TODD KOLBE

Age: 38

Kolbe began his career as a mortgage banker and worked for C&S Bank, CTX Mortgage Corp. and FirstTown Mortgage. In 1999, he launched Sovereign Mortgage with his longtime business associate, Kelly Abercrombie. Kolbe also formed two home building companies in the mid-1990s, financing their operations by engaging in mortgage fraud. In August, U.S. District Court in Tampa sentenced Kolbe to 30 months in prison and ordered him to pay $2 million in restitution.

 

By MICHAEL BRAGA
Hearld-Tribune
michael.braga@heraldtribune.com

First of two parts

For almost 10 years, Todd Kolbe was the mastermind of an effort to defraud banks of millions of dollars by inflating the value of Southwest Florida real estate.

Kolbe, a mortgage broker by trade, drew family and friends into the effort.

He created a series of home building companies that collapsed, one after another, destroying the reputations of those closest to him, distorting the local real estate market and frustrating dozens of home buyers who had trusted Kolbe and his associates.

Kolbe is now going to prison for 30 months in South Dakota. So is his boyfriend, Kirk McVey. Another member of his circle, Kelly Abercrombie, faces sentencing on Monday. All three pleaded guilty to conspiracy to commit mortgage fraud.

Their punishments are being doled out at a time when the ramifications of other potential manipulations of Southwest Florida real estate prices are just beginning to be felt.

Over the past two months, banks have begun to foreclose on loans for properties bought by Sarasota investor Neil Mohamad Husani and his former partners, who used similar methods of inflating real estate prices to get loans that greatly exceeded the value of the underlying property.

Market watchers worry that the downturn in the real estate market will reveal that even more manipulation went on during the boom-boom years.

Kolbe's story shows how these actions affect many people and institutions.

Most members of Kolbe's circle either failed to return phone calls from the Herald-Tribune or declined to comment.

The only statement came from Kolbe's brother, Scott, who lent his name to several of Todd Kolbe's defunct home building companies but was never charged with a crime.

"This is a very hard situation," Scott Kolbe said. "My brother did some bad things. Unfortunately, his actions affect everyone."

Learning 'creative financing'

Todd Kolbe moved from Iowa to Sarasota in 1989, first working as a loan originator for C&S Bank and then as regional manager for CTX Mortgage Corp.

In his various positions, Kolbe became familiar with what some in the mortgage industry refer to as "creative financing."

Creative financing involves buying houses, selling them to family members or business associates at much higher prices, and using the inflated values to obtain mortgages that not only cover the cost of the original deal but provide extra money to pay for construction and development -- or to pad their pockets.

In the mid-1990s, Kolbe encouraged his father and mother, and his two brothers and their wives to join him in Southwest Florida.

The family started two construction and development firms, using a creative financing strategy to fund their fledgling businesses.

The problem was that members of the Kolbe family soon became so burdened by debt that they had to keep engineering larger real estate deals to pay off the original mortgages and get more money to finance their ventures.

"It was like a little Ponzi scheme," said Dennis Moore, the U.S. attorney who filed a criminal case against Todd Kolbe and several other members of his family. "They had to satisfy everyone in the first round of property flips ... So they organized a second round of property flips."

Foreclosures, bankruptcy

By late 1999, banks began filing liens against Kolbe-owned properties and starting foreclosure proceedings.

To protect himself from creditors, Kolbe sought Chapter 7 bankruptcy protection in August 2000, claiming debts of $7.7 million and assets of $5.7 million.

But bankruptcy didn't stop Kolbe and other members of his circle.

With help from his longtime business associate, Kelly Abercrombie, Kolbe launched a mortgage company in the fall of 1999. Sovereign Mortgage grew to five offices and about 50 employees. But expenses always outstripped revenues.

"Sovereign was successful originating loans, but we were not able to generate enough revenue to make money," Kolbe said in court testimony.

As a result of the shortfall, federal prosecutors said in court documents, Kolbe organized 30 fraudulent transactions between April 1999 and February 2002 to shore up the company's finances.

Kolbe's boyfriend, Kirk McVey; business associate Abercrombie and her husband, Todd Kerber; and two members of the Kolbe clan -- brother Aaron and sister-in-law Amy -- all participated in the fraudulent transactions that netted the group more than $8 million in loans from New Jersey-based Home Star Mortgage Services and its predecessor company, court records show.

Home Star sold the loans on the secondary mortgage market, but when the ultimate buyers found out the loans were fraudulent, they made Home Star buy them back.

The company foreclosed on the loans, sold the properties at public auction at a $1.8 million loss and filed a civil lawsuit against Kolbe. At the same time, the New Jersey mortgage lender prodded the FBI to open a criminal investigation.

In the meantime, Kolbe's brother Aaron and sister-in-law Amy, who acted as straw buyers in at least 10 of the sham real estate deals, saw their financial situations disintegrate.

Aaron Kolbe filed for Chapter 13 bankruptcy protection in October 2002, claiming debts of $1.73 million. The couple's home in Bradenton was repossessed and sold at public auction.

"We couldn't make other financial arrangements, and we were unable to sell it," said Amy Kolbe in sworn testimony.

The rise of Affinity

Deep in debt and having been fired from his job as a mortgage broker, Todd Kolbe sought out friends and relatives with strong credit to launch a new construction company. His brother, Scott, and his long-time accountant, David Winterrowd, agreed to help.

Affinity Homes began operating in 2002 from offices next to Winterrowd's tax practice off Fruitville Road east of Interstate 75.

Though Todd Kolbe did not own the company, he was considered the brains of the operation.

"There was no question who ran the company," said John Oake, who worked for one of Affinity's concrete subcontractors. "It was Todd. He was the day-to-day operations man even after he got in trouble and was indicted."

In a 2004 court deposition, Kolbe acknowledged that he headed sales efforts for Affinity and helped clients select building plans.

His father, Joe, and brother Aaron worked as building contractors. Joe's wife, Karen, did interior design work and Aaron's wife, Amy, cleaned the company's offices.

Winterrowd ran Affinity's accounting department. Scott Kolbe was simply an owner of record.

In its first two years, Affinity engaged in various small developments in the Sarasota neighborhoods of Ashton Glen, Laurel Park, Indian Beach Highlands, Silverleaf Lane and Mockingbird Place.

By late 2003, the Kolbes' financial problems became an issue, triggering construction delays and late payments to subcontractors.

Then, in October 2004, federal prosecutors indicted Todd Kolbe, McVey and Amy Samelson Kolbe for conspiracy to commit mortgage fraud.

Winterrowd, who was never charged in the criminal case, was drawn into the proceedings when prosecutors asked him to produce income tax filings prepared for members of the Kolbe and Abercrombie families from 1999 to 2001. Winterrowd initially refused, but was ultimately ordered to comply.

People who have done business with Winterrowd say Todd Kolbe's indictment convinced the CPA that it was time to end his relationship with the Kolbe clan.

"We initially signed a deal with Affinity in the middle of the transition period where David Winterrowd was trying to detach himself from the Kolbes," said Parker Converse, a home buyer who sued Affinity in February 2005 to force it to pay its subcontractors. "One day our general contractor was Joe Kolbe and the next it was David Winterrowd."

Cutting ties

As the two clans battled over the details of how to divvy up assets, home buyers complained that construction was being delayed.

"People who say they will do something and keep their word, that's the way it's supposed to be," said Mikhail Korneyev, for whom Affinity built a house in the Mockingbird Place subdivision. "The Kolbes are blah, blah, blah, and nothing gets done."

Don McCulley, who bought a lot from Affinity in the Silverleaf subdivision, said the same thing about the Winterrowds.

"People say good things about them, but they never built our house," McCulley said. "At least a year went by, and nothing happened. They just kept coming up with one excuse after another."

Meanwhile, subcontractors stopped showing up at Affinity work sites. Between late 2004 and early 2005, they filed at least seven lawsuits demanding payment of more than $260,000.

Not completing houses on time had further negative implications for the two clans. The cost of construction was rising rapidly, and the partners soon found that home prices that would have allowed them to make a profit in 2004 were causing losses in 2005.

"The problem is they underpriced the homes and did not allow for the dramatic increases caused by Hurricane Charley," said Corey Donovan, a Re/Max agent who sold homes for Affinity. "If they had finished the houses in a timely manner, they wouldn't have had a problem. But during the split, they couldn't keep construction moving. Costs doubled, and they are now having to finish houses at a loss."

The Winterrowds -- David and his brother, Jason -- took on the responsibility for finishing most of the houses, people close to the family said, and they are in a better financial position to absorb the losses.

"The Winterrowds will be fine," said Oake, who worked for a concrete company and bought a house from the Winterrowds in Silverleaf. "They have more than adequate means to pull themselves out of this."

The biggest problem the Winterrowds face is that they are sitting on least six homes in their subdivisions that have not yet sold.

The Kolbes are in worse financial trouble.

Joe Kolbe has told customers he is flat broke. Amy and Aaron have no credit. Todd Kolbe and McVey are heading to prison in South Dakota.

Only Scott Kolbe, who continues to work as a mortgage broker for Penny Hill's group at Chase Manhattan Mortgage, is generating a decent income.

People who know him say that Scott Kolbe, who was never included in civil or criminal litigation against his family, is trying to meet his family's financial obligations. But he does not have the resources the Winterrowds have.

As a result, construction on Kolbe homes continues to be delayed.

"We've got so many problems in the house and it takes them forever to do anything," said Carrie Christensen, who bought at Mockingbird Place and has sued Affinity for failing to keep promises.

"When we called in July, the lady who answered told us they had moved. We've tried their new number, but we never get through to anyone."



COMING MONDAY: Judge must decide how to punish Kelly Abercrombie for her role.

Last modified: December 17. 2006 5:49AM

 

By MICHAEL BRAGA
Hearld-Tribune
michael.braga@heraldtribune.com