DALLAS - Attorneys for Wells Fargo Bank and other creditors are asking a federal court in Amarillo, Tex., to force bankruptcy on the American Housing Foundation, which has acquired low-income apartment complexes in several states with the proceeds of tax-exempt bonds and federal tax-credit financing.
The creditors, which include several Amarillo residents as well as Texas Capital Bank and JPMorgan Chase & Co., said in filings on April 21st with the U.S. District Court for the Northern District of Texas that the foundation owes them at least $15 million. A separate group of creditors, which includes Herring Bank of Amarillo, filed suit in early May in state court seeking $15 million.
No criminal activities are alleged in either suit.
The foundation's multimillion-dollar portfolio includes 13,700 residential units and more than 1,700 beds in student housing. Most of the residential units are in Texas cities from Houston to Amarillo, but others are in California, Arizona, Mississippi, Oklahoma, Kentucky, Georgia, South Carolina, North Carolina, and Florida. The student housing units are located at Johnson & Wales University in Charlotte and California Baptist University in Riverside.
The foundation built or acquired the properties through tax-exempt bonds sold by conduit issuers in those states or with the use of federal tax credits. Even though the foundation continues to support most of the debt, the Texas Affordable Housing Corp. said the foundation has been in default since 2006 on more than $100 million of outstanding bonds issued in 2002.
The foundation used the proceeds from $128 million of tax-exempt bonds issued by the quasi-public agency to buy 13 apartment complexes in Texas.
The foundation's latest filing with the Internal Revenue Service said it had liabilities of $459 million and assets for $545 million at the end of 2007. Annual operational expenses total more than $70 million.
The foundation has vigorously defended itself with a filing that seeks monetary damages from the creditors for instituting the court case.
Foundation attorneys said nonprofits cannot be forced into bankruptcy. The counterfiling asks federal Judge Robert Jones to require that the creditors pay the foundation's attorney fees, and that the court levy an additional monetary penalty because the creditors knew that nonprofit corporations are immune to forced bankruptcy.
All revenues in excess of expenditures are donated to charity, the foundation said. In its response to the federal suit, the foundation said it contributed more than $650,000 in 2006 to other qualified charitable organizations.
The federal suit was filed three weeks after Steve Sterquell, the foundation's president and founder, died April 1 at the age of 56 in a fiery car crash near Canyon, Tex. The incident at first seemed to be accidental. However, last week the Texas State Fire Marshal's Office said two gasoline containers inside the vehicle and other evidence indicated that "the fire and accident were determined to both be intentional acts to end his life."
Randall County Justice of the Peace Clay Houdashell ruled last week that Sterquell's death was a suicide.
The Texas Department of Public Safety said its initial investigation into the incident was quickly taken over by the Federal Bureau of Investigation. The FBI office in Amarillo declined to comment.
Filings by the creditors allege that Sterquell changed the beneficiary of a $24 million life insurance policy from American Housing Foundation to trusts controlled by his family two weeks before the crash.
Steve "Sterk" Sterquell II, Sterquell's son and current president of the foundation, declined to comment but said in a statement that his father's death has been a blow to the foundation.
"We are recovering from the loss of Steve and are regrouping to continue the operations of American Housing Foundation," he said. "We have consulted with our attorneys and we believe that the involuntary bankruptcy was improvidently filed."