CLEVELAND, Ohio — Long gone from the local real estate scene, George and Teresa Kastanes continue to make life miserable for local officials dealing with the aftermath of their flipping schemes.
The Kastanes blew into town like so many other people hoping to make a quick buck off the detritus of Greater Cleveland’s badly damaged real estate market.
Banks and the real estate companies that worked for them were more than happy to dump foreclosed properties to the Kastanes and others for a pittance, to move the homes off their books.
Cities and the Cuyahoga County land bank have had to deal with the aftermath, paying for the demolition of vacant structures bought and sold by the Kastanes while unable to collect hundreds of thousands of dollars owed in real estate taxes and assessments.
But last week, a bankruptcy court in Florida complicated matters by flipping the houses yet again, this time to a single buyer as part of an auction of the Kastanes’ assets. Six Cuyahoga County properties were included in the auction of 256 homes nationwide, including a home that was slated to be rehabbed in Shaker Heights.
The city acquired the property through a tax foreclosure in August. But what Shaker Heights officials didn’t know was that a bankruptcy court in Fort Lauderdale filed notice in April that the property was listed in the Kastanes’ bankruptcy and could not be sold without the court’s permission.
City officials had agreed to give the property to a developer and was one document away from deeding it to Property Renewals when it learned of the bankruptcy court notification last week, said Law Director William Gruber. Property Renewals had already begun gutting the interior of the property.
Gruber acknowledged that city must relinquish its rights to the property but hopes the new owner will deed it back to the city given that $120,000 in delinquent taxes are owed on it. Gruber said the property should never have been included as an asset in the Kastanes’ bankruptcy.
“It was a perfect storm of circumstances,” Gruber said.
The Kastanes bought at least 69 properties in Cuyahoga County between 2007 and 2010 using Interstate Investment Group LLC as their corporate identity. They bought additional property using a company called Paramount Land Holdings LLC.
The bankruptcy notification occurred after county prosecutors had studied the chain of title that led to the tax foreclosure sales, said Kermit Lind, an attorney and professor emeritus at Cleveland State University.
“This is yet another indication of how fragmented our systems are,” Lind said. “The bankruptcy court is working with one set of rules and assumptions and the tax collector is working with another.”
The Kastanes appear to be in a jam with the federal authorities in Detroit. They and a partner bought 1,400 properties there, securing a $10 million loan from the Detroit Police and Fire Pension Fund. They said they would use the money to rehabilitate the properties and then sell them. Instead, authorities say, the Kastanes diverted $5 million to bankroll a lavish lifestyle in Florida and the Caribbean. Their partner in the Detroit venture, Abner McWhorter, committed suicide in August 2011.
George and Teresa Kastanes fled the country after filing bankruptcy, prompting an arrest warrant. George Kastanes was arrested in May. Teresa Kastanes was finally arrested in November.
George Kastanes told a reporter from the Detroit News that McWhorter told him he paid a $100,000 bribe to Bernard Kilpatrick, father of then Detroit Mayor Kwame Kilpatrick, to secure the pension loan. Bernard Kilpatrick’s attorney has denied the accusation and has said McWhorter was Bernard Kilpatrick’s legitimate business partner.