Million-dollar mansion won by real estate mavens

The following article was written by KIMBERLY MILLER -for Palm Beach Post Staff Writer and republished by Roy Oppenheim for the South Florida Law Blog.

He is the self-proclaimed condo king of New England, a man so cheeky that after five years in prison for bank fraud he’d moor his 94-foot yacht off the federal courthouse in Boston just to goad prosecutors.

She is the former fitness instructor and ventriloquist who law enforcement says rebuilt a real estate empire in Florida while her boyfriend pulled the strings from his jail cell.

Boca Raton residents Bill Lilly and Valerie Kaan are a model of the American rebound. A 2005 Boston Globe story during the couple’s high-rolling days — before the recession would again test their muster — says they were making the most of their second chance in life with matching Rolls Royces and a waterfront mansion.

But maybe the third time is the charm.

Last month, a ruling in Palm Beach County foreclosure court paved the way for them to win their Boca Raton estate in the exclusive Sanctuary community free and clear. A Florida law that has gone mostly untested in foreclosure cases puts a five-year statute of limitations on pursuing a contract dispute.

The foreclosure against Kaan, 59, was filed on Jan. 9, 2008.

When the bank had to take a voluntary dismissal at a July 25 trial because of a legal misstep, the statute of limitations prevents a refiling of the case, said foreclosure defense attorney Roy Oppenheim, who represents Kaan.

Neither Kaan nor Lilly, 67, were willing to be interviewed for this story, but Oppenheim said the couple are proud they beat the bank and may have forged the way for similar cases to be decided in favor of homeowners.

“They’re survivors,” Oppenheim said. “They’re both phoenixes. They just have that tenacity and fortitude.”

Some foreclosure defense attorneys are hesitant to discuss the five-year statute of limitations. They fear the public, and the judiciary, will revolt at the idea of — non-paying borrowers winning a free house. A couple of wheeling-dealing real estate mavens — one a convicted felon — winning a free mansion would seem the epitome of that fear.

“I hate the ‘free house’ story,” said Matt Weidner, a prominent St. Petersburg foreclosure defense attorney, who is concerned too many borrowers will believe they can win in foreclosure court, when they can’t. “There is no free house, largely.”

But Oppenheim said a free mansion could be a lesson to banks that they aren’t above the rules of civil procedure and that a settlement may be the better route. Oppenheim said Kaan was in negotiations for a short sale and loan modification for two years before talks broke down. The home is in Kaan’s name only.

Still, the bank hasn’t given up. On Monday it filed a request for a rehearing and asked that the voluntary dismissal be thrown out. Oppenheim called the filing “nonsensical.”

“I don’t think the judge will even consider it,” he said.

The court docket in Kaan’s case reads like a biography of the real estate meltdown.

In 1999, Kaan bought an 8,500-square-foot home in the Sanctuary for $3.6 million. Lilly was two years free from prison and Kaan had built up the Bay Communities real estate business with developments in Massachusetts, New Hampshire, New Jersey and Florida.

The purchase of the lavish home raised the ire of federal law enforcement, which was still trying to collect a $5 million criminal restitution from Lilly. The feds filed a civil suit alleging Lilly was avoiding paying the money by presenting Kaan as the front of Bay Communities while he was the real mastermind.

Lilly paid $5 million in 2002 to settle the lawsuit. A year later the couple doubled down on extravagance when Kaan bought the 13,500-square-foot mansion they now live in for $8.4 million. She refinanced into an adjustable rate mortgage in 2005.

But by early 2007, Bay Communities was giving up some of its condo conversion projects as the housing market crumbled. Kaan stopped paying the mortgage on the Sanctuary property in September of that year, according to court documents. Kaan said in an early defense of the foreclosure that she was the victim of predatory lending.

The foreclosure was handled by two banks following the collapse of Washington Mutual and its sale to JPMorgan Chase.

Also, four law firms represented the banks in the suit, starting with the Law Offices of Marshall C. Watson. The Fort Lauderdale-based firm was one of several so-called foreclosure mills investigated by the state. It shut down this year after owner Marshall C. Watson agreed to plead guilty to offenses found in a Florida Bar investigation. One allegation was that the firm routinely filed documents claiming the mortgage note was lost when it hadn’t checked with the client to confirm that was true.

It was that “lost note” filing that tripped up bank attorneys last month. A copy of the original note was filed at some point in the case, but they brought the original note to trial, without mentioning that it had been found, in pleadings for that day. Adding to the confusion, two attorneys from different firms showed up to represent the bank, one of whom said he was filling in for a colleague and didn’t know anything about the case until that morning, according to a court transcript.

“When did you find the note?” asked Judge Rodger Colton. “I mean, why are we waiting until now, until the time of trial? Why wouldn’t you have called the other side, said, ‘I’ve got the note, I’ve got the original note.’ ”

Colton criticized the lack of communication, saying attorneys only talk to each other through “emails and your twitters and your texts.”

“I thought the telephone was a good way to communicate, and that was if you couldn’t communicate eyeball to eyeball,” he said.

Despite the bank’s request for a rehearing, Oppenheim is confident the statute of limitations will protect Kaan.

He said Kaan and Lilly are back doing real estate investing, but wouldn’t elaborate. Lilly filed incorporation papers with the state in April for at least two new companies, Boca Teeca X LLC and Greenbrier X LLC.

“I think they’ve learned some lessons,” Oppenheim said. “I think they will rise from the ashes.”

Former Assistant U.S. Attorney Christopher Alberto, who prosecuted Lilly in Massachusetts for falsified loan applications and filed the civil suit, laughed when he learned about the win in foreclosure court, remembering the couple as true Boston “characters.” Alberto was happy to collect the $5 million settlement just before the real estate crash.

“They do love the phoenix theme, that is absolutely their thing,” said Alberto, who asked whether Lilly still had the Ferretti yacht named We Won that he would float by the courthouse.

He doesn’t, according to Oppenheim.

In the July trial, Oppenheim asked that Colton hear the case if it comes back to court.

“If I’m still alive,” Colton said.

A five-year statute of limitations on pursuing some contract disputes is largely untested in Florida’s foreclosure courts, but could have won a Boca Raton couple a free mansion. The bank is fighting to reopen the case, which was dismissed last month.

Real estate attorney and foreclosure defense attorney, Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife Ellen in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook.

Credit: (Photo by Richard Sheinwald)