A longtime El Paso real estate investor, John Trien, filed for Chapter 11 bankruptcy to stave off creditors last month, and says he did so chiefly to protect more than a dozen homebuyers facing foreclosure because of him.
The massive filing involves more than 150 properties and two-dozen lenders.
Trien, 76, fled Vietnam to the U.S. in the 1960s, served as a language instructor at Fort Bliss and has been in real estate for about 50 years in El Paso. He and his wife also opened the city’s first Vietnamese restaurant, Pho Tre Bien.
But he’s gotten himself in trouble a number of times in recent years over late payments to creditors and the kinds of deals he has struck, including what are known as wraparound mortgages.
Trien says he filed for bankruptcy protection on the morning of Aug. 6 to prevent EPT RR Notes LLC from foreclosing that afternoon on 35 of his properties because of his nonpayment on promissory notes secured by residential property deeds.
Among them, he said, were five or six homebuyers who had paid off their home loans to him.
But he used those properties as collateral for loans and then fell behind on the payments to EPT, putting the innocent homebuyers at risk of losing their houses if EPT foreclosed.
The homebuyers “paid me off, but I failed to make the payments, and those I really wanted to protect,” Trien said. “I cannot let them foreclose on those homes.”
Such financing arrangements are known as wraparound mortgages. A type of owner financing that is legal in Texas, “wraps” basically use one loan to pay another. But they can be risky and are most often used by buyers who cannot get traditional financing.
El Paso’s Texas RioGrande Legal Aid, or TRLA, has intervened in the Trien bankruptcy on behalf of about a dozen homebuyers who are at risk.
EPT became Trien’s creditor when it bought a portfolio of his mortgages and loans from the former First National Bank, now WestStar, which had always been Trien’s go-to bank for loans on real estate investments.
He told El Paso Inc. the problem that led him to file bankruptcy wasn’t a shortage of assets but of the cash he needed to pay EPT before it foreclosed on him.
Documents he and his attorney, Bud Kirk, filed with the Federal Bankruptcy Court in El Paso show Trien has real estate holdings worth $17.5 million and debts of only $7.8 million.
In an attempt to avoid EPT’s impending foreclosure, Trien said he struck a deal with a pair of buyers who were going to pay $2.9 million for 35 of his properties that are free of debt.
“I was going to pay almost everybody, and on the 31st of July, I was all up to close, but two hours before the closing, the buyer called and said her partner wouldn’t go through with it,” he said, passing his hand over the prepared sale documents on his desk that were to have been signed that morning.
The foreclosure was set for the following Tuesday, Aug. 6, but he filed for Chapter 11 bankruptcy protection that morning to prevent it.
“We saved those properties, and I have put every one up for sale again,” he said. “I intend in the next six months to pay everybody off. I try to be optimistic, but it could be nine months.”
In all, Trien said he has over 100 properties he intends to sell before he closes Trien Realty at 9565 Dyer St. and retires.
“I am 76 years old, and I don’t want to drag it out another 10 years,” he said, laughing.
El Paso attorney Harrel Davis, who represented one of Trien’s other creditors at the first bankruptcy hearing last week, said he would have no objection to Trien selling properties to pay his debts, even though there’s no approved plan to do so.
“At the end of the day, I’m not going to stand in the way of him selling properties as long as it’s not his cousin, and it’s fair market value,” Davis said.
TRLA attorney Verónica Carbajal said the nonprofit agency has intervened in the bankruptcy to protect the interests of 12 homeowners who are current on their mortgages or have paid off their home loans with Trien.
While they’ve paid him, he has not kept up with wraparound loans he took out against their homes to invest in other properties, and now those homes are subject to foreclosure by EPT.
“What we’re asking for, first and foremost in these 12 cases, is that our clients get clear titles so they’re able to keep their homes,” Carbajal said. “If they have titles, we want to ensure that they don’t lose them.
“If they don’t have titles because they only have a contract for deed, we want to see that they get title.”
In addition, she said, if the buyers have paid off their debt to Trien – as five or six have – they should get a release of lien from him and the first lienholder.
Wraparound mortgages, she said, are complicated arrangements that put homebuyers at risk because they involve lenders who aren’t banks but who are, effectively, acting like banks.
“If everything is done correctly and legally, things can work out,” Carbajal said. “But Mr. Trien has mismanaged his funds and was not paying the first lien.”
Email El Paso Inc. reporter David Crowder at firstname.lastname@example.org or call (915) 534-4422, ext. 122 and (915) 630-6622.