CALHOUN -- While U.S. Rep. Tom Graves was calling for fiscal responsibility in Washington his attorney was arguing in a lawsuit that a North Georgia bank is at fault for issuing Graves a $2.2 million loan the bank knew he could not repay.
Graves was fighting a lawsuit along with business partner Chip Rogers, the state Senate majority leader. The two Republicans, through a limited-liability company, used the loan to purchase and renovate a Calhoun motel that quickly went under.
The bank sued, alleging the two defaulted on the loan. The politicians filed counterclaims against the bank, accusing it of improperly declaring the loan in default after reneging on a promise to refinance it at more favorable terms. Both parties dismissed their claims Wednesday, a day before they were scheduled to attend a hearing on the case in Calhoun. Graves said through a spokesman that the case has been "fully resolved in an equitable and fair manner." An attorney for the bank declined to comment.
Meanwhile, tens of thousand of dollars in back real estate taxes, penalties and interest are owed on the property. The man Graves and Rogers say they transferred ownership to – John Edens – has closed the motel and moved on. Calhoun officials say the gutted building is now a “nuisance” and a safety concern. They are considering tearing it down at taxpayer expense.
Graves, a tea party favorite who has been outspoken about his vote this month against raising the debt-ceiling, said he had not read his attorney’s court filings claiming the bank is at fault for loaning him money it knew he couldn't repay.
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“This is a business dispute,” he told Channel 2 Action News this week.
Rogers told The Atlanta Journal-Constitution that he, too, was unaware of the filing, "so I contacted our attorney. He says no such claim was made pertaining to the payments on the loan. In fact, at the time the new owner [Edens] took possession in 2009, payments were current."
But, in court documents filed in June, an attorney for Graves and Rogers said the personal guarantees Bartow County Bank had them sign for the loan are invalid because the bank knew they could not cover the debt. Their attorney, Simon Bloom, quotes from a deposition in the case in which a bank executive confirms he knew the politicians’ financial records showed they didn’t have $2.2 million.
The two used the loan to purchase and renovate an older motel on Red Bud Road near Interstate 75. They planned to transform it into an extended-stay motel, where tenants could rent rooms by the week or month.
Bloom said the bank agreed to issue Graves and Rogers the loan in 2007 based on their prior experience investing in real estate. He said the bank asked them to sign personal guarantees because it made them " ‘have some skin in the game' presumably meaning a sense of personal obligation for the debts … even though they clearly could not fulfill the obligation.”
Reached Wednesday, Bloom said it is not uncommon for banks to issue loans under these circumstances. The banks, he said, expect such debtors to be able to pay the interest on these loans until they can successfully renovate and sell the properties they have purchased and then use the proceeds of those sales to pay the loans off.
Bartow County Bank failed April 15. Hamilton State Bank purchased Bartow County Bank’s assets and had taken over the lawsuit targeting Graves and Rogers.
Whether the lawsuit has political consequence has yet to be determined. Graves has embraced and been embraced by the tea party in Georgia. Leaders of that movement said they’ll wait to pass judgment on his situation.
“Many things can be alleged by attorneys on both sides of a court case,” Julianne Thompson, state coordinator of the Georgia Tea Party Patriots, said.
Kerwin Swint, a political science professor at Kennesaw State University and a former GOP consultant, said charging Graves with hypocrisy could be an easy case to make.
“I can see how it can be interpreted that way,” Swint said. “But I’m sure from Tom Graves’ point of view he’s talking to his attorneys and like any good lawyer they’re going to make a case that helps the most.”
Still, Swint said, “I can also see how people would take him to task for saying on one hand government has to be responsible [for its debts] and then pulling that kind of thing.”
Mark Rountree, a Republican consultant and pollster, said Graves’ situation upsets voters.
“It makes normal people shake their head and not have faith when you have politicians whose actions don’t meet their words,” he said. Rountree worked for Lee Hawkins, Graves’ challenger in last year's GOP primary, but said this isn’t about past elections. “This problem is real,” Rountree said. “It’s not political.”
Rogers and Graves said they were no longer responsible for the loan debt because they are no longer members of the company they used to take out the loan, Tich Hospitality. They said they entered a contract in 2009 to transfer ownership of that company and the inn to Edens.
That company now owes Calhoun and Gordon County $41,500 combined in unpaid real estate taxes, penalties and interest going back to 2009 on the property, public records show. The inn lost power in February after Edens fell behind in paying about $11,000 to North Georgia EMC for his utility bills, a Calhoun official said. The loss of electricity sent local nonprofit agencies and churches scrambling to help find new homes for about 80 men, women and children who lived at the inn. Some were impoverished and disabled, officials said, and some had called the inn their home for years.
At the time, Edens said he was considering filing for bankruptcy. He filed for Chapter 7 bankruptcy in 2004 and has been the target of $200,000 in judgments and liens, including some from state and local tax collectors, public records show.
Edens has had some brushes with the law. He wore an electronic monitoring bracelet on his ankle last year, explaining it helped him prove he was not violating a restraining order obtained by his ex-wife. Police arrested Edens in Cartersville in June and charged him with felony theft by conversion. That case involves the use of a vehicle from Roswell and appears unrelated to the hotel. Edens did not respond to repeated requests for comment.
Calhoun officials issued a demolition permit to Edens in May, hoping he would tear down the hotel. Instead, city officials said, people working for Edens stripped the property of its windows, doors and other valuable items, leaving the shell of the building and some debris behind. Calhoun officials say they are considering fencing it off and demolishing it, estimating that could cost the city more than $100,000.
“It’s a strange situation,” said Calhoun City Administrator Eddie Peterson before the Wednesday settlement. “Tom Graves and Chip have their hands full on this one.”