Controversial Firm MV Realty Seeks Bankruptcy Protection As Lawsuits Mount
Boca Raton, Florida-based real estate firm MV Realty filed for Chapter 11 bankruptcy protection this week amid nationwide scrutiny of its business model and practices.
MV Realty faces lawsuits over alleged deceptive trade practices in seven of the 30 states where it operates. The company, which pays homeowners for the right to sell their home at a future date, owes $52M to its largest three lenders and lists its assets as totaling between $10M and $50M.
The company owes Chicago-based Monroe Capital $40M and two funds controlled by Toronto-based Goodwood Capital Fund a combined $11.8M, according to court records. Monroe received an equity interest in MV Realty in exchange for the July 2021 cash infusion, while the Goodwood funds were backed by the value of the homes that MV Realty had contracted to sell.
The structure of the homeowner contracts, part of MV Realty’s Homeowner Benefit Program, has come under scrutiny and led to lawsuits from the state governments of Florida, Pennsylvania, Massachusetts, Ohio, North Carolina, New Jersey and Indiana.
MV Realty “commenced these Chapter 11 proceedings to protect and maximize the value of their assets and for the purpose of implementing one or more strategies aimed at alleviating or otherwise minimizing the financial strain of the State Actions,” Michael Seese, an attorney at the Fort Lauderdale-based Seese Law that is representing MV Realty in the bankruptcy, wrote in a motion seeking access to cash collateral during court proceedings.
Neither MV Realty nor Seese immediately responded to Bisnow’s request for comment.
The HBP agreements provide homeowners with an upfront payment ranging from $300 to $5K in exchange for a 40-year exclusive right to broker the sale of the property when an owner decides to put it on the market. MV Realty has entered into 34,000 agreements with homeowners with a total value exceeding $120M, according to the bankruptcy filing.
MV Realty was founded in 2014 initially as a traditional real estate brokerage firm but pivoted to a focus on Homeowner Benefit Program agreements in October 2018, according to court documents. The contracts amount to a lien on the property because they act as contingency credit issued with specific terms.
Legislation has been passed in 16 states that limit or ban contracts like the Homeowner Benefit Program, according to Boston 25 News.
The Massachusetts attorney general filed a lawsuit in December that alleged MV Realty had deceived more than 400 homeowners in the state with “abusive contracts.” A superior court issued a preliminary injunction in March that effectively blocked MV Realty from operating in the state.
On Sept. 20, two days before the bankruptcy filing, Florida’s attorney general asked a judge to freeze the company’s assets and operations.
In addition to lawsuits in seven states, three U.S. Senate committee chairs sent a letter this month to MV Realty, saying they were concerned that the company continued to advertise the HBP contracts despite suspending new enrollments.
The letter, signed by Ohio Sen. Sherrod Brown, said the senators were concerned for homeowners enrolled in the program and the potential for the contracts to cause future harm.
“When a company acts like that, they laugh all the way to the bank,” the letter said, according to Action News Jax.
MV Realty said in its bankruptcy filing that the lawsuits and scrutiny had cost the company millions of dollars in legal fees and forced the firm’s personnel to devote “substantial time” to assisting defense counsel.
In its bankruptcy filing, the firm defended itself against the accusations of deceptive business practices and other allegations that it had engaged in telemarketing violations and targeted customers who were elderly or had diminished financial means.
It said the average home value for the contracts it entered was above $300K and that the average age of homeowners who signed up was under 55 years old, with 72% of homeowners being under 65 years old.