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Trump protects properties with bankruptcy--and buys properties in bankruptcy

Current play on Virginia estate called 'squeeze' on Bank of America


Donald Trump and bankruptcy are back in the news, but this time it's not with one of his companies.

No stranger to bankruptcy court

We'll get to the latest development, but first let's review Trump's personal history of filing for bankruptcy. According to an ABC report from April, the developer cum real-estate-branding-mogul who's branched into entertainment via beauty pageants and reality TV is no stranger to bankruptcy court, and, in fact, seems to regard Chapter 11 as a pro golfer might consider a 7-iron or a pitching wedge--just another tool in the bag of business instruments:

Bankruptcies in '91, '92, '04 & '09--while distressed homeowners go without

Donald Trump -- or companies that bear his name - have declared bankruptcy four times.

Trump has built an American empire from Las Vegas to New York with towering hotels and sparkling casinos. Forbes estimates he's worth $2.7 billion. But not all of Trump's business ventures have been constant money-makers. In 1991, 1992, 2004, and again in 2009, Trump branded companies or properties have sought Chapter 11 protection.

"I've used the laws of this country to pare debt. ... We'll have the company. We'll throw it into a chapter. We'll negotiate with the banks. We'll make a fantastic deal. You know, it's like on 'The Apprentice.' It's not personal. It's just business," Trump told ABC's George Stephanopoulos last Thursday.

A business declaring bankruptcy is nothing new in corporate America, where bankruptcy is often sugar-coated as "restructuring debt." But it might seem alarming to everyday Americans who can't get a bank to restructure their home loans. If you want to get Donald Trump hot under the collar, accuse him of declaring bankruptcy.

Bankruptcy as a business decision

Apparently, Trump bristles at the suggestion that he's filed for personal bankruptcy. Yet, clearly--We'll throw it into a chapter. . . .We'll make a fantastic deal. . . .It's not personal. It's just business--he has no problem sending Trump-branded businesses into Chapter 11, even if he winds up with minority ownership in return for banks treating him as yet another too-big-to-fail major financier.

And, up to a point, we agree.

That is, we think consumers can stand to adopt an attitude more like Trump's: it's a business decision to file for bankruptcy protection. We have the U.S. Bankruptcy Code on the books for a reason--when people get in trouble, they deserve a chance to hit the reset button and start over, either through a liquidation plan (Chapter 7) or through a partial repayment plan (Chapter 13).

The difference of course is that Trump manages to protect his personal wealth while playing fast and loose with his branding deals and promises to investors. Remember the old acronym, OPM? Yep--other people's money. To be fair, he's had businesses go into Chapter 11 and emerge as winners, which, after all, is the point--both for businesses and consumers. On the other hand, how many consumers can rant about Obama's birth certificate in the same speech in which they brag about paying $41 million for a mansion in bankruptcy proceedings then flipping it soon afterward for $100 million?

Kluge bankruptcy opens door for Trump acquisitions

Which point brings us to current news. By way of background, Patricia Kluge was born in Baghdad but  a citizen of Great Britain who became a belly dancer, nude model, and high-society fixture in Virginia via marriage to billionaire media tycoon John W. Kluge. She and Kluge divorced in 1990, whereupon she was set up with a settlement estimated anywhere from the hundreds of millions to a billion dollars, including a vast estate in Virginia, which she and new husband, William Moses, attempted to revamp as a winery.

'In the history of rapid wealth loss. . .'

From a July 1 article in the Wall Street Journal:
In the history of rapid wealth loss, Patricia Kluge stands apart. Once married to one of America's richest men, she won a divorce settlement in 1990 worth more than $100 million and proceeded to spend it on her lifestyle and business ventures. She was forced to sell off her Cartier diamonds, Givenchy gowns and silk drapes before declaring personal bankruptcy in June.

Yet the Fall of the House of Kluge has been a windfall for one man: Donald Trump.

As Ms. Kluge's empire collapsed, Mr. Trump bought. Over the past six months, he swooped in and picked up many of the pieces of her palatial Virginia estate and winery. He bought the 1,000-acre vineyard and winery for a fraction of their original value. He bought 200 acres nearby for less than $500,000, with help from Ms. Kluge and her son.

Now, the pompadoured billionaire and reality-TV star may have outplayed a much bigger rival in a bid for Ms. Kluge's crown jewel: her mansion. Bank of America owns the house after foreclosing and is trying to sell it for $16 million. The 24,000-square-foot neo-Georgian palace has 45 rooms, a spa, home theater, 3,500-bottle wine cellar and 2,000-square-foot sitting room.

Bank foreclosed, but Trump landlocked the mansion

One thing the house doesn't have, however, is a front yard. Mr. Trump owns that, having purchased it with his 200 acres. He also owns most of the driveway and the backyard, making a sale to any other buyer difficult. Mr. Trump said he would buy it from Bank of America for $3.6 million.

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