In the Hands of the Father

David Richardson entrusted the management of his rental properties to a priest. Many of his properties have since been foreclosed on, and his credit is shot to hell.

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As a civilian employee of the U.S. Army in North St. Louis, David Richardson began investing his money in real estate by amassing a portfolio of rental properties in the city and county that he hoped, one day, would provide him a healthy nest egg.

He acquired a string of 15 properties, ranging from single-family homes to multiunit apartment buildings, and managed them alone for a time, lining up tenants, collecting rents and either paying someone to do repairs or performing maintenance, such as painting, himself. Many of properties were in low-income neighborhoods, and they were spread throughout the city. His mortgages cost him about $7,000 per month, but at an occupancy rate of 90 percent, his properties brought in double that amount, Richardson says, leaving plenty to pay the bills and keep a cushion for additional expenses that might pop up.

Then he hired someone to manage the properties for him -- in January 1997 -- and at first, things were going so well he bought four more buildings. But by the end of that year, the condition of his properties, as well as his cash flow, had begun to head south. He moved out of state in the middle of that year to take a job with the U.S. Army in Huntsville, Ala., after the Army closed its offices on Goodfellow Boulevard in St. Louis. As an absentee landlord, he began getting repeated pleas for money from the person he'd hired to manage his real-estate holdings. His bank account started to dwindle, and by the fall of 1998, his mortgage payments were months behind.

But the story of David Richardson's real-estate problems -- and his accusations of financial mismanagement that led to the foreclosures of most of his properties -- is no run-of-the-mill dispute over a business deal gone sour. The person he entrusted to manage his rental properties, Leo J. Hayes, is also a Roman Catholic priest.

Hayes, a 62-year-old priest in the Diocese of Belleville, worked for 25 years as the prison chaplain at the Menard Correctional Center, the largest maximum-security prison in Illinois. He witnessed the execution of John Wayne Gacy, and Hayes says the notorious serial killer was his "altar boy" at prison Mass. Hayes retired from his job at the prison in January. He continues to serve as pastor at three small parishes in Ava, Ill.

Father Hayes is also a longtime landlord in his own right who, in his spare time, owned and managed numerous properties in South St. Louis that at one point included about 90 apartment units. One of the properties the priest owned was a 13-unit building at Cleveland and Thurman avenues in South St. Louis where two balconies collapsed in separate incidents in April 1998, injuring six people -- four seriously -- and prompting a citywide inspection of 194 other buildings with cantilevered balconies. Hayes' building was subsequently torn down.

Hayes says he began buying residential properties in 1980 with his earnings from the prison. He figured he could buy rental properties that would also help the poor through low-income rentals, but he says, he had no desire to do it as a nonprofit.

When Richardson began looking for someone to manage his properties, an acquaintance referred him to Mary Ann Caton, saying she had 20 years' experience and was managing property for him. Caton, in turn, introduced Richardson to Leo Hayes. What Richardson didn't know at the time was that Caton and Hayes were partners in the Garden Manor Shaw Neighborhood Apartments, and he didn't know Hayes was a priest.

In any case, Richardson and Hayes agreed on a management contract. Under the agreement, Hayes would collect 5 percent of all rents plus one month's rent for every new tenant he placed in one of Richardson's buildings. Even he admits that at the time he took on Richardson's properties, cash flow was sufficient. "When he came to us, his properties were making money," Hayes says. "He was collecting enough money to pay all the bills and to pay me. For some reason, that changed."

It changed for the worse. By the fall of 1998, a year-and-a-half after Hayes took on management duties for Richardson's properties, most of the mortgages were at least a few months in arrears and other bills were not being paid. Richardson says he got repeated demands for money from Hayes, yet he did not receive regular management reports spelling out where all the money was going. In 1998, he sent Hayes about $13,000 to pay the bills. Whenever he requested an accounting, Richardson says, the priest brushed him off and told him, "We're managing your property for free."

By December, the situation had grown so dire that at Hayes' urging, Richardson agreed to sell all of his properties to the Jallen Group, which promised to pay off all the outstanding mortgages and taxes on the properties in exchange for the deeds. A sale contract was signed on Dec. 5, 1998 -- and Hayes says his dealings with Richardson's properties ended there and then.

But Jallen was no stranger to Hayes. The company operated out of Hayes' building on Russell, the same building that served as Garden Manor's offices. One of Jallen's two partners was Mary Ann Caton, the very same woman who was Hayes' partner in Garden Manor and who introduced Dave Richardson to the priest. Jallen, meanwhile, continued to collect the rents on Richardson's properties but never made mortgage payments and withdrew $8,000 from Richardson's business account without paying the bills. And during that time, Hayes still had the authority to sign checks on Richardson's business account and still had the checkbook.

By April of last year, when Richardson realized the sale had never closed and his properties were now more than six months behind in mortgages, he sought the help of a lawyer and got a temporary restraining order against Jallen, seeking to reclaim his properties from the group, which still held the leases, keys and other documents related to the real estate.

But by then, it was too late.

All but three of his properties have since been foreclosed upon or deeded back to the bank in lieu of foreclosure.

"I had perfect credit before I left St. Louis, and now it looks like I'm going to have to file bankruptcy," says Richardson, a 36-year-old native of St. Louis.

Richardson says he never envisioned this could happen after he put his properties in Father Hayes' hands. When the two men first met, Hayes wasn't wearing his priestly garb, though Richardson found out a few months later that he was a Catholic priest. He thought it unusual but figured his new property manager was someone who could be counted on to do the right thing.

"There's good and bad in all people," Richardson says now. "He led me to believe he was a trustworthy person."

At a civil trial in St. Louis Circuit Court last month, Judge David Mason was asked to sort through the mess. The defendants were the Jallen Group, Caton and Hayes.

Richardson's lawyer, Robert E. Jones, argued that Jallen breached its contract by failing to close on the Dec. 5, 1998, sale, and that Hayes failed to properly account for the moneys received and paid out from Richardson's account from January 1997-December 1998. He sought the return of Richardson's properties from Jallen and an "equitable accounting" of the Richardson/Garden Manor bank account managed by Hayes.

Don Nangle, the lawyer for Hayes, Caton and Jallen, claimed Richardson always had access to that account and "tried to micromanage numerous properties by long distance and did a bad job of it." Hayes, meanwhile, claimed he was owed $27,000 in unpaid management fees from Richardson. Nangle also claimed that Jallen was still lining up financing for the deal in April when Richardson sought a restraining order against Jallen -- and that it would have gone through had Richardson not interfered.

Much of the trial focused on where the money went, because Hayes held the checkbook and signed the checks on the account. An accountant hired by Richardson testified that about $114,000 moved in and out of the account in 1998, for instance, and that the priest was paid $13,000 in 1997 and about $4,500 in 1998.

Hayes, who attended court wearing a black suit and clerical collar, testified he managed the properties as best as he could, even loaning Richardson's account money, for a total of about $9,000, even though Richardson never asked him to. Why would he loan a business acquaintance such sums? "Because I am a nice guy," the priest testified.

Hayes, however, also withdrew money from the account at will to repay himself, at one point taking out $4,000 in a lump sum, leaving insufficient money to pay the mortgages. At another point, Hayes withdrew $3,500 -- without Richardson's permission -- saying, "That's part of the money that was paid back to me."

The judge questioned that move, and Hayes replied, "It was my money."

The judge didn't see it that way. "In fact, you were stealing at that point," he said. "Under no circumstances did you have the authority to take money from that account." Hayes instead would have had to formally request payment of the money from Richardson, and had he refused to pay, the priest would have had to sue to collect, the judge said: "You cannot take his money and repay yourself."

While on the witness stand, Hayes was asked to explain more than a dozen withdrawals from the account, such as checks for $281, $424 and $248 to Georgia Dent, a tenant in one of Hayes' buildings. Hayes said she was written checks and would cash the money and then pay overdue water bills in cash or pay the court costs for tenant evictions.

Hayes was asked about a $500 check to himself, a $593 check to Garden Manor and checks written for $500, $496, $300, $391 and $250 to Mary Ann Caton even though it was Hayes' job to manage the properties and collect a fee, not Caton's. Hayes gave different explanations for the payments, saying Caton cashed the money and then used Western Union to wire a payment to one of Richardson's mortgageholders. He said she was paid $100 for each tenant eviction she handled for a Richardson property. He said Caton loaned Richardson $200 at one point and was being paid back. He did not produce receipts for any of the expenses.

Hayes testified that it wasn't his responsibility to maintain Richardson's properties or check to see when work was done, though he did write checks for maintenance and repairs. The amount paid from the account for maintenance and repairs on Richardson's properties was so high, in fact, that his accountant noted that it would raise a red flag with the IRS.

At one point, the lawyer for Hayes and Caton protested that he was being asked to produce documentation to verify the expenses paid. Nangle said he didn't think he should have to, because Richardson's accountant concluded no money was missing from his account.

The judge wasn't sympathetic, saying the accountant, Ginger Crooks, could only verify that no money was unaccounted for, not that it had been spent appropriately.

"She did not have details with regard to the receipts," the judge said. "She never testified all the expenses were appropriate, only that the amount of money that went in the account and that went out matched up. That's all she can say. This case is about what was done with it."

"When you consider the amount of dollars involved," the judge added, "this ends up being a very serious case."

The judge, meanwhile, became increasingly insistent that Hayes produce documentation to back up the expenditures on the account. "I have to at least see this money was spent to (Richardson's) benefit," he said. "How do I know this wasn't being used as Ms. Caton's personal spending money? All I know now is, a lot of money was spent and there is no paper to back it up."

Nangle asked for more time to produce the documents, although Richardson's lawyer had asked for receipts, invoices and canceled checks as part of the pretrial discovery process and was given check stubs instead. The judge pressed for the parties to consider a settlement.

He said that if he was forced to write an opinion in the case, it wouldn't be pretty.

"Someone violated their fiduciary responsibility left and right," the judge said. "It's not going to make Hayes and Caton look good. It's going to say there was a piss-poor job of management going on. That's what it's going to say."

The next day, the two sides agreed to a settlement, though as of Tuesday, the lawyers were still drawing up the document and it hadn't been signed.

What was a Roman Catholic priest doing managing real estate -- for a fee -- in the first place? Don't priests have better things to do?

Theoretically they do, says Father James Margason, vicar-general in the Diocese of Belleville. But he also says the diocese once had a priest who operated a lumberyard on the side and others who ran farms. "I think it's more common than people sometimes expect," Margason says, especially in a rural diocese like Belleville. "In earlier years, when we were not stretched so thin, a priest might have had time to do something like that."

The diocese currently has a priest who works full-time as a nurse. More common priestly occupations include prison chaplain or college professor, such as Father Andrew Greeley, the Chicago priest and professor who writes bestselling novels on the side.

Hayes says he had permission from his superiors to manage property, and Margason has no information to contradict him. Though Hayes' file contains no written reference to any permission, Margason says a previous bishop may have given him verbal permission.

With the shortage of priests nowadays, Margason acknowledges that priests are more urgently needed to do work -- as priests: "How can they have time to do something else when we are short on priests? That's a fair question."

It would seem Hayes already had a full plate with three parishes and a job as prison chaplain. Would he have had the time to spend managing other people's properties? Margason says it's possible: "I don't know how much time something like this takes."

Clearly it took more time than Hayes was putting into it, says Richardson. In addition to the foreclosures on most of his properties, the debacle nearly drove him to a nervous breakdown.

"Immediately after I left St. Louis, things started to fall apart. This priest kept sending me notes telling me to send money, and I sent him over $12,000. I took out a $5,000 loan on my retirement because he kept saying, "We need money. We need money.' I came back in the summer of 1998 and I went around and the buildings looked like they hadn't been maintained at all. He kept charging me outlandish fees and never sent me any management reports. He wouldn't send me reports so I could do my taxes unless I paid him $27,000," Richardson says. "For two-and-a-half years, these people made my life a living hell."

Hayes doesn't make any apologies for his sideline business.

"I'm a diocesan priest. I have no vow of poverty," he says. "I believe in capitalism."

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