INVESTIGATORS: Selling the dream
Brenton Hayden is a 30-year-old wunderkind who in eight short years has turned Renters Warehouse into the second-largest real estate management company in the country. But as he told TV host Steve Harvey last December, his rags to riches story had an early hiccup.
"In order to survive, I found that many of my clients were engaged in a scheme to defraud mortgage lenders, this not only tarnished the name of my company it embarrassed me," Hayden told Harvey, adding that he ultimately closed that business.
That business was a company called Hot Properties, and two of Hayden's closest employees have a different recollection of events.
"This guy was going to take me under his wing and show me the American Dream," said Jason Burns, the former Vice-President of Marketing for Hot Properties.
Hot Properties former Office Manager, Ian Smith, said, "I thought that was my future: investment real estate. I was wrong."
The bubble
Smith and Burns met Brenton Hayden in late 2006, at the peak of the real estate bubble. Both men say they were young, and knew very little about real estate, but that Hayden convinced them both to buy investment properties that would eventually help them launch their own real estate empire.
"'Do you want a free house and a lot of money?' is what he told me," said Burns recalling his conversations with Hayden.
"There wasn't an investment real estate deal the Brenton would do if he wasn't getting paid on the back end by some equity," added Smith.
The deals
Smith says with Hayden's instructions filling out the paperwork, he bought a five-bedroom home in Eden Prairie, just down the street from where he was living in his mother's basement.
He says Hayden put down on the lending forms that Burns was making $12,400 a month. But Burns says that was closer to his annual income as a radio station intern.
Burns purchased the Eden Prairie home for $455,000, but the bank loan was for $545,000.
Hot Properties got a commission of $14,987, plus an extra $58,587 as a "Pre-Paid Management Fee."
On the loan application Burns claimed $35,393 in the bank, but says the account was really controlled by a Hayden associate, and his name was added at the last minute.
"The way Brenton explained it everything made sense," Burns said. "People take out home equity loans all the time, you're just doing it upfront."
Burns said Hayden assured him, "I've done this 100 times. If it was illegal, I'd be in jail."
Ian Smith's real estate nightmare involved a four-plex on Chicago Avenue in Minneapolis. On the market for $440,000, Smith said Hayden instructed him to take out an Adjustable Rate Mortgage for $550,000, with a 17% interest rate.
Hot Properties got a so-called "facilitators fee" of $99,000.
Smith says Hayden would told him he would go into closing with no money down and walk out with $90,000 and would be stupid not to take the deal.
"I was stupid to take that deal," Smith said with a chuckle.
The fallout
"Jason and Ian told me they really believed they were getting in the ground floor of building their own personal real estate empire," said their attorney, Glen Bruder.
Bruder told the Fox 9 Investigators their real estate deals were loaded with red flags: inflated income, inflated value of the properties, and payments disguised as facilitator and management fees.
By late 2007, the market had turned and lending rules changed. There would be no more real estate deals with Hot Properties. Within six weeks, Smith was underwater with the Chicago Avenue four-plex and would eventually declare bankruptcy. Burns would make payments on the Eden Prairie home for a year, before it eventually went into foreclosure and was sold at a sheriff's sale.
"It was only after they realized they were the flotsam and the debris and everyone else moved on," said Bruder their attorney.
Meanwhile, Brenton Hayden at Hot Properties was in hot water with the Minnesota Commerce Department.
In November 2007, Commerce Department investigators determined Hayden was orchestrating deals without an active real estate license. In a stipulated ruling signed by Hayden, Commerce said he had engaged in, "…fraudulent, deceptive and dishonest practices by participating in a scheme to defraud mortgage lenders." His inactive real estate license was revoked, and he was "permanently barred from the mortgage originating and servicing industry."
The Commerce Department also fined Hayden $10,000 and he wanted his former employees, Smith and Burns, to help him pay the fine. They said Hayden also threatened to sue them after they began warning friend about their experience.
Hayden's side
For three months the Fox 9 Investigators have tried to talk to Brenton Hayden about Hot Properties and the Smith/Burns real estate deals. Renters Warehouse legal counsel, Republican State Senator Dave Thompson, told us Smith and Burns were simply, "disgruntled former employees."
Hayden's private attorney, Chris Madel, was more direct, threatening to sue Smith and Burns after he learned they talked to the Fox 9 Investigators and leaving this voice mail:
"Mr. Hayden did nothing wrong legally or ethically," Madel said in a letter to the Fox 9 Investigators. "The fact that Mr. Hayden sought money from Smith and Burns…" shows they "…were interested in proving Mr. Hayden's innocence." Rhetorically, Madel added, "Did you ever see any of Tom Petters' fraud victims pay Petters any money for his legal defense?"
Naive or complicit?
"Every time we had doubts, [Hayden] said, ‘Look at me! Look at the lifestyle,'" Burns said.
Both Smith and Burns said they came forward to tell their story after they saw Hayden at the State of Union address this year as the guest of Congressman Tom Emmer. Emmer was once a paid television pitchman for Renters Warehouse infomercials. Smith believes Hayden also aspires to enter into politics.
A rebranding
"How did you turn it around?" TV host Steve Harvey asked Hayden last December.
"I rebranded the business, I rebranded me," Hayden said, starting up Renters Warehouse.
Hayden got his real estate license back in 2009 and is now franchising Renters Warehouse across the country. Hayden's infomercials also offer people advice on how they become millionaires in the real estate market.
"It's a business in itself, selling the dream," Smith said. "He's not the only guy doing it."
Hayden's attorney wrote another letter to the Fox 9 Investigators just a few hours before broadcast. In that letter he said Hayden signed the Minnesota Commerce Department order in 2007 because he could afford an attorney. Madel also claimed Burns contributed money because he knew Hayden wasn't responsible and because Burns wanted to put the matter to rest. Madel added that once Hayden could afford to hire an attorney in 2009, the Commerce Department reinstated his real estate license and "reversed itself." The Commerce Department tells Fox 9 Hayden is still barred from the mortgage business per the 2007 order.
Finally, Madel told the Fox 9 Investigators that Hayden has build a successful company, Renters Warehouse, with a sterling reputation.