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Thursday, March 28, 2024 | Back issues
Courthouse News Service Courthouse News Service

Bankrupt Fugitive|Gives Son Headaches

SEATTLE (CN) - The son of a fugitive bankrupt developer says his father forged his signature on a $3 million loan and now creditors are illegally trying to foreclose on his home.

Michael K. Mastro, the son of Michael R. Mastro, sued Wells Fargo Capital Finance, Rainier Foreclosure Services and Avatar Income Fund to try to stop the foreclosure sale, scheduled for Nov. 4.

Seattle real estate developer Michael R. Mastro and his wife Linda are on the lam. They disappeared after a warrant for their arrest was issued in July, for failing to turn over two diamond rings - valued at $1.4 million - to a federal bankruptcy judge.

Mastro was forced into one of Washington's largest bankruptcies in 2009 with debts to unsecured creditors of $325 million.

In his complaint in King County Court, Michael K. Mastro says his dad formed an irrevocable trust naming him as co-trustee, but the signature on the document is forged.

A bankruptcy judge ruled that the trust was used in an illegal scheme to hide assets from Michael R. Mastro's creditors.

"The bankruptcy trustee's claims against Michael K. Mastro and Robin Mastro were tried in April, June and July 2011. The bankruptcy judge ruled that the transactions complained of were in fact part of a fraudulent scheme by Michael R. Mastro; but that Michael K. Mastro was not liable for that fraudulent scheme, and the bankruptcy trustee's remedy would be limited to recovering whatever property remained in the Irrevocable Trust," the complaint states.

Avatar Income Fund loaned $3.36 million to the trust with a maturity date of Oct. 1, 2009, then pledged the note to Wells Fargo Capital Finance as collateral for other loans, according to the complaint.

Mastro says his signature was forged again on the loan.

"Although the Avatar note purports to be signed by Michael K. Mastro as one of the co-trustees of the Irrevocable Trust, his signature on that document is not genuine; his signature is a forgery," the complaint states.

Mastro and his wife Linda say all the proceeds of the loan went to Michael R. Mastro and his business, Mastro Properties.

Michael R. Mastro paid $1.1 million on the loan, but was forced to put up new collateral, so he asked his son to put up his home and a rental property to secure the loan. Michael K. Mastro says he agreed, "motivated by family ties and affection."

Mastro says he was assured that if the loan went into default, his home would be the last asset sold to pay off the debt.

"On advice of his counsel, Michael K. Mastro obtained the agreement of Avatar to include the following clause in the Forbearance Agreement:

"Marshalling: in the event of default, Lender (Avatar) agrees

to foreclose on the Clyde Hill property first and then the

property at 1521 36th Ave South second, and then and only

then, may proceed with foreclosure against the 801 Lakeside

property (the Residence) for the deficiency if any.

"Due to a mixup in the documents, the version of the Forbearance Agreement that was actually executed did not contain the marshaling clause. However, Avatar has admitted, in sworn declarations of its officers and pleadings filed by its counsel, that the marshaling clause, as set forth above, was intended by the parties to be part of the final agreement," according to the complaint.

Michael R. Mastro's bankruptcy trustee sold the Clyde Hill home and is negotiating with Avatar to keep $750,000 of the proceeds, with the rest of the money going to pay off the Avatar loan.

"Michael K & Robin were not parties to the settlement with the bankruptcy trustee, did not consent to it, and in fact objected to it," the son says.

Mastro says Avatar failed to comply with the Forebearance Agreement by not keeping all the money from the Clyde Hill sale. Avatar initiated nonjudicial foreclosure proceedings against Michael K. Mastro's home in July, with Rainier Foreclosure Services as the trustee.

Mastro seeks an injunction to stop the sale and wants the Avatar note declared void because his signature is forged. He also claims that Avatar is violating the Statute of Frauds because the note was not to be performed within 1 year; that it violated usury laws by charging 18 percent per annum, and claims lack of consideration. He also claims that Avatar is not entitled to charge attorney fees incurred in litigation with the bankruptcy trustee.

He is represented by Donald A. Bailey with Shafer & Bailey.

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