Senator Isakson’s brother, son being sued for $30 million in real estate default

People make mistakes — they make horrible investment decisions that sometimes go bust. That’s been especially true during the housing crisis since the groupthink of the boom era made dicey deals seem like sure bets.

So I guess it should be no surprise that relatives of key politicians (like Georgia Gov. Nathan Deal as well as now Sen. Johnny Isakson) should wind up in bad spots.

From today’s AJC:

In papers filed last week in U.S. District Court in Atlanta, North Carolina-based BB&T bank accused Edwin Andrew “Andy” Isakson, the senator’s brother; Kevin Warner Isakson, one of the senator’s sons; and their partner, David L. Barnhart, of “breach of contract” in their failure to repay a $26.7 million loan the trio had taken out with Colonial Bank for the project six years ago.

BB&T assumed Colonial’s assets in 2009 after Montgomery-based Colonial failed.

BB&T is seeking about $30.5 million, which includes repayment of the loan as well as about $3.8 million in accrued interest, more than $12,000 in late fees and undisclosed attorney costs.

The developers sought the money to construct Peachtree Hills Place, a 274-unit development set for 23 acres in Buckhead’s Peachtree Hills neighborhood.

Many such plans collapsed. Check out my pics last week of the Reserve at Savannah Harbor.

What makes this case different, in my mind at least, is that Senator Isakson was one of the most outspoken proponents of the homebuyer tax credits that Congress enacted and of the extension of those credits from first-time buyers to all buyers (like the older people that his relatives’ failed development was designed for). Check out this excerpt from a January 2009 press release by Isakson’s office:

Isakson has pushed hard for a non-repayable tax credit for homebuyers because he knows that it will work. In the mid-1970s, America faced a similar housing crisis when a period of easy credit and loose underwriting flooded the market with new construction. Interest rates rose, the economy slowed and America was left with a three-year supply of vacant homes. Congress responded by passing a $2,000 tax credit for anyone purchasing a new home for their principal residence. Isakson believes the results were clear and swift as home values stabilized, housing inventory dropped and the market recovered.

The data there is more or less true, but it’s a complete mischaracterization of the problem as it existed in early 2009. The crisis in the mid-70s was because of a sudden decrease in sales, which was pretty quickly remedied with a series of policy moves and the economy finding its footing. (I have never, however, seen good evidence that the inventory jumped to three years.) In the ongoing bust that we’re facing, there has been a decline in sales, but it has been coupled with a massive construction boom that flooded the market with far more inventory than could have absorbed even if we had not fallen into recession.

And, as pretty much everyone now agrees, the homebuyer tax credits did nothing but kick the can down the road. They boosted sales and prices a modest amount for a short period before the slide began again. Many buyers got suckered into the market too early and at too high a level; many are now paying the price. I wrote at length about the tax credit failure already: Homebuyer tax credits: A post mortem.

And now it turns out that two of Isakson’s closest relatives were involved in a huge failed development. They’re just the type of developers who would have benefited if the extension of the homebuyer tax credit had worked.

More from the article:

The news comes just a month after Kevin Isakson met with neighborhood residents to discuss their upkeep concerns. The parcel, which was cleared of an apartment complex that had been there for decades, is overgrown with shrubbery in places and sits behind a chain-link fence that has been damaged by storms and downed trees.