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Date of Issue: January 11, 2007

GSR principal faces further $10 million in legal woes

hb sandpile pic
More GSR property for sale
This canalfront home owned by GSR Development LLC at 403 S. Bay Blvd. in Anna Maria has been approved for sale by the federal bankruptcy court in Tampa, but with an April 1 deadline. The minimum asking price is $750,000, according to a court order signed by Judge K. Rodney May. The proceeds would be used to pay off a mortgage with Freedom Bank, not GSR creditors. Islander Photo: Rick Catlin

While GSR Development LLC may have gotten off the financial hook - at least temporarily - by filing for company bankruptcy in federal court on July 13, 2006, legal woes continue to mount for GSR's principals, particularly Robert Byrne.

Since the bankruptcy petition was initiated last July, Byrne has been slapped personally with a total of $9.884 million in law suits and legal actions filed with the Manatee County Circuit Court.

Byrne has been named in 16 separate mortgage foreclosures or civil suits filed since July 13, while GSR partner Steve Noriega has been listed in four of those actions. Most of the complaints allege that Byrne and/or Noriega gave personal guarantees on loans and mortgages acquired for various properties that were outside the realm of GSR's real estate empire. GSR's third partner, Ed Furfey, was named in one of the filings.

The largest amount Byrne allegedly owes is for a $1.05 million mortgage default. That action was filed Dec. 29, while the smallest claim is for $100,000, filed on Dec. 7 by Chief Management LLC.

GSR's rapidly diminishing real estate empire took another blow Dec. 12 when First Victoria Bank filed a civil action against Byrne and Noriega for $456,557.92 for failing to make payments on the company's Piper Cheyenne twin-engine aircraft. According to court documents, the men gave personal guarantees for the monthly payments. The aircraft is currently grounded at a Fernandina Beach airport.

When GSR initiated its bankruptcy petition, it claimed assets of $44 million against liabilities of $33 million, but alleged it was prevented from completing its major housing projects because of a lawsuit filed against Byrne, Noriega and GSR by Furfey. The bankruptcy also noted some $6 million in unsecured claims.

Byrne and Noriega have presented financial statements claiming a net worth of $33 million and $22 million respectively, according to former employees involved in some of the real estate transactions in which Byrne and Noriega gave personal guarantees.

According to at least one lawyer involved in the case, Byrne and Noriega's standard tactic to get a high-amount mortgage on a property was to purchase the property at one price, then have it immediately re-appraised for a much higher value.

All too eager to cash in on the burgeoning Island real estate market from 2003 to 2005, banks, mortgage companies and even personal financiers would accept the new appraisal figure without question and supply a mortgage on the property in excess of what was originally paid.

That method worked all well and good until the Island real estate market collapsed in 2006, and the steady 20 to 30 percent annual increase in property values that was seen during the boom years came to a screeching halt. Prices started to fall rather than climb, and real estate developers who had failed to sell of some of their holdings during the boom found themselves with a heavy debt, no cash flow, and over-mortgaged properties that couldn't be sold even to pay off the bank.

Attorney Joe Fritz, who represented Mel and Carol Yudofsky of Holmes Beach in their action against Noriega over a Bradenton Beach condominium they own, claimed that's essentially what Noriega did when he obtained a $980,000 mortgage on a condo appraised for $1 million. The Yudofsky's won their case and Noriega was evicted two weeks ago.

Not all of the GSR news, however, is grim. At least one investor holding the standard personal guarantee from both Byrne and Noriega has been paid.

According to court documents, former Island resident and food server Cynthia Graeff's claim against Byrne and Noriega was satisfied on Dec. 22. Graeff had won a judgment against the men in September 2006 for failing to pay back the $25,000 she had invested in GSR under a personal guarantee by both Noriega and Byrne.

Graeff had saved the money for her son's college education during the 10-plus years she worked on the Island at various restaurants and establishments.