Two years ago it was Orange County's biggest home sale--$13.6 million for a huge waterfront house on Newport Beach's exclusive Harbor Island.
Now it's just another file in bankruptcy court.
Not much was known about the buyer when the sale made headlines in 1991: George Yao owned property in Hong Kong, Taiwan and Hawaii, and two years earlier he had bought the Radisson Plaza Hotel in Irvine.
Now, in court documents, Yao paints a bleak picture of a small real estate empire that has quickly crumbled--a common story in Southern California during the recession and dramatic real estate slump of the past three years.
Yao says in court documents that his net worth--which he estimated at $44 million in 1990--is now considerably less. His troubles got worse last fall when the bank that lent him $6.7 million to buy the Harbor Island house demanded a $2-million balloon payment. Yao said he couldn't pay it all at once.
Last week he put into bankruptcy the company that he had created just to own the house. The court filing came just in time to block a foreclosure that was to have occurred Monday.
At stake is a house so big that it covers half an acre, dominates the island shoreline and looms over the other posh homes of Newport Harbor. At 12,000 square feet--not including another 6,000 for the garage--the house is about five times the size of the average new house in Orange County.
The property taxes--which Yao has not paid since he bought the house, saying that he is contesting them--come to $140,000 a year.
The house has a complicated history, albeit a short one. It was built in 1988 and 1989 by developer Leroy Carver III. Carver also owned Carver Savings & Loan in Escondido, which was declared insolvent and seized by federal regulators in 1989. One of the loans Carver Savings made was $7.9 million to build the house. (Federal regulators say that what sank the thrift, though, was loans made to Carver's development projects.) The three-story house at 18 Harbor Island has eight bedrooms, seven fireplaces, 13 bathrooms and a nine-car underground garage, real estate agents say. They followed its sale closely: If it sold for close to the $14.5 million Carver was asking, that would mean the prices of beachfront houses were holding up as the rest of the real estate market was sinking. They were reassured when Yao bought the house for $13.6 million.
Yao borrowed the $6.7 million from BT Private Clients Corp., an arm of Bankers Trust New York Corp. that caters to very wealthy clients. According to court records, he paid the other $7.5 million in cash.
The bank wanted its $2-million balloon payment within two years. Yao expected to get the money by selling a house in Newport Beach's gated Big Canyon for $3.1 million. Yao had bought the house in 1988 from Los Angeles Rams football team owner Georgia Frontiere; but as the market soured, Yao not only found the value of the house falling, he couldn't sell it at all.
Last fall, with the balloon payment due by January, Yao said there had been a mistake in his deal with the bank. Bankers Trust had promised him, he said, that he would not have to make the balloon payment until he sold the Big Canyon house, though he now concedes that the agreement was never written down.
He thought it was in the loan agreements, the 53-year-old Yao says in court documents. He misunderstood, he says, because he is Chinese and his English is not very good. Not so, said the lawyers for Bankers Trust: "Yao is a highly sophisticated businessman of significant means whose claim of mistake here is completely implausible," they wrote in response to a lawsuit Yao has filed. In fact, one of the lawyers wrote, she had talked to Yao on the phone and he spoke English "proficiently."
Demanding its $2 million, Bankers Trust started proceedings in March to foreclose on the house and sell it to recover what is owed on it. Then Yao--who had offered to pay part of the $2 million but had been turned down--sued in Orange County Superior Court to block foreclosure. A judge turned him down in June.
Yao's next stop was a bankruptcy filing Friday in federal court in Santa Ana for the company that owns the house. That stopped the foreclosure--at least for now.
The bank's lawyers suggest in court documents that Yao is rich enough to pay the $2 million. But Yao portrays himself far differently.
The Radisson, into which Yao says he has sunk $14 million for his 98% stake, "turned out to be a much larger burden on my finance (sic) than I anticipated," he said in a letter filed with his lawsuit. "I have found it necessary to liquidate many of my other properties to fund the Radisson Hotel."
He has sold land in Taiwan, he said, has a condo project in Alhambra up for sale and has sold at a loss a $2.2-million condo in the Westwood section of Los Angeles.
"My financial position has been drastically affected by the decline in market values of real properties that I previously owned," he wrote.
Yao did not return several phone calls this week. Bankers Trust says it does not discuss its dealings with clients.
Meanwhile, the bank's lawyers say they are fielding inquiries from people who have seen the foreclosure notices and want to know if the house is for sale.