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Ted Nugget: Ramifications of divorce tactics
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In up-dating the Leasing News Broker/Lessor list, there were several who said they are no longer in business as a broker, but as a vendor. It was easier for them to be set up as a seller of equipment and submit leasing applications in this manner.
This is not new---except for the admitting of this practice. For years many brokers had the ability to submit deals through their vendor contacts, mark-up the equipment or participate in vendor fees from funders, to get leases completed. There were even brokers who actually were resellers of equipment at basically their cost to get the leasing vendor referral fees, and some also made mark-up in equipment or did “sales/leasebacks” with their equipment customers. In fact, this was the case that got so out of hand it made headlines as “Operation Lease Fleece.” The FBI arrested 35 leasing executives and their staff, including some vendors, indicted for breaking the law. Most of them plead guilty, but there are a few stragglers, and ironically, they are vendors, real sellers of equipment who reportedly bent the rules.
Brokers and lessors going through vendor “friends” has been going on for quite some time, as far back as 40 years when I first entered the business. Disguised sale/leasebacks or inflated equipment or equipment that never existed. With less companies accepting broker business and credit getting tighter, getting around existing requirements is getting more “sophisticated.”
Most of the major fraud in recent years has been in the cahoots with vendors such as the circumstance at Allied Health Services, Brican America, E.A.R., Wildwood, to name just a few.
Tom McCurnin Barton, Klugman & Oetting, Los Angeles, California, well-known and successful top leasing trial litigator, recently concluded his article in Leasing News about the Iowa court appeals court sending the Royal Links case back to trial, another legal blow to leasing in the State of Iowa:
"If the vendor is selling something without any intrinsic value, coupled with fraudulent inducement of the equipment's attributes or revenue potential, the equipment lessor may not be able to paper over the fraud with lease terms.
"All vendors need to be scrupulously vetted, and deals need to make sense based on the residual equipment value where the equipment is suspect. In this case, selling a $1,000 trailer for $15,000 made no sense, and some courts will find a way to pass that risk onto the lender, where fraud is proven." (1)
Bernie Boettigheimer, CLP, CEO, President, Lease Police, Inc.
This was one of the main reasons Bernie Boettigheimer, CLP, came out of retirement and started LeasePolice.com. His idea was to obtain the data from banks, finance companies, leasing companies on their vendors and the problems they discovered, as well build up a list of vendors he was discovering who had uncommon write-offs for the leases they referred or were out-and-out crooks; to combine this information into a report that could be accessed over the internet at a very low cost.
His software developer created a program to his specifications to coordinate and produce results. Subscribers could get instant reports on the internet, and he also could send them "alerts" about vendor suspicions that were referred to him and he investigated to warn others.
It reached a point that he wanted to do more and came up with this idea of a "Physical Vendor Inspection." He spoke with many site inspection company executives, did research, and decided to go with Jim Merrilees of RTR Services, Salem, Oregon.
The cost could be included in a documentation fee, especially when the equipment or number of leases from a specific vendor reaches a certain number.
""I have always wanted to add to our reports to a site inspection for complete evaluation, " Bernie said. "It took us two years to develop the software for these reports, to collect data, to make it useful, and then a year tweaking it--- and now it is rich with information that no other company has on the vendor industry.
"I then realized after getting all this information, most of the creditors were relying on historical reports, and what they had was only information from serious defaults, and more importantly after they occurred."
"We developed a report based on what we learned, and to take it a step further, wanted to combine it with a current site inspection."
According to Boettigheimer, Merrilees from RTR Services caught on to the concept right away.
Vice-President, Nationwide Division of RTR Services
In an interview with Jim Merrilees, he told Leasing News he saw this as opening the door to the entire business community who is starting to do business with a new firm. The cost is substantially less than sending an employee out to vendor’s location, and with Lease Police software information, is much more thorough, particularly with the questionnaire Bernie and I put together.”
"A funder finds themselves with $1 million worth of paper from a vendor, but knows very little about them,” Boettingheimer explained. " Here is a special format questionnaire along with a specific program for site inspectors to follow, including photographs, all designed to learn current information about the vendor, as well as their products and authorization."
"When the report is complete, it is further processed by Jim Merrilees and myself before given to the client."
Merrilees told Leasing News he knew exactly what Lease Police was after as he had a similar idea back in 1995 when he was president of then the Western Association of Equipment Leasing ((WAEL) (now the National Equipment Finance Association)) and was working with the National Association of Credit Managers. He noted they did not have the software today, and as important, the internet with its fast and inexpensive means to share information immediately.
Merrilees said the concept that NACM was working on with WAEL grew from what he was doing at as president at Colonial Pacific Leasing, Portland, Oregon: running credit on vendors who had a specific number of leases (often from various brokers) as he saw then the problems were more often with the vendor of the equipment. Often, he could not only catch them early to ward off future deals, but before the company exploded, had the opportunity to work out the existing deals on the books. He said he wanted to do more vendor verification and equipment evaluations.
The section on the Lease Police web site "products" gives more information on the new Lease Police Program: LeasePolice.com Physical Vendor Inspection:
(1) Royal Links Appeal Rules Back to Trial
Bernie Boettigheimer, CLP
Jim Merrilees, Vice-President,
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Bank Beat---Columbia State Bank on a roll---
(Columbia Bank has also been active with their leasing division as well as underwriting other leasing companies. At one time, they accepted independent broker business.)
Columbia State Bank, Tacoma, Washington, assumed all of the deposits of First Heritage Bank, Snohomish, Washington, when closed by the Washington State Department of Financial Institutions. The six branches opened today as Columbia State Bank, bringing thier total branches to. Last Friday Columbia took over Summit Bank, Burlington.
January, 2010 Columbia took over American Marine Bank with 12 offices and bought Columbia River Bank Oregon with 21 branches. They took over Summit with three branches May 20, 2011.
March 9, 2011 Columbia Bank opened a new branch in Everett, Washington, announcing it was the second new branch open this year, bringing branches to 85. With the recent acquired banks, the branches now number 101 branches, 75 in Washington State and 26 in Oregon, according to the FDIC.
With the arrangements with the FDIC, undertaking the operation of new branches, investors should be very pleased, particularly wit a March 31, 2011 very high Tier 1 risk-based capital ratio of 17.62%.
Bank equity year-end 2009 was $470.6 million, 2010 $571.9 million, March 31, 2011 $580.3 million. Columbia State Bank lost $2.86 million year-end 2009, made a profit of $30.8 million year-end 2010 and March 31, 2011, $6.2 million. Non-current loans in 2009 were $110.4 million, $218.2 million year-2010 and $154.4 million.
Charges offs 2009, $52.7 million, 2010 $33.7 and $5.67 million March 31, 2011.
The 2009 charges offs were $37.8 million construction and land development, $5.3 million commercial and industrial loans, $2.5 million loans secured by 1-4 family residential properties, $1.2 million in consumer loans, $2.9 million in "other loans," a group of others including $18,000 in lease financing receivables.
2010 charge offs has $13.5 million in construction and land development, $10.1 million in loans secured by nonfarm nonresidential properties, $3.8 million in loans secured by 1-4 family residential properties $2.3 million in commercial and industrial loans, $2.8 million "other loans,"$885,000 "other consumer loans, and $62,000 in lease receivables.
March 31, 2011 charge offs were "other loans" $2.1 million,$1 million loans secured by nonfarm nonresidential properties, $810,000 construction and land development, $854,000 commercial and industrial loans, and recovered lease financing receivables, adding $9,000 back to the bank.
As of March 31, 2011, First Heritage Bank had approximately $173.5 million in total assets and $163.3 million in total deposits. Columbia State Bank will pay the FDIC a premium of 0.75 percent to assume all of the deposits of First Heritage Bank.
First Heritage has received a FDIC Consent and Decease order April of last year citing "“unsafe or unsound banking practices relating to management, capital, asset quality, loans, liquidity, and brokered deposits.” The bank was unsuccessful in raising new capital as when a bank fails, the investors lose everything.
The bank was established January 8, 1982 and had 57 full time employees in offices at Arlington, Everett, Marysville, Monroe, Snohomish, and Woodinville. Bank equity was $14.3 million year-end 2009, $4.27 million year-end, 2010 and $3.77 million March 31, 2011. The bank had lost $729,000 year-end 2009, $435,000 year-end 2010, and March 31, 2011. $435,000. Non-performing loans at year-end were $16.9 million, climbing from the previous year $14.5 million. Major charge offs were $1.5 million in loans secured by 1-4 family residential properties. March 31, 2011 there were charge offs of $1 million first liens, $539,000 junior liens, $103,000 by multifamily proprieties, $17,000 in 1-4 family residential construction, $321,000 land development construction loans, as well as $239,000 secured by nonfarm nonresidential property. Tier 1 risk-based capital ration was 2.97%.
The FDIC and Columbia State Bank entered into a loss-share transaction on $142.2 million of First Heritage Bank's assets.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $34.9 million.
Tracking Bank Failures Map:
List of Bank Failures:
Rhonda Polk of Pacific Premier Bank Nominated
Rhonda Nicole Polk, Pacific Premier Bank, Costa Mesa, California has been nominated for the Orange County Business Journal Women in Business Awards. Her friends are congratulating here for her charitable works and membership on many community groups.
She notes she is "The only female Business Banker at Pacific Premier Bank, my approach is to focus on customer service and relationship management. I work with small and mid-sized companies throughout Southern California.
“The bank is aggressively lending as we have $1.2B in assets currently under management and very low bad debt portfolio. Additionally, we have some of the highest earning credits and lowest fee structures for operating accounts in the state. We practice non-matrix underwriting, meaning we look at the loan requests and the companies as individuals, not just another number. We make human decisions – if it makes sense, we’ll do it. All of this has made my job easier than several of my counterparts at other institutions. "
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Are you Sales Tax Compliant?
I spoke recently to a sales tax auditor that had just completed an audit of a bank leasing company. He discovered that the sales tax had been paid to the state, as required, on the payments received by the bank, however the state had not received the tax from the payments received and retained by the broker/packager. The state tax auditor said because the payment had not been received, they were going to place a sales tax lien on the leasing company and the owner (or the one who signs the check) that originated the transaction. The lien would be cleared when the tax and penalties were paid.
One of the problems of retaining lease payments and having the funding source purchase the remaining payment stream is sales tax compliance on the retained payments. There are some states that have "one time" sales tax forms in order to remit the taxes timely. If they don't have a specific form, brokers/packagers have been instructed to either write "One Time Filing" on the top of their regular sales tax forms or they should prepare a letter submitting the tax and letting the jurisdiction know that this is a onetime event. By doing this, the sales tax is remitted timely and there is no need to register to do business in each jurisdiction.
Even thought the sales tax has been collected and remitted for the last payment, if the lease terminates early and the lessee purchases the equipment there will be a sales tax on the purchase price (early termination amount). The prepaid sales tax on the last payment is just gone forever.
It is common practice for brokers/packagers to ignore the sales tax compliance under the assumption that the amount is too small and the State to far away to worry about it. So they just pocket the money and wait to get caught which in the past hardly ever happen. I am concerned that those days are numbered, not only due to the software available, the sharing of information, but the need for the state’s to find “lost money.” I strongly recommend it is time to start complying with the procedures outlined above and not think you will be overlooked.
There are also many states that want the sales tax paid up front. It is collected by the vendor and this eliminates the problem for the Lessor. However, it opens the door for the State to add a new use tax on the lease payments. This double tax was eliminated years ago thanks to the effort of the then ELA. But I fear they may bring it back. Also you have those States like Texas that wants the sales tax on the rent stream paid up front if the purchase option is less than 10%.
If you are accepting invoices without the sales tax on them as the vendor states the law in their state does not apply to their equipment or out of state sales, best to obtain a signed “re-sale card” that puts the burden on them (if they are still in business when the state finds out that sales tax does indeed apply.)
I would also suggest you add a discussion about sales tax compliance and the possibility that over the lease term the sales tax may increase and that it will be the responsibility of the lessee to pay it. Add it to your closing procedures and inform the lessee verbally, or in writing, of the sales tax requirements. I would add this to the long list of things you define when closing a lease or in the cover letter you include with the copy of the lease when you send it to them.
With the current economic environment many states are on the hunt for revenue. Sales tax audits are becoming more frequent so you need to make sure you are in compliance with each States requirements. Failure to do so will result in fines and penalties.
I also suggest you belong to one of our lease trade associations because they are the ones who are the watchdogs that fight to keep things like the double sales tax requirements from being established that will have a devastating impact on our business. Think of the association dues like life insurance or the greedy tax system will get you in the end.
Mr. Terry Winders, CLP, has been a teacher, consultant, expert witness for the leasing industry for thirty-five years and can be reached at firstname.lastname@example.org or 502-649-0448
He invites your questions and queries.
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47 Charlie Chan Movies
The last three who played the Honolulu detective were Swedish Caucasian Warner Oland (1931 - 1938), American Caucasian Sidney Toler (1938 - 1947), American Caucasian Roland Winters (1947 - 1949). While I liked them all, Sidney Toler looked the most Chinese and was more believable to me. The series was also on radio and popular on 1949-1953 early TV in New York (before TV went "network.")
In the "Jade Mask," the famous detective is assisted by his expensively educated, pseudo-intellectual #4 Son Eddie (Edwin Luke) and panicky partner Chauffeur Birmingham Brown (Mantan Moreland), who both seemed to go everywhere with him.
Edwin Luke only played in this one movie. He was born in Washington. He was the brother of Keye Luke, who played Lee Chan, #1 son in all the other movies with the first popular Chan: Warner Oland. He was born June 18, 1904, Guangzhou, formerly Canton, China. He was the only real Chinese in the Chan movies; a graduate of the University of Southern California. For film buffs, it was Victor Sen Yung (born San Francisco October 18, 1915), who starred in the rest of Toler's moves as Charlie Chan’s #2 Son.
The Black Chauffeur was played by a very popular comedian Mantan Moreland, who became popular in other Hollywood movies and also continued his stage performance popularity. In the fifties Hollywood changes its attitude toward subservient characters played by such actors as Willie Best, Stepin Fetchit and Moreland.
Moreland returned to the stage full-time, but did appear in two all-black variety films in 1955, with Nipsey Russell standing in for Ben Carter as his straight man. He was briefly considered as a possible addition to the Three Stooges when Shemp Howard died in 1955 as he was a great comedian, but it was determined working with two white guys was different than working with one disguised as Chinese. In the late 1960s he managed a modest resurgence on TV and in commercials and occasional films, allowing him to work again with such comic heavyweights as Bill Cosby, Godfrey Cambridge and director Carl Reiner.
Please submit your favorite sayings that would be worthy of Charlie Chan to speak---
Charlie Chan Sayings that have appeared in Leasing News:
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Top Stories---May 23 - May 27
Here are the top ten stories opened by readers:
(1) Correction--- Another Misrepresentation from LEAF?
(2) ACC Capital, Midvale, Utah---and NAELB
(3) John Boettigheimer-The North Open Men's Soccer Championship
(4) Direct Capital Releases FinanceQuote App to SimplifyVendor Finance
(5) “On Deck” Business Loans---aggressive in the marketplace
(6) Telephone call to Jeffrey Taylor in Hospital
(7) Allegiant Partners announces Portfolio Purchase/LineIncrease
(8) Jeffrey Taylor May Go Home Next Week
(9) Brican America evicted in bankruptcy
(10) Leasing 102 by Mr. Terry Winders, CLP
Allan Levine to Cover Annual Crab Feast
Leasing News top photographer, ace reporter, advisory board director, Allan Levine, Chief Operating Officer, Madison Capital, Owings Mills, Maryland will be covering for leasing News the June 9th, 2011 Annual Crab Feast at Obrycki's, Baltimore, Maryland, sponsored by the National Equipment Finance Association, but open to all leasing association members.
Make sure any comments you make to Mr. Levine are either "on the record" or "off the record." He'll be looking for a scoop.
Thursday, June 9th
Fairfield Inn & Suites Reservation ($169.00 special rate)
Tacoma, Washington-- Adopt-a-Dog
SMOKEY - ID#A448086
"I am a neutered male, black and white Labrador Retriever mix.
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FDIC Issues 76 Enforcement Actions In April Against Problem Banks
Housing Index Is Expected to Show a New Low in Prices
Ted Nugget: Ramifications of divorce tactics
Ted Nugget, news anchor at American Network Television (ANT), explores the potential ramifications of the divorce tactic used by Argentina's First Couple
More than 500 cities see more homes become rentals
Compounding mistakes cost Tressel his job
Wine Sales Rise By Nearly 5 Percent In Latest Symphony IRI Data
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This Day in American History
1638 ---Colonial clergyman Thomas Hooker, 51, first arrived at the site of New Haven, CT, having migrated there with his church members who repudiated the autocratic rule of Puritanism in Boston. Hooker (the founder of Connecticut) believed Boston had become corrupt, and that church authority should rest in the people's consent. School books present that many Europeans came to the US to escape religious prosecution, when in fact, while this is basically true, it was to foster their own religious views and were quite prejudice about anyone else's beliefs.
NBA Finals Champions This Date
1983 Philadelphia 76ers
Stanley Cup Champions This Date
1987 Edmonton Oilers.
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