Someone Is Lying to West Dallas Home-Buyers, But It Might Not Be Khraish Khraish

Jim Schutze
Roberto Barahona and his daughter, Emeline.
The worst accusation against West Dallas landlord Khraish Khraish is that he took advantage of poor people who don’t speak English and tricked them into one-sided financial deals. If that’s true, he should be brought to justice. But what if his accusers are the ones bamboozling poor non-English speakers?

A federal lawsuit brought against Khraish last week by two nonprofit legal aid groups claims Khraish violated state and federal law by cheating people “in the context of credit and residential real-estate transactions on the basis of their membership in a protected class.”

Let’s put the “protected class” part — minorities, old people, etc. — aside for now and agree to argue over it another day. The lawsuit lays out a list of ways in which it says Khraish conned the people he sold homes to, mainly by failing to disclose the details and true nature of the sales contracts he signed with them. (For details on how Khraish went from being a landlord — or slumlord, as the city called him, see Monday's story.)

“We knew absolutely that we would be accused of this.” — John Carney

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Khraish’s lawyer, John Carney, says he and Khraish saw this coming long before they ever drew up the contracts.

“We knew absolutely that we would be accused of this,” Carney told me.

Carney said that because Khraish was selling to people who had no credit and also was extending mortgages to them, Carney and Khraish assumed their political foes at City Hall would accuse Khraish of using what is called a contract for deed instead of granting real deed transfers.

Contracts for deed, sometimes called “rent to own,” have a bad history. They have been used as tools for cheating poor buyers. Carney tells me contracts for deed also pose disadvantageous IRS consequences for sellers, a thing Khraish wanted to avoid.

Carney says the fact is that all of the Khraish sales were designed to be straight-up conventional deed transfer sales. To make sure in advance that the sales contracts would be bulletproof against the contract-for-deed allegation, Carney says, Khraish had all of them vetted by Pierson Patterson LLP, a Dallas law firm that specializes in mortgage banking and consumer lending law. I spoke with Mike Patterson of Pierson Patterson, who confirmed that his firm reviewed all of the Khraish documents and certified them as legitimate sales and deed transfers fully compliant with the law.

But the lawsuit claims that Khraish violated the law by failing to provide his buyers with time-sensitive disclosures before each sale and by declining to provide copies of signed documents afterward. The suit says Julian Campos, one of the two plaintiffs, “did not receive a copy of any documents in a form he could keep.”

click to enlarge A federal lawsuit against Khraish Khraish (right) claims he failed to give Julian Campos documents after a real estate closing, but Khraish says this is a  photo of Campos with his closing documents. The closing also was videotaped. - HMK LTD.
A federal lawsuit against Khraish Khraish (right) claims he failed to give Julian Campos documents after a real estate closing, but Khraish says this is a photo of Campos with his closing documents. The closing also was videotaped.
HMK Ltd.
Carney says Khraish videotaped all of his closings and took photographs of his buyers proudly holding their documents after each closing. Carney provided me with photos of both of the plaintiffs in the lawsuit holding what he says were their closing documents.

Furthermore, he says Khraish has both documentary and videotape records of all of the required disclosures being made to buyers.

“Everything the pleading says they didn’t get, we have them on video getting it,” Carney says.

Carney calls the lawsuit naive and says, “These people didn’t even read any of our paperwork before filing their suit. We knew we would be taken to task, but I expected something more substantive.”

The lawsuit singles out two clauses in Kraish’s sales contracts that it claims are unfair. One is a provision that allows Kraish, as the lender, to demand full payment of the debt at any time. The other gives him a right of first refusal on all resales, meaning he must be given a chance to outbid anyone who has made an offer on a house originally purchased from Khraish.

The second clause, the right of first refusal, is not uncommon when property is being sold for lower than market price. Khraish says he sold most of his properties at prices near $65,000 although market values were closer to $100,000. Habitat for Humanity has a right of first refusal provision in its contracts.

Carney says that performance on all but one of the loans has been flawless. Khraish has not exercised either of the two clauses, and he has promised never to do so except under extreme circumstances, such as when a property is in danger of being deliberately destroyed.

West Dallas City Council member Omar Narvaez points out that before this lawsuit, neither Khraish nor his father, who founded the rental business, had ever been accused of lying or cheating anyone.

“He’s never backed off his word with me before, so I don’t personally have any mistrust for him,” Narvaez says.

The lawsuit is basically about things that could happen, not things that have happened.

I have been unable to reach Julian Campos, one of the two plaintiffs, but I had a long conversation earlier this week with Roberto Barahona, the other plaintiff. I don’t speak Spanish. Barahona’s 19-year-old daughter, Emeline, translated for us as we stood on his front porch.

click to enlarge Ana and Roberto Barahona with what Khraish says are their closing documents. - JIM SCHUTZE
Ana and Roberto Barahona with what Khraish says are their closing documents.
Jim Schutze
Barahona told me he paid Khraish $68,000 for his house. When I asked why he was suing Khraish, Emeline listened to her father and then said to me, “He lied to us.” Her father repeated several times in Spanish, “El mintio [he lied].”

I asked what Khraish had lied about. Again, Emeline listened to her father and then said to me, “If my father dies, he cannot leave the house to his family. It goes back to Khraish.”

I asked Barahona how he became connected with the legal aid lawyers who filed the lawsuit. He said people from the Texas Organizing Project, a community organizing group that concentrates on issues affecting the poor, introduced him to them.

Carney tells me that there is nothing in any of Khraish’s sales contracts that diminishes or even touches the ability of a homeowner to convey a home to heirs upon the owner’s death.

“Nothing,” he said. “Nothing. Not one word.”

Of the more than 100 former tenant families to whom Khraish wanted to sell his rental houses last year — as a way to keep the families in the houses rather than evict them — half a dozen could not qualify for a mortgage even under Khraish’s very liberal terms.

To those half-dozen renters, Khraish granted what is called a life estate under Texas law. A regular monthly payment is made in exchange for which the occupant is granted a temporary form of ownership for the remainder of the person’s life. Upon death, the property goes back to Khraish.

But those were special cases designed as a mercy for tenants who couldn't qualify to buy the houses they were in and were too poor to find housing elsewhere. None of that has any bearing, Carney says, on the deed-transfer sales made to everyone else.

“If my father dies, he cannot leave the house to his family. It goes back to Khraish.” — Emeline Barahona

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Carney says, “Someone has gone to these people and conflated the two things, the life estate and the conventional sales, in order to frighten people.”

At the beginning of the week, Khraish made an offer to anyone who is worried about a contract signed with him last year to buy a house. With no questions asked and no contest, Khraish will take the house back and fully refund all of the equity the person has amassed in it so far.

He has already done the calculation on the two plaintiffs in the lawsuit. One would receive back $2,400 and the other $1,200, but both would have to give up the houses they are in.

Barahona’s house was a beehive of construction activity when I was there. He told me crews working for Habitat for Humanity are carrying out $17,000 in repairs and improvements, for which he will be charged $2,000.

I asked him if he would take Khraish up on his offer to take back the house and refund his equity. His daughter listened intently to his rather long and vehement response, then told me, “No, he will stay here and fight to the end.”

This is not to say that the legal aid lawsuits could not accomplish some good. Perhaps the legal aid lawyers can negotiate a rescission of the provision allowing Khraish to call the note in full at any time, especially since Khraish would retain all the normal powers of foreclosure in the event of default.

But by now, honor and emotion are factors here, as well as money and property. Khraish takes seriously the fact that neither he nor his father has ever even been accused of lying, let alone caught doing it, before this lawsuit. Now someone is going around to his former tenants and telling them he is a liar. The lawsuit is calling him a cheat.

My sense is that the note-calling clause might have been more negotiable before the public slurs. Now Khraish is disinclined to do anything that looks like a guilty plea.

So here is the risk. Let’s say this litigation, as many lawsuits do, takes on a life of its own, gets some traction and momentum. Let’s imagine the legal aid lawyers are successful in recruiting new plaintiffs, until eventually a substantial number are involved in the suit.

It’s a lawsuit seeking damages for things that have not happened. The lawsuit accuses Kraish of misleading his non-English-speaking buyers, but someone else clearly has been misleading them, ginning up a sense of grievance over nonexistent injuries.

If this litigation turns angry and intractable, and if Khraish is as bullet-proof on the law as he and Carney claim, the risk is that the very unconventional structure by which Khraish sold 120 houses to poor families just … blows … up.

Say Khraish decides this is a case of no good deed going unpunished. He exercises the calling of the note after all. None of the families can refinance or pay. The monthly payments Khraish has arranged are so low that none of them can find other single-family homes or even apartments at the same rate. So some of these people become homeless.

The stakes here are homelessness. It makes you wonder who it is who wanted to roll the dice in the first place.