Car buyers clubbed with 2 loans Rea Keech bankruptcy leaves trade-in loans unpaid.

January 09, 1992|By Michelle Singletary | Michelle Singletary,Evening Sun Staff

Rea Keech Buick Inc., an automobile dealer in the Baltimore area since 1933, has gone bankrupt, creating a financial tangle that could take lawyers years to unwind and leaving some hapless customers still paying outstanding loans on cars they had traded to the dealership.

More than 70 Keech customers have called either the Maryland Motor Vehicle Administration, the Howard County Office of Consumer Affairs or attorneys involved in the bankruptcy case complaining about car deals they made at Keech.

The Baltimore office of the FBI is checking into the finances of the bankrupt dealership and its owners.

"We are looking at this as a possible bank fraud and embezzlement case," says Andy Manning, a spokesman for the local FBI office.

Manning says the FBI was alerted after Rea Keech's lender, Mellon Bank N.A., filed a civil suit against the dealership. He would not comment further on the investigation.

W. Michel Pierson, the attorney representing Keech, would not comment on the FBI investigation.

The Ellicott City dealer has left owners of new and used cars without title and tags even though it collected $50,000 from them to pay the state sales tax and register the cars, according to the bankruptcy petition filed by Keech. The dealer says it didn't turn over the money to the MVA.

But the customers with titling problems are the lucky ones.

Lee Goforth of Baltimore wanted to trade in her manual transmission car for an automatic. She got her automatic but she also may end up having to pay two car loans.

Goforth traded in her 1989 Nissan Sentra at Keech for a 1990 Toyota Corolla, and Keech agreed to pay off the loan on the Nissan as part of the transaction on the Toyota. In early December, a few weeks after closing the deal, she got a call

from Chemical Bank informing her that she was delinquent on the $180 monthly payments for the Nissan.

It was then Goforth found out that the dealership had not paid off the loan.

Goforth is now faced with a loan for the Toyota with a monthly payment of about $200, and a balance on the old loan of $4,500.

"I'm appalled that a dealership would do this to a consumer," says Goforth, a single parent with two children. "I don't have money for two car payments. It's just a nightmare. I did nothing wrong. I just bought a car."

One Howard County couple, who purchased a Buick Regal for $18,000, began receiving delinquency letters from Chrysler Motor Corp. a month after trading in their 1987 Dodge Daytona. As part of the deal, Keech agreed to pay off the Dodge loan worth about $4,000.

Goforth and others in her predicament may ultimately be responsible for the loans, according to Marc Kivitz, a bankruptcy trustee appointed to liquidate the dealership's assets.

"There is no money to pay off any of these people's liens to a bank or financial institution," Kivitz says. "I feel for these people, and I don't know what I would do if I were in their position."

Rea Keech Jr., whose father started the business and left it to him when he died in 1967, could not be reached for comment.

Last month, Mellon seized the dealership's assets after charging that it sold half of its inventory of cars without repaying the bank under its loan agreement and then tried to hide the sales from a loan officer auditing the dealership.

In a lawsuit filed in Howard County Circuit Court, the bank says Keech, his daughter Leslie, and another employee created false sales documents to prove the dealership was waiting for payments from customers. In truth, cars had already been sold for cash to other dealerships, the bank alleges. Under the loan agreement, once a car was sold the dealership was required to repay the principal amount to Mellon.

Keech, owner of the dealership, filed for Chapter 11 protection under bankruptcy laws on Dec. 11 after Mellon froze its accounts, impounded more than 140 vehicles and laid off about 50 employees.

The dealership listed assets of $5.3 million and debts of $5.8 million. Mellon says the dealership owes it $4 million plus interest and attorney fees.

One week after Keech filed for bankruptcy, U.S. Bankruptcy Judge James F. Schneider converted the Chapter 11 to a Chapter 7 liquidation, ruling that the dealership would not be able to reorganize its debts.

"The conduct of the debtor constitutes fraud, dishonesty, incompetence and gross mismanagement," the bank argued in an effort to have the Chapter 11 filing converted.

Joel I. Sher, an attorney representing Mellon Bank, says it will take months to sort out the dealership's records. He says there has been help for some customers who can prove they have paid for their cars and can produce "certificates of origin." The certificates are issued by the car manufacturer.

The MVA has agreed to waive the sales tax for customers who can prove they paid the tax to the Keech dealership and who can produce a certificate of origin. Customers with such documentation should phone Kivitz at 625-2300.

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