Sincerely,
R Kessler
Bruce allowed Pierre to read the letter; other bidders gathered around as well. Bruce made a half-hearted attempt to shield the letter from the other bidders, then, moving away from the group, addressed Pierre in a whisper he knew would carry in the wind. “This was taped to the front door when I got here. I wish I had known about it before the auction; it might have affected the bank’s bidding strategy. The worst part is that the new owner could be liable to the tenant if the kid really is poisoned. And you’re talking some pretty big damage awards in these lead paint cases. By the way, peak through the front door and check out the pictures taped to the walls in the foyer.”
Pierre and the other bidders walked up the stairs and peer into the foyer. Bruce knew what they would find—three crayon pictures hung on the walls, all with the name “Brad Kessler” scrawled across the bottom. They were Bruce’s first crayon drawings in almost twenty years, and he was pleased with them. Maybe he would be able to slip back into the building later on and retrieve them—his refrigerator could use some decoration.
Bruce filed the letter in his briefcase. ‘Kessler’ was indeed the name on the mailbox, but last week Bruce had learned that Ms. Kessler was actually a college student with no children who had vacated the apartment in December, at the end of the fall semester. He would throw away the only copy of the letter before he returned to the office.
One more trick. Fumbling with his bulky gloves, he rested his briefcase on one knee and opened it. He waited a moment for the wind to let up, then grabbed in vain for a sheet of paper as it slipped out the side of the briefcase. “Darn,” he yelled. The paper floated to the ground with the other snowflakes, landing face up in a snowy footprint. Heads, I win, Bruce said to himself. In big, block letters, the paper read:
BID INSTRUCTIONS: Bid up to $165,000
Bruce knew everyone would turn to it immediately; foreclosure bidders were like sharks, circling the attorney and auctioneer, hoping to feast on stray pieces of information. The paper had as little chance of going unnoticed as bloody chum in a shark cage. Awkwardly, Bruce bent over and picked up the paper, trying to shield its contents with his body. He stuck it back in his briefcase—it, too, would be destroyed.
It was now 4:15, and the auctioneer was eager to begin reading the required legal notices and terms of the sale. Normally he would have begun doing so immediately at 4:00, but Bruce had asked him to wait until 4:15, “just in case anyone is stuck in traffic.”
Finally, Bruce authorized the auctioneer to begin his readings. Bruce had drafted an especially lengthy set of documents, and it took the auctioneer a full twenty minutes to complete the readings. Many of the bidders were now stomping their feet and covering their ears with gloved hands. One man’s mustache had turned white from a frozen coat of snow, and another had removed his ice-caked glasses. Only Bruce seemed unaffected by the weather—electric socks, thermal underwear, and thoughts of profit were keeping him warm.
Bruce addressed the group. He folded his hands behind his back, striving to strike a pose of candor and openness. “Some of you may have seen a letter from the tenant regarding lead paint poisoning. Just so there is no confusion here, the bank makes no representations regarding this letter. But to be fair, I have to tell you that if you buy the property, you are responsible for any claims the tenant may have against the property. Also, as the auctioneer announced, you are buying this property in ‘as is’ condition. You are also buying this property subject to any title defects. Finally, your inability to obtain a mortgage or otherwise close in twenty-one days will not excuse you from performing under the terms of this sale. In other words, if you don’t close in twenty-one days for any reason, you lose your $20,000.” Bruce paused here, lightened his tone. “Look, I just don’t want anyone to get hurt here. Twenty grand is a lot of money, and I would hate to see you lose it. Just make sure you know what you’re getting yourself into.” Bruce almost laughed out loud—who would bid when the big firm attorney for the bank had done them the favor of hinting that it would be imprudent to do so? Free legal advice was hard to ignore.
Bruce then leaned over and pulled a cellular phone out of his briefcase—the firm had recently purchased a few cell phones for the lawyers to travel with. He removed a glove, feigned dialing a number, spoke loudly into the phone. “Hi, this is Bruce Arrujo, from Boston. We’re ready to begin the bidding.” Bruce hoped the others would assume he was on the line with a representative of the bank.
He spoke to the auctioneer. “You may begin the bidding.”
The auctioneer stepped onto the front stoop and called out, “What am I bid for this property. Do I have an opening bid?”
Bruce called out in a clear voice. “I have a bid here for $88,756.17. Also, Nickel Bank reserves its right to increase this bid.” These two sentences were crucial for Bruce, and he had struggled with their wording for days.
He had informed the auctioneer that a wealthy Arab investor from New York had qualified by mail and would be bidding by telephone; since the auctioneer was technically officiating at the auction, Bruce needed the auctioneer to understand that the $88,756.17 bid had come from this Arab bidder. To the auctioneer’s ear, he hoped the second sentence would sound unrelated. That is, the Arab bidder made an opening bid, and, by the way, Attorney Arrujo, young and a bit nervous, was making it perfectly clear to the bidders that the bank reserved the right to enter into the bidding at any time.
On the other hand, he wanted the other bidders to believe he was talking on the cell phone to the bank, against whom they were less likely to bid in light of their knowledge of the bank’s ultimate bidding strategy. Which is why he chose the $88,756.17 figure—he hoped the other bidders would conclude it was just some random opening bid the bank’s accountants had come up with, followed by a second statement from the bank that it reserved the right to increase its bid.
The auctioneer looked at Bruce quizzically—where had the Arab bidder gotten that number? Bruce just shrugged and smiled, as if to say: “Who knows where those crazy Arabs get their numbers?” To the bidders, he hoped it said: “Who knows where those crazy bankers get their numbers?”
The auctioneer asked for further bids, and Bruce froze for a second as the man with the mustache lifted his hand. But he was just brushing snow off his shoulder, and as the group stood impassively, Bruce knew he had won. The temperature had dropped even further as the sun began to set, and the bidders had been standing outside in the cold for over forty minutes now. Their body language said they were far more interested in getting into a warm car and beginning their weekends than they were in prolonging the auction. The sale had been chilled, both literally and figuratively. Nobody would take the extra time now to engage in a bidding war when they all knew the bank would bid up to $165,000. Especially with the lead paint issue. “Going once, going twice, sold for $88,756.17.”
Bruce said good-bye to Pierre and climbed into the auctioneer’s car. He pulled out a document entitled “Sales Agreement,” and began filling it out. In the blank next to the word “Buyer,” he wrote “Arabian Acquisitions, as per telephonic bid authorized by attached letter.” He filled in the purchase price, and handed it to the auctioneer to sign as agent for the seller. From his briefcase, he pulled out a letter on Arabian Acquisitions letterhead and stapled it to the Sales Agreement. The letter requested that Bruce contact them by cellular phone from the auction and allow them to bid by phone. Attached to the letter was a Citibank cashier’s check made out to Nickel Bank in the amount of $20,000, to be used as a deposit in the event they were the high bidder.
He turned to the auctioneer. “Well, that should do it. Some rich Arab just bought himself a piece of Boston. Thanks for your help.”
“My pleasure, Mr. Arrujo. Say, do you mind if I offer a piece of advice?”
“Please, I’d appreciate it.”
“It seems to me that you were too nice to those bidders. Maybe one of them would have bid higher if you hadn’t s
hown them that lead paint letter. Not that I care, I’m not working on commission anyway, so I don’t care how much you sell the property for.”
Of course you’re not on commission, you idiot, for that very reason. You’re simple-minded and content—fat, dumb and happy. That’s why I hired you and not Samuel Leumas. “Yeah, I guess you’re right. It just seems unfair to not tell them. Besides, I don’t want my client to be sued by one of them later on because I didn’t disclose something I knew.”
“I see your point. You’re the attorney, you know best. Sit tight, I’ll give you a ride back to your office.” Bruce sat back, closed his eyes, and enjoyed the slow, slippery ride through Boston’s snowy streets.
* * *
Pierre was feeling pretty good about things. He had struggled with the problem of trying to minimize the risks of buying at foreclosure, but had been unable to find a solution. It simply wasn’t economically feasible to hire an attorney to review the title to every property before every auction, and Pierre wasn’t yet fully confident in his own title searching skills. Maybe Bruce was the solution.
There was no reason for Bruce to have told Pierre about the lead paint problem—it was exactly the kind of risk that a foreclosure bidder was required to assume at an auction. But Bruce seemed to have a sense of loyalty to Pierre. Was it just because of a single client referral? Could be. Clients in a shrinking economy were a rare find for a young attorney.
Whatever the reason for Bruce’s loyalty, Pierre was grateful for it. He knew Bruce had scheduled a number of foreclosure sales over the next few months. If he could count on Bruce to warn him away from the risky properties, he could bid aggressively on others. He would make it a point to attend all of Bruce’s auctions.
* * *
Bruce went home that night, ordered a pizza for delivery, and sat in front of the television set with the channel clicker. He was interested in the late-night sitcoms and old movies. Or more accurately, in their commercials. He needed an attorney to front for an Arab company, one who wouldn’t ask too many questions. The attorney he was looking for would be the type to advertise on The Three Stooges or an old Jerry Lewis movie. Too bad Roller Derby wasn’t on anymore.
By the end of the night, in addition to a headache, he had a list of seven law firms, three of which specifically advertised that they did real estate work. One in Springfield, on the other side of the state from Boston, particularly interested him—it actually seemed like a real firm, anxious for clients but still trustworthy. And far enough away to stay out of the way.
He woke up the next morning and pulled out a stack of checkbooks issued by different credit card companies. Since he had officially been admitted to the bar back in November, banks and financing companies had inundated him with offers of pre-approved credit cards and lines of credit. He had signed up for every one of them. Together, they offered him a total of $55,000 of unsecured credit. He had $34,000 left from the sale of the Manet, $20,000 of which he had used to buy the Citibank cashier’s check. He needed almost $90,000 to close on the Marlborough Street condo. By using his next couple of paychecks, he should make it. Barely.
* * *
[January 22, 1990]
First thing Monday morning, Bruce called the Nickel Bank employee in charge of Massachusetts foreclosures. His name was Chris Jones, and Bruce had immediately concluded that he had a personality to match his name. He was the quintessential “empty suit”—recent business school graduate, at work by 7:30, intent upon climbing the corporate ladder through sheer tenacity. Chris Jones understood his assignment perfectly: Work through the bank’s list of Massachusetts foreclosure cases as quickly as possible, and then come back for another assignment.
Bruce felt comfortable dealing with Chris Jones, as well as with the bank as a whole. It was all a matter of knowing which buttons to push. It was a mistake to assume that large institutions such as banks would act in a purely rational manner. In a political science course in college, Bruce had read Essence of Decision, an analysis by Graham Allison of how governments make decisions. Allison theorized that governments often did not act “rationally”—that is, they did not base decisions on an objective cost-benefit analysis. Instead, sometimes they acted under pre-established standard operating procedures, rational or not. On other occasions, the actual individual making the decision for the government would act in a way that would benefit him or her personally, but might not be in the best interests of the state as a whole. Bruce had found the book to be a brilliant insight into governmental behavior. More importantly, Bruce believed that Allison’s decision-making models worked equally well in analyzing—and predicting—decisions of large institutions like corporations and banks.
In the case of Nickel Bank, Bruce knew that the bank was not making decisions relating to the Massachusetts foreclosure files in a strictly rational manner. For example, a smaller local bank that possessed Nickel’s portfolio of bad loans would assign a senior bank officer to each loan. That officer would study each property carefully before making a decision on bidding strategy. That is, the bank officer would do many of the things Bruce had done when Puck gave him the foreclosure files—visit the properties, speak to the local brokers, investigate the tenant situation. Then the officer would determine a rational bidding strategy based on his experience and on the information he had obtained. The small bank’s bid would have probably been in the neighborhood of $125,000 for the $145,000 Marlborough Street condo, a 15 percent discount reflecting the risks, costs and loss of liquidity associated with re-marketing the property.
Nickel, of course, did not behave this way. They were simply too big, and had too many bad loans spread out over too wide a geographical area. Instead, Nickel established a set of operating procedures which governed how to handle its foreclosures: Hire a local attorney, rely on him to hire a local appraiser, foreclose as quickly as possible, and then, as Bruce himself had suggested in his memo, bid 70 percent of the appraised value at the auction. Put the whole process under the oversight of a junior employee, and reward the employee for disposing of the properties as quickly as possible. It was how large companies often behaved, and nobody ever even gave it a second thought.
Except, of course, Bruce. He understood the bank’s operating procedures, and was careful to operate within them. But it was their choice to rely on these procedures instead of expending the time and expense to perform a more thorough cost-benefit analysis. And if their choice to operate in a less than rational manner resulted in a less than optimal recovery, well, that was their fault, not his.
As for Chris Jones, he was thrilled that Bruce had sold the property for more than the $84,000 minimum bid. It was one less file on his desk, and the extra four thousand dollars was an added bonus. It never occurred to him to ask Bruce why nobody bid more, or even how many people attended the auction. His task was to dispose of the property as quickly as possible for at least $84,000, and he had succeeded. The fact that the bank had lost $70,000 on the loan was somebody else’s problem, not his—he had been at Princeton when some loan officer approved the original loan. If Bruce could keep it up, or, more accurately, if Chris Jones could continue to manage both the assets and Bruce in an efficient manner, he knew a bonus—and maybe even a promotion—would be in his future.
* * *
Later that day, Bruce’s phone rang. The display on the window of his phone identified the caller as Bertram Puck, Jr.
“Yes, Mr. Puck.”
“You wished to see me?”
“Yes, sir. I wanted to update you on Friday’s foreclosure for Nickel Bank.”
“Young man, I do not need to have a conversation with you after every auction. This is a law firm, not a support group.”
“Of course, sir.” Or should he have said, “Of course not, sir”? It was all in the delivery anyway.
“I do, however, expect a written summary after every auction. By the following day. If it’s not too much trouble, Mr. Arrujo.”
Bruce saw Puck’s extension disap
pear from the display, indicating Puck had hung up. Puck seemed like he was in a worse mood than usual, and Bruce couldn’t help being bothered by the fact that he really didn’t understand the old man at all.
* * *
Pierre’s conversation with Howie wasn’t going exactly as Pierre planned.
“Pierre, I don’t know why you’re upset. It seems to me that Bruce Arrujo is really going to help us.”
Pierre took a deep breath, counted to three. “I totally agree, Howie. It’s just that I thought we were going to buy stuff at auction, and then flip it. I really think we can make some good money doing this.”
“Maybe so, Pierre, but why do it that way? Why not buy and hold? If you’re right, and the market eventually will come back, why not put together a portfolio of properties and hold onto them for a few years? Then we can sell after prices have really risen.” Pierre knew that Howie had read a lot of books on investing, and they all said to buy low and hold, not buy and sell. “If we sell, then we just have to pay the taxes on the gain and then go buy something else to sell and pay the taxes again. And I’m in the top bracket, so that’s almost 50 percent for me. Why not just keep the first thing and pay the taxes only once?”
Howie’s strategy made sense for Howie—he was single and earning six figures. And Howie’s strategy would allow Pierre to pay for Valerie’s college someday. But Pierre was more concerned right now about next week’s groceries. He took a deep breath. He knew how stubborn Howie could be about certain things, especially things he had read in investment strategy books. They were like the bible to Howie. “Look, I’ve got to generate some income. I can’t wait a few years for our profit.”
“Sorry, Pierre. I’m not going to take all this risk and then give Uncle Sam half my profit.”
Pierre decided to try a different tack. “What you say makes sense, Howie, but I’ll be honest, my brokerage business is dead. I’ve got to put food on the table. Would you be willing to lend me, say, $20,000, short term so I can buy a property and do a quick flip myself? I can give you a second mortgage on my Brookline condo, and I’ll pay 14 percent interest.”
[Boston Law 01.0] Unlawful Deeds Page 14
