Business associates of sewer manager paid back $36M on defaulted mortgages

The business partners of Baldwin County Sewer Service (BCSS) principal manager Clarence Burke, who defaulted on millions of dollars worth of mortgages when the housing market collapsed a decade ago but later redeemed the secured properties for pennies on the dollar at courthouse auctions, were successfully sued by the receiver of those mortgages years later.

According to a complaint filed in the U.S. District Court for the Southern District of Alabama in February 2012, Hancock Bank, the successor in interest to Peoples First Community Bank, sought and secured judgments totaling more than $36.6 million on defaulted mortgages from Burke-affiliated companies including Elite Development LLC, Pennstar LLC, Stratosphere Land Holdings Inc., Rustal LLC, Southern Magnolia Homes LLC, Wolf Creek Industries Inc., Country Club Development LLC, Crossroads LLC and Remington LLC.

Specifically, the suit named as defendants Burke, John B. Foley IV, Robert T. Cunningham III, Benchmark Homes Inc., plus the above named companies, as well as developer Albert “Trae” Corte and his own company, AC3 Inc.

All defendants in the case except Corte were represented by Daphne attorney Richard Davis, who initially denied liability for the defaults because Hancock allegedly “breached its obligations of fairness and good faith in the foreclosure of the collateral” and refused “to accept ‘short sales’ that would have resulted in the lesser deficiencies than those that resulted from foreclosures and its scheduling of foreclosures in a manner as to flood the market so as to drive down bid prices.”

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In an affidavit filed in April 2013, Hancock Bank Vice President Jade Stanford said the bank did entertain at least one short sale, “but declined to accept it because it came to Hancock at noon the day before the foreclosure.” The affidavit further itemized how some properties were sold at foreclosure auctions, with Hancock receiving “between 70 percent and 127 percent of the appraised value of the collateral.”

“All other sales were approved by the defendants, despite defendant Clarence Burke’s affidavit testimony to the contrary,” Stanford wrote.

As Lagniappe reported in October, Peoples First was closed by the U.S. Treasury’s Office of Thrift Supervision in December 2009 and some properties secured by the mortgages were later auctioned on the steps of the Baldwin County Courthouse, only to be purchased by Alabama Capital LLC and related financial companies managed by David DeLaney, a business partner of Burke’s at Pennstar, BCSS and other companies.

DeLaney himself was not named in the Hancock lawsuit, but records indicate Pennstar — which was jointly owned by the DeLaney family along with Burke’s Wolf Creek Industries — was also involved in the incorporation of Crossroads LLC, Rustal LLC and Stratosphere Land Holdings Inc.

DeLaney’s ownership interests in the companies were detailed in an affidavit filed during the appeal of a 2014 fraud case against Pennstar by Phillip Bass, the former owner of South Alabama Sewer Service before it was purchased by Burke and merged with BCSS. Bass alleged Burke and DeLaney lured him into what he believed was a 50/50 land deal with a promise of a quick buyback and profit, only to learn years later he paid 100 percent of the price of the property, while the defendants used a straw company to buy land from the original owner and then falsified HUD statements given to Bass.

That case was thrown out by Circuit Court Judge Joe Norton four days before a jury trial was scheduled to begin in November 2017, but a sale for division hearing is still pending. Most recently, Norton recused himself from that hearing in October, citing a business relationship between his wife and Corte.

But in the Hancock lawsuit, Pennstar and its related companies — Stratosphere, Rustal and Crossroads — consented to pay a total of $8,410,428.46 for “each default[ing] under their separate guaranties by failing to pay the indebtedness … as agreed.”

The other defendants, Elite Development, which the complaint states was controlled by Burke, Foley, Cunningham and Benchmark, consented to pay $1,746,538.73. Separately Benchmark Homes, listing Cunningham as its registered agent, consented to pay an identical judgment of $1,746,538.73.
Both Cunningham and Foley individually were found liable for judgments of $3,140,176.50 each, while Country Club Development, which was a joint venture between Burke, Pennstar, Wolf Creek, AC3 and Albert Corte to develop the Bellaton subdivision in Daphne, consented to pay $2,305,367.62.

But it was Burke himself that was hit the hardest. Individually, he was liable for a judgment of $8,972,795.38, while his Wolf Creek Industries was liable for an additional $7,226,256,65.

A joint motion for consent judgments filed in July 2013 noted that Corte was discharged from the case after filing for bankruptcy, but Hancock would continue to pursue a $2.7 million judgment against AC3. In August 2013, U.S. Magistrate Judge Sonja Bivens entered a default judgment in favor of AC3, finding that while it was “a guarantor on the above referenced Country Club Development promissory notes … there is nothing in the complaint, or elsewhere, which supports the assertion that AC3 was … responsible for notes which Crossroads Inc. executed in favor of Hancock Bank’s predecessor.”

Records indicate Benchmark satisfied its judgment in August 2015, while Foley, Cunningham, Elite Development, Burke, Pennstar, Wolf Creek, Rustal, Stratosphere, Country Club Development and Crossroads all satisfied their individual judgments in October 2016.

In a request for further comment, Paul Maxwell, senior communications officer for Hancock Whitney Bank, wrote “much of your inquiry cannot be responded to in generalities, and Hancock Whitney cannot disclose details about our clients or the terms of their loans.”

Editor’s note: The print version of this article incorrectly stated the total amount awarded in consent judgments was more than $38 million. The correct total is $36,688,278.57.