LV mobile home dealer accused of fraud, files for bankruptcy

Grace Leong

Thursday, March 22, 2001 | 11:11 a.m.

Silver State Mobile Homes Inc. of Las Vegas and its sister company, Galaxy Financial Services Inc., which are millions of dollars in debt and have been the subject of fraud complaints, have filed for Chapter 11 bankruptcy protection.

Silver State, which sells used mobile homes on credit, and Galaxy, a financing company, both listed assets of $15 million and liabilities of $20 million in their March 6 bankruptcy filing.

The companies, owned by Robert Swick, are also the subject of at least 10 lawsuits in Clark County District Court.

The state Division of Manufactured Housing sought in July 1998 to revoke Silver State's license, alleging it sold mobile homes to customers that were subject to unpaid previous loans and that Swick failed to fully disclose his criminal history related to mobile home dealings in California when he applied for a Nevada license in 1996.

The state, which said it received numerous complaints from customers that Silver State sold mobile homes with serious title problems, including unsatisfied prior liens, said the company substantially overstated the amounts of customers' cash down payments in retail installment contracts.

But Clark County District Court Judge Michael Cherry ruled in October 1999 that the housing division "has not proved the elements of fraud."

However, a new effort by the Manufactured Housing Division to revoke Silver State's license was launched in March when regulators alleged the company began to show signs of insolvency. This effort was put on hold by the firms' bankruptcies, said Susan Gray, deputy attorney general for the Housing Division.

"Financial stability is one of the bases for maintaining a dealer's license to sell manufactured homes," she said. "But we started to get indications of Silver State's (then possible) insolvency when the company was placed in receivership, and people were filing liens against Silver State for homes sold and mobile home parks were filing liens because of the company's failure to pay rents."

Several major creditors, which said they feared the two companies' Chapter 11 filings were an attempt to remove a receiver who was running the companies and to allow Silver State to continue defrauding lenders and individuals, are asking for a conversion to a Chapter 7 liquidation to protect the firm's assets.

But Roger Croteau, Silver State's attorney, disputed the allegations. "The two companies have a problem paying off their debts because interest rates on loans are extraordinarily high. So they sought bankruptcy protection to give themselves time to reorganize."

The companies' largest creditor, Metropolitan Bank and Trust of Highland Hills, Ohio, which claims it is owed $5.2 million, sued the two companies in Clark County District Court on June 14, 1999, alleging they breached an agreement to submit financial records and remit monthly payments collected from mobile home owners to Metropolitan.

Metropolitan said it had purchased the two companies' interests in several loans secured by mobile homes in Clark County.

A settlement was reached Nov. 15 in which Silver State and Galaxy agreed to repay 75.5 percent of the unpaid principal balance of the mobile home loans to Metropolitan by December 15. But George Swarts was appointed as a receiver by Judge James Mahan for the two companies on Feb. 8 after they allegedly failed to make the required payments under the settlement.

Metropolitan sought court approval on March 16 to convert the bankruptcy filing to a Chapter 7, citing a report on March 2 by Swarts that "indicated an absence of a reasonable likelihood of rehabilitation" of the two companies.

Swarts said he found that Silver State was "in a very bad cash flow situation and does not appear to be able to meet its next payroll, ... millions of dollars are owed, and without a large influx of capital, Silver State and Galaxy will remain insolvent."

Croteau said Swick has covered his companies' payroll obligations to date.

According to a report filed by Swarts, the bank said it was also concerned about the safety of its funds after Silver State and Galaxy allegedly acknowledged in court on Oct. 22, 1999, that they had "'double hocked' at least seven mobile home titles, purporting to sell them to both Metropolitan and a California institution."

Croteau disagreed. "Under the agreement with Metropolitan, we have a repurchase obligation for loans that go into default. And since the inception of this agreement, we have replaced 130 (defaulted) loans. But inadvertently, seven of those loans were pre-pledged somewhere else due to a clerical error. But we have paid off those loans and settled the matter with Metropolitan."

Swarts, which said Galaxy sold loan portfolios to banks, financial institutions and individuals, alleged that many of the loans were sold two or three times. Consequently, some of the home buyers have received demands for payment from more than one institution, and don't know which lender they should pay, he said. At least two homeowners, who paid cash for their homes, haven't received their titles because these are allegedly owned by a financial institution, he said in the report.

Swarts said his receivership was terminated and Metropolitan's lawsuit was stayed because of the companies' March 6 bankruptcy filings.

Metropolitan, which accused the two companies -- after buyers default on their loan payments and vacate the mobile homes -- of breaking into the mobile homes, changing the locks, moving new customers into the homes and withholding payments from the new owners, said it also wants to stop Silver State employees from collecting payments for the loans, contacting borrowers and entering the homes. Meanwhile, the two companies' second largest creditor, Pacific Business Capital Corp., which said it is owed $3.753 million, is seeking to lift the bankruptcy stay and repossess the assets of the bankrupt companies, which it claims it had foreclosed on in what it called a valid sale on Feb. 14.

Costa Mesa, Calif.-based Pacific, which said the two companies and Swick defaulted on several loans that were secured against the companies' assets, said it fears Galaxy is concealing and destroying Pacific's collateral by "changing the lienholders listed with the state Manufactured Housing division."

Meanwhile, a group of unnamed creditors who are jockeying to assert their claims on Silver State's assets filed a motion Monday opposing Pacific's attempt to repossess the bankruptcy estate.