Elkhart building at center of Bales trial set for auction

An office building in Elkhart that played a prominent part in the federal trial early this year of two local real estate brokers is set for auction later this month.

The building, owned by Indianapolis attorney Paul Page, houses Indiana’s Department of Child Services. The sale, through Auction.com, is slated for Sept. 23. The starting bid on Page’s building is $550,000, according to the promotional materials.

John Riser, a principal of locally based Riser Retail Group, is handling the listing for the national auction company. He said the building is fully occupied and is not at risk of being foreclosed upon.

“Because of what it is and where it is and who it’s leased to, the auction format will give it the best chance of being sold,” said Riser, noting the building might attract bidders from outside Indiana.

Page agreed in January to plead guilty to one count of wire fraud in exchange for cooperating with federal prosecutors in the trial of brokers John M. Bales and William E. Spencer.

Bales and Spencer, both principals of Venture Real Estate Services, were found not guilty in February of 13 felony counts, including wire, mail and bank fraud.

The government said Bales and Spencer provided a down payment so Page could buy the building in Elkhart to lease to the state’s Department of Child Services, without disclosing Venture’s involvement to the state. The government said the deal violated an agreement between Venture and the state that barred the company from direct or indirect ownership of properties where state agencies leased space. But the defense argued the arrangement amounted to a loan.

The government argued that a fraud scheme led by Bales began to unravel in July 2009 when Page withdrew about $50,000 from a bank account that collected rent payments from a state-leased office building in Elkhart.

On paper, that wasn’t a problem, since Page controlled the company, L&BAB LLC, which owned the building. Page had taken out a loan from Huntington Bank to buy the property in 2008, and the Department of Child Services moved in shortly thereafter.

But the bank withdrawal was an urgent concern for Bales and his partners at Venture Real Estate Services. The broker believed the move violated an unrecorded mortgage agreement: A Bales-controlled company called BAB Equity LLC had secretly given Page his $362,000 down payment in exchange for 25 percent of any profits. The bank was told Page would be the 100-percent owner.

The principals at Venture felt that to protect their investment they had no choice but to reveal the partnership with a state landlord, so the company hurriedly placed a back-dated mortgage on the property.