State of Oregon
Real Estate Agency
Investigative Report
Date: December 4, 2007
To: Rebecca Osborne, Regulation Division Manager
From: Joyce Pierce and Kate Nass
File No: 200708-504
Participants
Complaining Witness: Dr. Walter Bernards
Respondent: D. Michael McKenna, Principal Broker (Multiple) (890500223) Summit Real Estate Management Inc. (940600260)
Respondent's Attorney: Marc Blackman
Ransom Blackman LLP
Complaint
On August 1, 2007, Dr. Walter Bernards (Bernards) made a complaint to the Oregon Real Estate Agency (OREA) against D. Michael McKenna (McKenna), Principal Broker of Summit Real Estate Management Inc. (Summit).
Bernards allegations were as follows:
- Unauthorized transfers of cash, which total $693,400, from Pioneer Ridge Apartments (Pioneer Ridge) and Greenbrier Apartment Buildings (Greenbrier) to Summit by McKenna, for the period March 2000 through August 17, 2004. The transfers were allegedly from the tax escrow accounts, transferred by McKenna to fictitious money market accounts.
- Unauthorized transfers by McKenna, beginning in April 1997, of the tenant security deposits held by Summit into a Summit bank account. Bernards alleged that McKenna was unable or unwilling to provide the partnership/owners of Pioneer Ridge and Greenbrier with a list of the bank accounts and/or the accounting information, which indicated that security deposits were maintained by Summit for tenants.
- An unauthorized management fee increase made by McKenna for the benefit of Summit, which allegedly totals approximately $100k. Bernards alleged that McKenna paid Summit an "estimated management fee" at the beginning of each accounting period, and then McKenna made the necessary adjustments to the actual management fees due to Summit at the end of each accounting cycle.
- Unauthorized additional fees/expenses paid to Summit, which included charges for insurance policy renewals, loan refinancing fees, and/or "finder's fees."
- The property management agreement authorized a reimbursement to Summit for payroll expenses, insurance premiums, and surety bond expenses. Bernards alleged that Summit generated invoices to Pioneer Ridge and Greenbrier for the above expenses, however, the checks were made payable to Summit rather than the insurance or bonding company, etc. Bernards indicated that McKenna had refused to supply Bernards with copies of the original invoices, copies of insurance binders, and surety bonds from the vendors, so that expenses could be verified.
- Bernards alleged that Summit failed to pay annual property taxes for Pioneer Ridge and Greenbrier, which resulted in the partnership/owners of Pioneer Ridge and Greenbrier having to take out a loan to bring the property taxes current. Bernards stated that because of the late payments, the partnership/owners incurred additional interest and penalties from the county authorities.
- Upon termination of the property management services of Summit, which was effective February 28, 2005, a new property manager, Quantum Residential, Inc. (Quantum), was hired, effective March 1, 2005. Bernards alleged that Quantum has not received any of the March 2005 rents, collected by Summit or any security deposits that Summit should have been holding in trust for tenants.
In addition, Bernards also supplied a copy of a document entitled "Understanding between Pioneer Ridge and Greenbrier Partnerships and Summit Real Estate Management, Inc." which was dated May 1, 2005. Bernards alleged that, in that document, McKenna admitted to all of the allegations made by Bernards, but indicated that McKenna would tell OREA that the "missing funds" were repaid by McKenna or Summit to Pioneer Ridge and Greenbrier. Bernards maintains that such funds were not repaid.
Case Detail
On August 6, 2007, IA Pierce and IA Nass met with Bernards, and began a preliminary review of the documentation that he provided. All of the information Bernards supplied was in the form of original documentation. Bernards was asked about having the original documents, to which Bemards responded that he had received the "original information" directly from McKenna at Summit.
Upon review of the documentation supplied by Bernards, IA Pierce and IA Nass located several transfers, estimated management fees, and payroll expenses. However, the review did not locate any tenant security deposit information. The information reviewed raised several questions regarding Bernards allegations in items 1-7. However, the information
contained in the boxes was very brief, and in order to substantiate the allegations or find out what happened to the money, IA Pierce and IA Nass needed additional records from and cooperation of Summit.
On September 12, 2007, a management decision was made that a Subpoena Ducus Tecum (subpoena) would likely be necessary in order to obtain the additional documents needed to complete the investigation. The subpoena was drafted and served upon McKenna by IA Pierce on September 19, 2007, at 11:20am. It requested that McKenna testify and supply documents to OREA on October 8, 2007, at 10:00am.
On September 24, 2007, IA Pierce and IA Nass were notified via facsimile, that McKenna had retained Marc Blackman (Blackman), Attorney of Ransom Blackman LLP. The notification by Blackman also included a request for a three-week extension of the subpoena, based upon the amount of documentation OREA requested.
On September 27, 2007, Rebecca Osborne (Osborne), Regulations Manager convened a telephone conference call with Blackman, IA Pierce, and IA Nass, at which time, Osborne granted the extension. Blackman also requested that a copy of the complaint received by OREA from Bernards and the document entitled "Understanding between Pioneer Ridge and Greenbrier Partnerships and Summit Real Estate Management, Inc." dated May 1, 2005, be forwarded to Blackman, via facsimile or email, for his review. OREA opted to accommodate this request.
A copy of the "Understanding between Pioneer Ridge and Greenbrier Partnerships and Summit Real Estate Management, Inc." dated May 1, 2005 is attached hereto and made a part of this report (pages 5 through 7).
Blackman also suggested that IA Pierce and IA Nass complete the document review process at Summit's office location in Portland, Oregon due to the large amount of records being requested. Blackman also suggested that OREA contact and speak with Joel Mullin (Mullin), Attorney at Stoel Reeves, who represented the partners of Pioneer Ridge and Greenbrier other than Bernards.
On October 10, 2007, IA Nass contacted Mullin, who confirmed that he represented the partners of Pioneer Ridge and Greenbrier. Mullin explained that he did not have any accounting information or documentation regarding Summit's management of the properties. Mullin said that he represented the partners only in stopping the lawsuit filed by Bernards. Mullin explained that his clients were elderly, in their 70's and 80's, and did not want to deal with everything that would come along with a lawsuit.
Mullin said, "McKenna did bad stuff' and commingled, at a minimum, while managing the properties. Mullin said that the basic difference between his clients and Bernards is that his clients believe that Summit has repaid the partnership back, while Bernards does not.
On October 18, 2007, a meeting was held involving IA Pierce, IA Nass, and Kendra Mathews (Mathews), an attorney at Ransom Blackman LLP. Mathews was representing McKenna while Blackman was on vacation, prior to IA Pierce and IA Nass beginning the document review process.
During the meeting, OREA supplied Mathews with a written request for additional information, including a written statement from McKenna addressing Bernards' allegations. This request was to be filled no later than November 2, 2007.
On October 24, 2007, IA Pierce and IA Nass began the process of reviewing documentation at the Summit business office, and several documents were "flagged" for copies. On November 14, 2007, IA Pierce picked up the copies previously requested from the Summit offices.
On November 21, 2007, OREA received a letter from Blackman that indicated that McKenna would stipulate to a voluntary revocation of McKenna's principal broker's license.
Regulatory Record
No prior OREA regulatory record exists for McKenna or Summit Real Estate Management, Inc.
Persons Interviewed
Dr. Walter Bernards
D. Michael McKenna
Marc Blackman
Joel Mullins
Contact Information
Complaining Witness:
Dr. Walter Bernards
3290 NW 112th Pl.
Portland, OR 97229
(503) 645-1636
Respondent:
D. Michael McKenna, Principal Broker
Summit Real Estate Management Inc.
5125 SW Macadam Ave., Ste 125
Portland, OR 97239
(503) 223-7666
Respondent's Attorney:
Marc Blackman
Ransom Blackman LLP
1001 SW 5th Ave., Ste 1400
Portland, OR 97204
(503) 228-0487