Apartment Store owner Kari Kimball may have cost property owners and their tenants as much as $75,000 when she hastily notified them about the company’s financial troubles in early March.
Don Torgenrud Jr., the court-appointed bankruptcy trustee in charge of liquidating the Apartment Store’s assets and repaying its creditors, says he had already been in the process of trying to sell the Missoula company’s book of business to another property management firm in order to effect a “seamless transition,” but Kimball precluded that possibility when she sent letters to 500 or so tenants and close to 90 property owners prior to filing for bankruptcy. In the letter, Kimball stated that company’s trust accounts were missing more than $320,000, and that the Apartment Store was filing for Chapter 7 bankruptcy.
“Everybody stopped paying and the landlords jumped ship,” after they received the letter, says Torgenrud.
According to Torgenrud, Kimball and her attorneys contacted the U.S. Trustee’s office two weeks prior to the bankruptcy filing. Once it became clear that Torgenrud would be appointed to handle the bankruptcy proceedings, he began trying to shift the company’s clients and tenants to another management firm. He says if he’d been successful in doing so, he could have recouped an additional $65,000 to $75,000 in rent payments that would have been added to the bankruptcy trust fund.
Kimball’s attorney Zane Sullivan says that’s a ridiculous charge.
“Who in their right mind would buy this business with $320,000 missing from the trust fund?” says Sullivan. “I think the bankruptcy trustee is grousing that he doesn’t have assets to sell. That ignores the obvious reality that there’s $320,000 missing.”
Kimball collected March rent and then promptly sent tenants letters informing them that their security deposits were gone and that the company was closing its doors. She blamed former Apartment Store owner Maris Mills for the $320,979.68 missing from the company’s trust account, the bank account in which renters’ security deposits are held. Sullivan says Kimball had an obligation to inform the parties of the missing trust funds as soon as possible, but Torgenrud suggests Kimball had another motive in mind:
“It was a litigation strategy,” he says of the ill-timed letter. “They tried to get a leg up on Maris Mills.”
A few days after Kimball’s letter went out, Mills responded with her own letter in which she denied the charges and blamed the missing funds on mismanagement of the company by Kimball. Mills stated that if the account deficiency was found to be her fault, she’d repay it. Both sides have lawyered up while Torgenrud tries to untangle the complexities of the bankruptcy, which he describes as the first of its kind in the state.
Meanwhile, tenants and property owners are left to reconfigure rental agreements.
“I think it’s totally unfair…that [Kari Kimball] just notified tenants that they don’t think they will receive their deposit back and they didn’t leave them with any recourse or any plan of action,” says property owner and former Apartment Store client Stella White.
When White got word that the Apartment Store was bailing out, she contacted her tenants, Nate Crary and Will Andrews, and they began hashing out a new agreement. White said she would refund the missing security deposit, but first she needed a copy of the tenants’ lease. The Apartment Store didn’t provided property owners with lease and tenant information prior to its March 8 bankruptcy, and some tenants still don’t know who their landlord actually is, and vice versa. In White’s case, she knew Crary and Andrews and they were happy to provide her with the documents. She then drew up an amendment to the lease naming herself as sole manager of the property.
“We’re lucky, at least we’re getting our deposit back,” says Andrews.
Under the terms of the arrangement, every month that Crary and Andrews pay rent on time White will refund $125 dollars to them. When the lease expires in June, White will refund the remaining $500 minus any charges for cleaning or damages.
Unless Torgenrud turns up the money to pay her back—along with the other landlords and tenants—White will have to absorb the expense of returning the $1,000 security deposit.
“It’s unfortunate that Stella has to pay back the deposit,” says Crary. “But we just want to get through this as easy as possible.”
When Crary and Andrews received Kimball’s letter, they did what most tenants did: they immediately canceled payment on their March rent check to the Apartment Store.
“She [Kimball] gave me a pile of those checks to deposit, but most of them were stopped payments because of her letter,” says Torgenrud. “That’s more money I would have had [in order to] pay back security deposits.”
According to Torgenrud, the bankruptcy trust account has about $200,000 in it right now, but the Apartment Store is facing about $520,000 in liabilities. However, the Apartment Store has an errors and omissions insurance policy that’s still intact. Errors and omission insurance protects companies from claims if clients hold the company responsible for management errors or failure to perform as promised in the contract. If the bankruptcy investigation reveals that Kimball was responsible for mismanagement of company funds, it’s possible that Torgenrud could file a claim on that policy. But he said his investigation is just beginning and he hasn’t had a chance to read the entire insurance policy yet.
But there is already some evidence to suggest mismanagement may be at least partly to blame for missing funds.
Torgenrud says he learned at a Monday deposition with property owners that there were serious delinquencies with some of the properties under Kimball’s management. In one case the owner of an apartment complex was missing at least $15,000 in back rent.
“One tenant was $2,500 behind and was still living there,” says Torgenrud. “In that case the tenant hadn’t paid rent in over 90 days and [the Apartment Store] hadn’t gotten rid of them. That’s the job of a property manager, to get rid of the tenants that aren’t paying their rent.”
It will take Torgenrud and his team months to sift through the thousands of pages of financial documents and rental agreements in order figure out exactly what happened to the missing cash. In the meantime, tenants and landlords affected by the bankruptcy are trying to move forward. And that won’t be easy for some.
“There are some renters that stand to lose a substantial amount of money in this case,” says White.
That’s one point on which everyone seems to agree.