saying: "In these times people are more interested in having less money tied up in a bach and this is an ideal way for people to have a weekender without the full outlay or all the maintenance worries."
She said she was included in the brochure as an example of an agent who might be chosen.
WHAT THE BANKS SAY
Westpac: "Westpac asked the SFO to investigate after concerns about some of Glenn Cooper's activity. "Recovery is currently on hold and we have offered to meet the lawyer on behalf of his clients. That offer remains open."
BNZ: "BNZ does bank some of the borrowers involved in the issue you've raised. We understand that no charges have been laid against Mr Cooper and that the SFO investigation is ongoing. BNZ is also conducting its own internal review. In light of the ongoing SFO investigations, BNZ cannot comment further and we have confidentiality obligations to our customers. No recent "threats and loan arrears notices" have been issued by BNZ and we have put any enforcement action on hold pending the outcome of the SFO investigations. BNZ will endeavour to work through the options based on the individual circumstances with each of our customers on a case by case basis."
National Bank: "The bank is committed to working with customers through their individual situations. We have requested further information from some customers and are holding action for these customers until we receive the requested information. We will also fully consider any additional information that comes to light".
- Sunday Star Times