In gentrifying Philly, speculators pay heirs peanuts — then flip their properties for massive gains
Harry and Lorraine Norris thought they were lucky when a stranger called with surprising news: Lorraine stood to inherit two lots in North Philadelphia, and some real estate investors wanted to buy them.
The Norrises pocketed $14,000 from the deal.
The team that bought the land did better.
Four days after paying the Norris family, speculators Bryheim Murray and Kyle Easley resold the lots — for $144,000.
The Norrises didn’t know about the flip earlier this year until a reporter visited them recently. When told, Harry pantomimed shooting himself in the head with two guns. His wife said: “It’s a shame they are doing that to people.”
Murray and Easley have done it over and over.
Their deals include such mind-boggling flips as a sale in Brewerytown, in which they paid $6,000 for a lot, then resold it five days later for $127,000. Or the parcel in Ludlow they resold in three weeks for a $117,500 markup. The one in Yorktown they bought and resold on the same day for a gain of $80,000.
The pair are among the most active players in a loosely affiliated band of speculators who have found a new way to do something the City of Philadelphia often fails at: taking control of long-abandoned properties and putting them back on the market. The flips are also the latest example of the age-old practice of exploiting the poor and poorly informed.
The Inquirer’s reporting surfaced another remarkable aspect of the deals put together by Murray, Easley, and other entrepreneurs. Again and again, they see to it that a suburban lawyer, Kevin Murphy, serves as administrator of the families’ newly established estates, enabling him to play a key role in the transactions.
Experts in estate law say administrators have a duty to protect the interests of heirs. Murphy says he is a mere facilitator, making sure papers are filed correctly and completing other legally prescribed tasks. He says that he has no real estate expertise and that the sellers agree to a price on paper before he is hired.
Since 2006, Murphy has signed off on 89 sales as administrator. No one else has come close in representing so many estates in Philadelphia property sales, according to an analysis of public transaction records.
For each of these deals, Murphy receives legal fees that can reach into the thousands. Title work on the transactions also is typically handled by a separate Murphy-owned agency that charges its own fees.
That’s not the only way he’s been involved in estates: In one case, Murphy sold an heir’s property for $5,000 to a partnership organized by his law firm. The partnership resold it days later for $100,000. The heir, 62-year-old Ernest Williams, is watched over by a caretaker because of a stroke.
Williams also didn’t know about the flip. “That makes me feel ashamed,” he said when told. “Because they wouldn’t make me an offer worth anything.”
As long-disadvantaged Philadelphia neighborhoods skyrocket in value, entrepreneurs such as Murray and Easley have been ingenious in thriving in an increasingly crowded and savvy market. They target heirs a generation or more removed from their relatives’ real estate and often unaware of its worth.
They select abandoned lots and rowhouses in the path of revitalization, identify the people in line to inherit, and connect those heirs with a lawyer (such as Murphy) to help them buy the properties, paying off any liens, demolition bills, and back taxes in the process.
After acquiring the real estate cheap, they make a killing by reselling the properties at a big gain, or by collecting generous “assignment fees” for transferring negotiated purchase rights to developers without even putting their name on a deed — an unregulated practice known as “wholesaling.”
Murray, 29, and Easley, 34, known in one corporate incarnation as BK Partners, have bought more than 100 Philadelphia properties since teaming up in 2014, more than half of them from estates, records show. They have flipped 88 for a total markup of $4 million, although the deals also typically require them to pay off liens and back taxes on properties they buy.
Their actual earnings are almost certainly higher. The $4 million also doesn’t include fees paid to them as middleman in assignment-fee deals, since such transactions leave no public paper trail. In just one such deal, revealed in a lawsuit, their Kreate Investment business entity was paid a $55,000 fee, while the selling heirs received just $10,000 for the sale.
In an interview, Murray and Easley said that their work was expensive and time-consuming, requiring deep research into property records and estate histories, and that their apparent profits are eroded by large debts on properties they often must pay.
Easley said they provide a valuable service for the heirs and communities where properties were often left to rot.
“The family gets money that they weren’t going to get,' Easley said. “In our minds, what we’re doing is bringing back to life properties that were sitting vacant for years.'
Kate Dugan, a public-interest attorney specializing in homeownership cases at the SeniorLAW Center in Philadelphia, said sellers in changing areas are often duped into undervaluing real estate.
“These things tend to happen in neighborhoods where property values are higher than our clients realize,' she said. “Or they may not have the resources to figure out their property values.”
Her concern may be well-grounded. Murray and Easley, for example, paid an average of 44 percent less for properties from estates than from living sellers, records show.
The partners aren’t the only ones hunting for heirs. Another player is Gary Murray, 37, Bryheim’s older cousin, whose most recent ventures include a proposed seven-story condo building on a historic Old City site.
Gary Murray sees no problem with flips.
“I’m going to buy something for low and sell it for high,' he said. “One man’s trash is another man’s treasure. That’s just how it works.'
Murray is happy to share his triumphs. In his busy Instagram feed, he disclosed in 2014 that he had netted $255,000 on eight property flips. Five involved estates, records show.
In a more recent transaction, he bought a vacant lot near Eighth and Emily Streets in South Philadelphia in 2017 from heir David Slaughter.
Murray paid $3,000 for the lot and paid off $25,000 in liens and back taxes.
Three weeks later, he flipped the parcel for $62,000.
Slaughter, 57, said he had agreed to the sale after a deal agent told him the lot was worth $35,000, portrayed as barely enough to pay off its debts.
The buyer drove him to a notary, handed him some papers to sign, and “gave me a check on the spot and told me I could cash it next door,” Slaughter recalled, standing outside his East Kensington home, a rowhouse with windows covered with brown paper.
Nobody explained what he was being asked to sign, he said, including the document in which he renounced the right to administer his family’s estate in favor of Murphy.
“I didn’t renounce anything,” he said.
Flipping is on fire in Philly
Philadelphia is the second-most profitable place in the country to flip property, after Detroit, according to CoreLogic, a California-based collector of national real estate data. During the last three months of 2018, the most recent period for which data were available, property that was sold as a flip — resold within two years — earned nearly twice the average of other properties.
Such intermediaries typically operate without a state real estate license, which places them largely outside the reach of rules that bar agents and brokers from making claims about a transaction that they know — or ought to know — are untrue.
“I’m not a Realtor,” Gary Murray said. “If I was a Realtor, the burden would be on me to figure out the true actual value.”
While Pennsylvania law broadly requires those involved in the “purchase or sale or exchange of real estate” to be licensed, the requirement does not apply to people who own properties they sell — even if they have owned them for less than a day. This appears to be the loophole that lets wholesalers go unregulated.
“The fact is that anyone can buy a property from a willing seller and then resell the property to a willing buyer without using a licensed real estate broker,” said Wanda Murren, a spokesperson for the state Real Estate Commission. “There is nothing illegal in doing that.”
Wholesalers thrive, in part, because they charge developers significantly less than for real estate they’d pay on the open competitive market where licensed real-estate agents, their cut capped at 6 percent, seek the highest possible prices for clients.
On the losing end are sellers like Slaughter and the Norrises, who often don’t learn what their properties are worth until it’s too late. Said retiree Harry Norris, 68: “I think it was very deceptive.”
Developer Brett Slachman, the ultimate buyer of the lots Murray and Easley acquired from the Norrises, said he’s squeamish about working with wholesalers, since he has no way of knowing whether their tactics are overly aggressive.
But “you have to keep the ship moving,” he said.
Flips involving estates is where a lawyer like Kevin Murphy comes in.
In scores of transactions, the attorney presented heirs identified by speculators with documents that let him serve as estate administrator and sell their relatives’ property.
Murphy, 49, a graduate of Villanova University Law School, said that as administrator, it wasn’t his job to monitor the price of the properties.
“I’m not a real estate mogul,” he said. “I just facilitate the transaction, and I do the estate work. I’m not representing anybody.”
By the time he enters the picture, he said, heirs and buyers have struck their deal, and his function is to handle such tasks as ensuring that inheritance taxes have been paid. He tells the heirs that’s his only role, he said.
Murphy did not specify how much he earns for estate work, but Murray and Easley put his rate around $2,000 per transaction. In its reporting, The Inquirer saw attorneys’ fees as high as $9,100 and as low as $750 on estate-tax documents filed by Murphy.
When Murray and Easley bought the Norrises’ property, he was paid $5,000 in legal fees, according to documents provided by the family. An additional $2,400 went to Murphy’s title agency Noble Abstract Co., which shares an address with his law firm, Mazullo Murphy Attorneys at Law in Doylestown.
David Horton, a professor of law and an expert on estates, wills, and trusts at the University of California Davis, said the deals may violate the “duty of care” that estate lawyers must uphold. The duty, long codified in judicial decisions, holds that lawyers entrusted with assets must care for them as if they were their own.
“Rushing into this contract to sell without testing the market or seeing if there is another offer [strikes] me as likely a violation of the duty of care,” Horton said.
He and another law professor, Reid Weisbord, an expert on estates at Rutgers University Law School, questioned Murphy’s premise that he had no responsibility to vet sale prices because the deals were struck before he was hired.
Both said the deals were improper to begin with because the sellers were agreeing to prices before they had been officially declared to be heirs by probate officials.
Murphy didn’t respond when asked for his response to the lawyers’ analysis.
He and his businesses have faced lawsuits in connection with his work as a lawyer and a title agent.
In 2011, Murphy and his law partner were sued by an investor who accused them of helping a financial consultant swindle the investor out of $100,000 by selling him a phony stake in a bogus Doylestown development project.
Mazullo Murphy’s insurer, Minnesota Lawyers Mutual, later persuaded a court to excuse it from paying for the firm’s defense, arguing that its policy excluded coverage for actions that are “dishonest, criminal, malicious or deliberately fraudulent.'
Murphy characterized the underlying lawsuit against his firm as frivolous. Mazullo Murphy “never committed any improper or illegal acts,” he said. The court record says the case was terminated but provides no details.
The instance in which Murphy sold Ernest Williams’ inherited property to a buyer aided by the lawyer’s firm occurred in 2016.
As estate administrator, Murphy signed the deed to sell the two properties on Ogden Street in Francisville to a partnership called Ogden Street Holdings LLC.
Murphy said Mazullo Murphy “organized” that legal entity, which is registered through a corporation services company to the firm’s address.
A person involved with the sale said that Murphy and mortgage broker Stephen Arrivello had both represented themselves as partners in Ogden Street Holdings, but the person did not see this documented in any paperwork.
Arrivello, who had been a middleman in at least four other wholesaling deals earlier in the decade, said he could not remember Murphy’s role in the partnership.
Murphy said he never held an ownership interest.
Law professors Weisbord and Horton said they were surprised by Murphy’s report that he had helped organize the firm that bought properties from an estate for which Murphy was the administrator. Horton called it “certainly a conflict of interest, or a conflicted transaction.”
Williams, 62, who speaks haltingly due to a stroke he suffered about 15 years ago, said a nurse at the rehabilitation clinic he visits daily helped him vet the deal and deposit his payment. Williams said he received $5,000, although property records show the land trading for $1.
It didn’t seem like much, Williams said, 'but I took it because, what was I going to do? Take nothing?”
The deal also included the payoff of $16,000 in back taxes and liens against the property, according to city records.
Three weeks later, Ogden resold the lots to a developer for $100,000, deeds show.
“It worked out, from a financial standpoint,” Arrivello said. “But ultimately, I don’t like this business. So I got out of it.”
Williams was unaware of the $100,000 resale.
“For that much money, at least they should have warned me,” Williams said.
Bryheim Murray and Kyle Easley have been among the most active businessmen buying from estates in recent years.
Since they partnered in 2014, the pair’s long-term plan has been to pursue flips and wholesaling as a way to raise a stake for even bigger projects, such as the 20-unit apartment building on Second Street near Cecil B. Moore Avenue for which they were granted city approvals in June.
When they joined forces, Murray was completing a business degree at Temple University and Easley was studying law at Howard University while working for a Maryland development firm.
The two men eventually recruited agents to locate, research, and negotiate transactions for them, which is why they’ve been able to close so many deals. None of the heirs interviewed by The Inquirer had any recollection of working with them personally, only their representatives.
For the three children of Catherine Decker, a Philadelphia-born homemaker who died in Quakertown at 85, it was a man named Cedric Gardner who delivered the news of their inheritance — a lot on Bodine Street, north of Cecil B. Moore Avenue — and negotiated to buy it.
As part of the transaction, Gardner connected them with Murphy in late 2017 to serve as administrator, the family said. Gardner did not respond to messages.
Robert Decker, Catherine’s 74-year-old son, said his agreement had been with BK Partners, the company whose name had been on documents he received.
But property records show the land selling the following spring from the Decker estate to a different buyer, indicating that Murray and Easley passed along their deal for an assignment fee.
The Decker heirs received $10,000 for the lot. CoreLogic, after reviewing comparable sales, put the land’s worth at $147,000.
“We accepted it,” Decker said of the low-ball offer. “That’s on us.”
Far less resigned was Maria Alicea, who said BK Partners and Murphy took advantage of her since-deceased brother, whose mental acuity had been diminished by two strokes.
Her grievance is over BK Partners’ $37,500 purchase last year, with Murphy as estate administrator, of a property near Seventh and Oxford Streets that Alicea’s mother had owned.
BK paid off $973 in liens and resold the property 19 days later for $155,000.
Murphy closed the deal with BK after having himself named administrator using the signature of just one sibling, Maria’s brother Jose, the stroke victim. Murphy was able to do this after Alicea and a third brother missed an administrative hearing about the estate.
Alicea said she had opposed selling to BK Partners because she thought she could get a better price elsewhere. Philadelphia developer Jon Sorensen, in fact, offered Murphy at least $20,000 more than BK, according to an email Sorensen shared with reporters.
Murphy 'said, ‘I am the executor. I can accept anything,’ ” Alicea said.
Murphy characterized Alicea’s account as “categorically false,' recalling her behavior as obstructive.
“She did not want to cooperate,” he said.
After property was sold, Murphy asked Alicea to sign a document saying she had agreed to the deal, she said.
She refused and has never cashed the check for her share of the sale.
This is why I decided to work with heirs. I make sure they get the highest retail value for their home that the market will bare.
Article contributed by: https://www.inquirer.com/real-estate/housing/philadelphia-real-estate-flippers-gentrification-heirs-inheritance-20190927.html
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