Millions owed, pennies paid to CM investors, creditors

NORFOLK

More than three years ago, local housing company CM Development collapsed amid allegations of fraud and neglect, leaving more than 250 properties across Hampton Roads in various states of disrepair.

Now the company's complicated $9 million bankruptcy case is winding down.

Under a settlement plan, investors and creditors of CM Development will receive a pittance - less than a penny for every dollar owed. That means local businesses who supplied the company with work and materials will get small sums rather than the tens of thousands they deserve.

"There's not a lot of money compared to the debt," said trustee Clinton Stackhouse, the attorney who has overseen the bankruptcy case and sorted out the complicated finances of the company. "But it's better than nothing. At first it didn't look like we were going to get anything."

CM Development collapsed in March 2007 after a Virginian-Pilot investigation revealed that roughly half the properties it and its investors owned were vacant.

In many cases, houses in the region's most troubled neighborhoods were left to rot, even as the company continued to resell them, driving up prices and obtaining larger loans. The money taken out helped finance CM Development President Cary McEntee's million-dollar house in Virginia Beach and several luxury cars.

Soon after the Pilot's revelation, investors - several of whom had put millions into the scheme - forced it and McEntee into bankruptcy court.

Hearings revealed that some "investors" in the company's housing empire were merely straw buyers paid $3,000 a house to sign their names on purchase agreements and loan documents. The company used proceeds from the sales to make the down payment on the next loan.

Experts described these activities as fraudulent, and the FBI opened an investigation. No charges have been filed, and an FBI spokeswoman said she couldn't comment on whether the case was ongoing.

The bankruptcy case has been slowed by the large number of properties and complicated financing schemes involved in the constant reselling.

Stackhouse said he cut deals with a number of investors and banks, selling McEntee's share in some of the decrepit properties for money that could be paid to creditors. That netted most of the $104,000 Stackhouse has to divvy up among the dozens of people and businesses owed money.

"Normally, you look at 250 properties and say some of these are going to have equity in them," Stackhouse said. "But not in this case. His business model was taking every last penny out."

If all goes as planned, checks will be sent to creditors this month and the bankruptcy case will be officially closed by a judge before the end of the year, he said.

As part of the case settlement, the four cities owed back taxes - Norfolk, Portsmouth, Virginia Beach and Hampton - will receive a total of about $20,000.

Only one former CM Development employee, John Porter, will get back wages. Porter, who was also an investor, is slated to receive $9,600. He and his investment partner are also scheduled to receive several thousand dollars for their $1 million claim against the company.

Others won't be as lucky.

One electrical contractor from Chesapeake, who did work on dozens of the company's half-renovated homes, filed a claim for more than $300,000. Of that, he'll get $1,398.

Ferguson Enterprises, which sold CM Development dozens of new bathtubs and fixtures - many of which were later found to be sitting in houses that didn't have roofs or walls - will get only $113 of the more than $25,000 it is owed.

In many cases, CM Development did just enough work on its run-down houses to be able to draw down large amounts from construction lines of credit.

"I was surprised we got anything," said Dan Mason, the company's branch credit manager. "You just chalk it up to experience and hope you learn from it, learn to recognize the scams."

In early 2007, after the company stopped paying its bills, Mason drove out to McEntee's house and encountered both Cary and his brother Jacques, the alleged mastermind behind the housing scheme, in the driveway.

"At that point I knew we were looking at a total loss," Mason said.

Mason said his company wrote off the $25,000 almost immediately. He said he felt for the small contractors the company used for its renovation work.

"They're already working from job to job, and they can't absorb the loss," he said.

CM Development's principals have scattered. Cary McEntee is overseas working as a military contractor. Jacques McEntee was sent to federal prison in 2008 because his work for CM Development violated the terms of his probation from an earlier housing fraud case. He was released late last year.

Jacques McEntee and CM Development partners Clinton Van Nocker and Jim Sauceda all served time in federal prison in the early 2000s for committing what has been called Hampton Roads' largest case of housing fraud. Those convictions stemmed from their operations in the 1990s under the name MSRV.

Meghan Hoyer, (757) 446-2293, meghan.hoyer@pilotonline.com