TERRA INDIANA, S.C. – Mick Mulvaney was a young business man and budding politician 11 years ago, when he became co-owner of a company that wanted to build a mall near a busy intersection in this elegant bedroom outside of Charlotte , NC
All you needed was money.
The company put together the loans – which included $ 1.4 million in loans from a family business owned by a prominent local business man named Charles Fonville Sr., according to recordings and interviews of the court.
In the end, the project fell apart. The mall has never been built. And Mulvaney went ahead, building a political career as a tax hawk and a pioneer of the Congress party that throws himself against public deficits out of control – he finally got up a few weeks ago to be President Trump's chief of staff.
Fonville, however, said his company did not receive $ 2.5 million with interest that he said was due. Explaining the debt to a Senate committee during the 2017 confirmation hearing, Mulvaney launched him as a victim of a bad real estate agreement, saying that the sum "will not be paid".
Today, their dispute is at the center of a legal battle taking place behind the scenes in South Carolina while Mulvaney leads Trump through a high-level showdown with Congressional Democrats.
The fight threatens to stain the image of Mulvaney as fiscally responsible, as well as reached the most influential position of his career.
The Fonville company has filed an appeal in a South Carolina court against two companies in which Mulvaney holds a share of the property, accusing them of "intention to deceive", "fraudulent deeds" and "breach of contract" to avoid repayment. The heart of Fonville's affirmation: when a new company linked to Mulvaney was formed and tried to foreclose the first company owned by Mulvaney, it was a maneuver to avoid paying the debt owed to Fonville.
In court, the Mulvaney-related companies denied the allegations and demanded rejection of Fonville & Co's request. But a judge said the case should go ahead. No trial date has been set.
Mulvaney was not sued individually, but at the end of last year – while running the Management and Budget Office and serving as director of the department for consumer financial protection – he traveled to Charlotte to be deposed in the case, said his lawyer.
"I can not believe he treated me like he did," Fonville said during the case interviews, including a month ago while visiting the property that started the dispute. "It's not a small piece of money, you're talking about a couple of million dollars."
"I tried to call him," said Fonville, 83, who claimed to be a Republican who voted for Trump. "He never called me back, I thought Mick was an ethical person."
Mulvaney declined to comment. The White House has asked questions to Mulvaney's lawyer, John R. Buric, who said that Mulvaney did nothing wrong.
According to Buric, Fonville & Co. could not be reimbursed because it is a secondary lender in a project that is worth less than expected. In these cases, if the property is in foreclosure, the principal lender has the right to reimbursement.
While Fonville & Co. had a pledge on property to secure its secondary mortgage, that "pledge is swept away" in an attachment, Buric said.
In that case, Fonville would have received little or nothing, although Buric had kept thinking that Fonville could have received some or all of the $ 2.5 million if the property had eventually been sold for a fairly high price.
The request of the Fonville court, however, presents a much more complicated picture, which exposes a series of transactions by the companies related to Mulvaney that he supports they have been designed to avoid repayment.
The danger of default
Fonville said he met Mulvaney for the first time in 2005, when Mulvaney was in real estate and Fonville ran a car parts distribution center for Ford Motor Company.
Fonville said that Mulvaney visited his office once or twice and discussed a property proposal. Fonville, who used some of his company's profits to invest in real estate, said he invested in the project and made a profit.
Shortly after, Fonville said, he learned that Mulvaney had a 25% interest in a new company, set up to buy 17 acres of land along a commercial road in Indian Land, S.C., for the development of a shopping center. Mulvaney had just won the election in the South Carolina House of Representatives. While there were a number of partners in the business, Fonville said in an interview, one of the main reasons he invested is was the participation of Mulvaney.
Mulvaney told the Senate Budget Committee during the 2017 confirmation hearing that he was the director of the OMB who, while he was not managing the new company, helped to choose the property.
To purchase land, the Mulvaney-linked company, called Lancaster Collins Road LLC, borrowed $ 3.7 million from Paragon Bank, a financial institution based in North Carolina, plus $ 1.4 million from Fonville & Co ., according to a foreclosure trial filed in the Court of South Carolina. Fonville & Co. became what is known as the "mezzanine" lender, which means that it held a secondary mortgage, while Paragon held the main note.
Two people who were identified by Fonville as other Lancaster Collins owners did not respond to requests for comment. Paragon declined to comment.
Over the next decade, efforts to build a shopping center on earth have never materialized. Fonville said in an interview that Lancaster Collins paid him only $ 200,000 in that period to release two hectares developed for a Quik Trip service station. Fonville said he was happy to let interest payments mature because he always believed it would be repaid.
Lancaster Collins had made regular payments to Paragon, according to the cause of the foreclosure. But in October 2016, while Mulvaney was running for his fourth term in Congress, Lancaster Collins still owed the bank $ 2.1 million – and was faced with the prospect of losing a payment and being the subject of foreclosure, according to the lawsuit .
The possibility that Mulvaney is involved in an attachment – aAn act that could tarnish his public image – alarmed him. As he later said at the Congress: "I did not want a company in which I was a defaulting owner on a bank loan."
Thus began the complicated series of maneuvers through which the company connected to Mulvaney avoided the foreclosure – and left Fonville frozen from repayment, now claims.
Mulvaney and two relatives became part of a new company called Indian Land Ventures, according to Buric. Mulvaney then borrowed between $ 1 and $ 5 million to fund this company, personally providing a loan from Southern First Bank, according to its federal financial disclosure form. The new company, in which Mulvaney was a manager, used the funds he borrowed, along with other assets, to purchase the mortgage held by Paragon Bank.
As a result, the threat that Mulvaney claimed to fear – that a company of which he owned was in default in a bank was avoided.
I'm disappointed by Mick & # 39;
But the plan is not finished here.
The new Mulvaney company, Indian Land Ventures, was now in effect the lender of the co-owned company, Lancaster Collins.
In a few days, the Indian land has accused Lancaster Collins, in November 2016, of not having respected its debts. "The request was made on Lancaster to pay off the balance, but Lancaster refused, and said that the refusal is continuing, all for the injury of the claimant," said the deposit. The Indian land has filed a notice with a South Carolina court that would have started the foreclosure against Lancaster.
In other words, a company connected to Mulvaney cited another, accusing the "refusal" to pay on time. As Mulvaney explained at the Congress: "A company in which I am a minority owner has filed a foreclosure action against another company in which I am a minority".
The foreclosure had another effect, as Mulvaney also admitted in his written statement to the Senate Budget Committee: "As a consequence of this foreclosure, the mezzanine loan provided by Fonville & Co. will go unpaid".
The reason that the debt to Fonville would go unpaid, said the lawyer of Mulvaney, Buric, is that the value of the property had declined due to the financial crisis that began at the end of 2007. While there was enough value in the deal to pay the primary lender, there was nothing left to pay in Fonville, the secondary lender.
Fonville stated in the interview that he had agreed to take a secondary position because the company would have to pay an interest rate of 10% higher than usual and get a share of profits in the business.
Fonville said that after learning that the Indian Land foreclosure effort could mean that Fonville & Co. would not receive anything, he called the Mulvaney office at the end of 2016 – while Mulvaney was still a member of the House of States United representing a district of South Carolina – but has never received a call back.
Fonville said he felt blinded by the foreclosure action and said he believes the companies connected to Mulvaney are trying to avoid paying him the $ 2.5 million they owed him.
"I'm disappointed with Mick for not contacting me," Fonville said. "It would have been the ethical thing to do, I was a successful business man, and I did it by dealing with people I thought were honest, and I trusted people, and it never came to me. I should have had some questions about trusting Mick Mulvaney. "
On February 13, 2017, three days before Mulvaney was confirmed as director of the OMB, the attorney of Fonville & Co. filed the counterclaim request to block the attachment and obtain repayment of the loan.
In his appeal, Fonville & Co. claimed that an unidentified person who was connected to both companies – referred to only as "Member A" – engaged in a plan "with the intention to deceive and constitute fraudulent and unjust acts conducted "in an attempt to avoid paying the debt to Fonville.
Member A Fonville & Co. allegedly assured that eventually it would be repaid – even while designing a plan to avoid repayment, according to the lawsuit. "By not disclosing the scheme for the purchase and foreclosure of mortgages through Indian land, Member A has violated fiduciary duties due to Fonville," said the counterpart.
A lawyer from Fonville & Co. declined to comment.
The Indian land tried to go through the foreclosure and rejected the counterclaim of Fonville & Co., saying that Fonville & Co. had voluntarily subordinated its secondary loan to the primary mortgage.
But South Carolina District Judge John C. Hayes III rejected the motion to dismiss the issue, saying in June 2018 that Fonville & Co. had raised "new legal issues" that should be addressed.
Explaining the issue to Congress, Mulvaney had initially told the Senate Budget Committee in January 2017 that the Fonville & Co. loan was "unsecured". This could have left the impression with the commission and the public that Fonville had not resorted to requesting payment because the loan was not secured by property or other means.
In fact, public records show that Fonville had pledged the property that guaranteed the mortgage.
Mulvaney later sent a document to the committee acknowledging that he had "mis-described" the question, saying that the property was, in fact, "secured by a second mortgage," according to a copy obtained by The Post. The Mulvaney lawyer said that Mulvaney meant that the loan was not personally guaranteed by other assets.
Furthermore, Mulvaney had initially told the commission that the attachment was "unchallenged" at that time.
However, Fonville defined this statement in bad faith because he said he did not know about the foreclosure effort and acted once he did it. A month after Mulvaney's statement to the Senate committee, the Fonville company contested the attachment to the South Carolina court.
Mulvaney of the Congress the confirmation transcript shows no evidence that it changed the record to reflect that the foreclosure was subsequently challenged.
Virginia Canter, chief advisor to Citizens for Responsibility and Ethics in Washington, a group of observers who sent letters to Congress and a federal surveillance agency asking for an inquiry into the deal, said it raises questions about Mulvaney's financial skills, judgment and ethics.
"You have the guy who runs the OMB who looks very tax-conscious," said Canter, who worked as a White House advisor in the Clinton and Obama administrations. "It is moving away from a considerable amount of debt through a very unusual transaction, and has misrepresented this as an unchallenged foreclosure."
Senator Jeff Merkley (D-Ore.), Who asked a written question to Mulvaney about the loan during the confirmation hearing, said in an interview that "based on Mulvaney's response in writing, He handed me over, I'm very worried he did not give the full story, which implied that the transaction was completely resolved, and it was not. "
Merkley said the question "deserves a much more in-depth examination".
Fonville's effort to be repaid is making its way through the South Carolina judicial system. The court, in effect, froze the foreclosure effort on June 17, 2018, saying Fonville & Co.'s allegations had to be heard.
The court ruled in August that Mulvaney could be deposed and questioned "about any statement he made to the US Congress concerning the real estate transaction that is the subject of this lawsuit". This deposition took place recently in North Carolina, Buric said.
Buric said that a previous effort to resolve the issue has failed. He said that a manager from Lancaster Collins last year "approached Mr. Fonville and asked him to negotiate his debt so that both Fonville and Paragon could be paid, or that he would buy Paragon debt." He said Fonville refused.
Fonville denied that there was a discussion to negotiate the debt. "No one has ever come to me and tried to negotiate anything on the note," he said. Buric upheld his claim.
Fonville, meanwhile, said he was not discouraged by the fact that Mulvaney now has such a powerful position in the White House.
He said he spent $ 30,000 in legal fees and is willing to spend more. Standing near the disputed property, a quiet stretch of greenery near the Quik Trip gas station and surrounded by shopping malls, Fonville promised, "I'm going to stay after it."
Alice Crites contributed to this relationship.