Partners Take Gamble--and Lose

The team was an unusual one, as it turned out. One of the partners became a cop, the other a fugitive from the law.

While they were together briefly in the late 1980s, Russell Barton and Wayne Pedersen had hoped to make a killing by remodeling a two-story, four-bedroom home on Newport Beach’s Lido Island and selling it for a gain of $100,000 or more.

Instead, they lost everything. The U.S. Supreme Court ruled Monday that the partnership they created to buy and resell the 2,800-square-foot home could not overturn a foreclosure sale by later going into bankruptcy court and alleging that the sale price was too low.

Barton, who eventually became an Orange County deputy sheriff, couldn’t be reached for comment Monday.

Pedersen also couldn’t be reached for comment. But then, even authorities have a tough time finding him. The man who once reportedly boasted that he could sell anything, including goat manure, disappeared four years ago after pleading guilty to four federal counts of mail fraud in a coin-selling scam.

“He just didn’t show up for sentencing, and now there is a federal warrant issued for his arrest,” said David Hoffer, an assistant U.S. attorney in Santa Ana.

Orange County also is looking for Pedersen, who was known by several aliases, including Lynn Wayne Dieltz, after he failed to appear in Superior Court in 1992 on a perjury charge stemming from an application for state driver’s licenses under different names.

Barton and Pedersen formed a partnership in 1987 called BFP to buy the Lido Island home at 225 Via Genoa for about $550,000, hoping to renovate it quickly and sell it for a profit, said Barton’s lawyer, Roy B. Woolsey of Newport Beach.

“Houses on Lido Island jumped 50% or more during the 1980s,” Woolsey said. “They bought materials and had plans, but they never started work on it.”

Part of the down payment to the seller, lawyer Sheldon L. Foreman, was based on the value of some rare coins under Pedersen’s control. But after Pedersen was indicted, Woolsey said, Foreman refused to accept the coins and settled instead for a modest amount of cash and a junior mortgage in the amount of about $200,000. Foreman couldn’t be reached Monday for comment.

Imperial Savings Bank in San Diego held the primary mortgage for about $350,000, he said. But BFP soon fell behind and couldn’t make the monthly payments. Imperial eventually issued a notice that it would foreclose on the property and sell the house to the highest bidder.

Pedersen forced the partnership into bankruptcy in December, 1988, and Barton retained Woolsey to get the petition dismissed. Meantime, though, the bankruptcy action halted any sale of the home through foreclosure.

Woolsey said that Imperial gave him and Foreman assurances that they would be notified of a new date for the foreclosure sale if the petition were dismissed. Foreman had wanted to take over the payments mainly to protect his stake in the junior mortgage, Woolsey said.

The bankruptcy petition was dismissed in June, 1989, but Imperial never notified them of the new sale date. It sold the house on July, 12, 1989, for $433,000 to a purchaser named Paul Osborne.

Three months later, BFP went into bankruptcy voluntarily. The partnership sought to use a provision in bankruptcy law that allowed courts to set aside earlier transactions if the sale prices were well below the market value. BFP argued that the house was worth $725,000.

But the Bankruptcy Court refused to undo the foreclosure sale, and the judge’s decision was upheld by the appellate courts and, Monday, by the U.S. Supreme Court. The nation’s high court ruled that if foreclosure sales are completed in accordance with state laws, then debtors cannot use bankruptcy proceedings to unwind the deals--regardless of the sale prices.

At the end of January, 1990--little more than six months after he bought it--Osborne sold the house for $660,000.