West Oakland Councilmember Involved in House-Flipping Scheme 

Public records show that city Councilmember Lynette Gibson McElhaney, who represents a district impacted by gentrification, used her social justice nonprofit to finance for-profit house-flipping deals in Oakland.

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"Mr. Reese and I have done real estate dealings together and now that monies have ran out he has gone crazy," Shepard wrote in one court filing in 2006. "Mr. Reese has left several messages that he intends to do bodily harm to myself and my family."

In at least one deal, Reese and Shepard were accused of defrauding a homeowner and stealing her house. "They were pretty nasty," said Matthew Webb, a Castro Valley attorney who spoke with us about Richard Reese.

Sometime in 2003, Reese and Shepard were on the lookout for distressed homeowners who had recently been hit with notices of default on their mortgages, according to court documents. That's how they found Julie Hess. Hess had inherited her father's house at 833 Santa Ray Avenue in the Crocker Highlands neighborhood of Oakland in 1993. In 1994, Hess took out a home equity loan secured against the house. Things were going okay until 2002, but then Hess ran low on cash and one of her lenders recorded a notice of default, threatening to possibly foreclose unless she caught up on her mortgage payments. According to court documents, Reese and Shepard approached Hess with an offer to help her save her family home by refinancing her mortgage in order to secure lower monthly payments.

"In the course of the refi[nance], they put her in a loan that was guaranteed to fail," Webb told us. "The loan they procured for her had a sixty-day balloon period. When the loan came due they pounced and initiated foreclosure proceedings."

At that point, Hess hired Webb, and a long, messy legal battle ensued. Hess filed a lawsuit in Alameda County Superior Court alleging that Reese had promised to save her home with a 5.5-percent refinance loan, but instead Reese placed her in multiple loans, one of which was owed to a relative of David Shepard. Reese allegedly told Hess the loan was for $30,000, when, in fact, the principal was $100,000, and instead of a 5.5 percent-interest rate, it had a 12-percent rate and the entire balance was due in two months.

In court, Webb secured an injunction preventing a foreclosure sale, but Hess ultimately lost her house to Reese and Shepard. Afterward, Webb was able to win a legal judgment against Reese and Shepard for $449,660, but Webb said that Reese never paid the money.

"It was cruel," said Webb. "I have no love for these characters."

In 2007, Reese was sued by a contractor who did heating and air conditioning work on one of Reese's properties in East Oakland. The contractor alleged that Reese withheld $5,000 in payments. "He ripped me off," said Daryle Price. "He basically burns people."

Reese also owned and managed a rental building in West Oakland in the mid-2000s. Several of his tenants sued him, alleging wrongful evictions and harassment. In court documents, Reese called one of his tenants a "specimen," and said that the renter was a "ringleader" in an "uprising where all the tenants refuse to pay rent."

On Reese's Facebook profile, which he hasn't updated since 2012, he claims to live in Bangkok, Thailand.

Gibson McElhaney told us she met Reese sometime in 2013, and her nonprofit subsequently signed a partnership agreement with his company, Nakatoma Acquisitions, to buy and sell Oakland real estate. "We sought partnerships with private developers to identify foreclosed properties for the purpose of purchase and resale or rent to low-moderate income families," she said.

However, Gibson McElhaney did not provide us with any evidence that her nonprofit's deals with Reese's company resulted in homes or rentals for low-income families in Oakland.

Gibson McElhaney said another goal of the deal was to replace money that Richmond Neighborhood Housing Services was no longer receiving from the federal and state governments. "In response to the loss of both HUD [Housing and Urban Development] and Redevelopment agency funding, nonprofit housing organizations began looking to form partnerships with private developers who had greater access to bank-owned foreclosed property ... inventories and access to flexible capital," wrote Gibson McElhaney.

In a separate letter, Maxine Reynolds, president of Richmond Neighborhood Housing Services' board of directors, described the house-flipping deals with Richard Reese's Nakatoma Acquisitions company as a means of creating "earned income" that will be used to launch a veterans housing initiative. "The Board approved a strategic partnership with Nakatoma Investments to identify and acquire abandoned, vacant, or bank-owned foreclosed ... properties with the goal of using earned income to fund the launch of our veteran's initiative and to help us acquire multi-family structures to expand our ability to provide low-income rental housing to families throughout the East Bay," wrote Reynolds. "Nakatoma is a small scale developer with access to flexible capital that allows them to be competitive in a field dominated by large-scale cash buyers."

Reynolds continued: "Any profit earned from loans made to Nakatoma is being used to build up the agency's financial resources so that we could pursue our new objective of building our portfolio of affordable rental housing for veterans."

In other words, Gibson McElhaney and Reynolds contend that the ends — building affordable housing for veterans — justify the means: flipping houses for profit in gentrifying Oakland.


Richmond Neighborhood Housing Services used to be part of a national network of nonprofits, called NeighborWorks America, chartered to promote affordable housing. Through this network, Gibson McElhaney and her staff obtained state and federal funds to conduct their work. As a NeighborWorks America affiliated organization using taxpayer money, Richmond Neighborhood Housing Services also had to undergo audits and annual reviews. But about two years ago, the affiliation between Richmond Neighborhood Housing Services and NeighborWorks ended.

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