MYRTLE BEACH — The Internal Revenue Service on Wednesday asked a federal judge to issue a nearly $1.6 million default judgment against Rick McDavid, the Myrtle Beach life insurance salesman accused of scamming elderly residents by talking them into mortgaging their homes and property for excessive policies they didn’t need or understand.
The IRS wants the default judgment because McDavid has failed to file a response to the federal agency’s Jan. 25 lawsuit accusing him of failing to pay taxes from 2002-09, according to Wednesday’s court filing. The IRS plans to foreclose on McDavid’s home in the Pottery Landing gated community in Conway if the default judgment is granted.
The foreclosure likely would pay off just a small portion of McDavid’s alleged $1.6 million tax debt. McDavid purchased the home for $305,000 in 2007 but put the deed into his then-girlfriend’s name in an attempt to keep the IRS from seizing the property, according to court documents. One of the reasons the IRS took the case to federal court is to ask a judge to determine that the property belongs to McDavid and not the ex-girlfriend.
McDavid could not be reached for comment.
Meanwhile, the lawyer representing dozens of Horry County residents who say McDavid scammed them with a high-pressure sales pitch is fighting a bank’s attempt to foreclose on one of the couple’s homes.
Surfside Beach lawyer Sid Connor this month filed a counterclaim against Jacksonville-based Everbank, which wants to foreclose on a 100-year-old family home owned by Charles and Peggy Allen of Aynor. Connor said in court documents that Everbank violated the state’s Consumer Protection Act and the S.C. Unfair Trade Practices Act by, among other things, financing a loan to pay for life insurance premiums and making an unconscionable loan to the Allens when there was no reasonable probability of repayment.
Peggy Allen, 79, and Charles Allen, who will celebrate his 81st birthday on Sunday, have an annual income of about $38,000 from Social Security and retirement payments. McDavid convinced the couple in 2008 to mortgage the home Peggy Allen’s grandfather built to purchase $350,000 in life insurance policies costing them $3,000 a month. In addition to their ages, the insurance premiums were expensive because Charles Allen has suffered a stroke and has other health problems. Everbank, in its lawsuit, says the couple owes $130,180 in unpaid mortgage principal and interest.
Michael Cosgrove, a spokesman for Everbank, declined to comment on the lawsuit.
State law forbids a home lender to finance – either directly or indirectly – life insurance premiums. Connor said McDavid indirectly financed the premiums for the policies he sold by arranging mortgages for his clients, including the Allens. Court records show McDavid used the same appraiser, mortgage broker and lawyer for each home loan he helped to arrange.
Connor is asking a judge to rule that the Everbank loan cannot be enforced, which means the Allens would not have to repay the money. Most of the money from the mortgage went toward insurance policy and mortgage loan payments. The Allens stopped paying their mortgage last year because they could no longer keep up with the payments.
There are 23 lawsuits pending against McDavid filed on behalf of consumers who accuse him of fraud and misrepresentation. There also are 18 pending complaints against McDavid filed with the S.C. Department of Insurance. The department previously dismissed two complaints against McDavid after the life insurance salesman told the state agency he did nothing wrong.
McDavid was making about $60,000 a year from insurance sales through his Old South Financial Services company until the real estate boom hit and he developed a program in which clients used the equity in their homes and property to purchase whole life policies, court documents show. McDavid’s income soared to $1.1 million by 2007 and he purchased several cars, homes and luxury items with the commissions from policy sales, according to court records and depositions.
Those policies far exceeded the needs of the purchasers, according to court documents, with several instances of multi-million dollar policies being sold to retirees with little or no debt. Some of those purchasers already had life insurance policies in addition to the ones McDavid sold to them. Some of the purchasers who have filed lawsuits against McDavid said they did not know they were purchasing life insurance.
Connor said many of McDavid’s clients were elderly and sick, suffering from illnesses such as Parkinson’s disease and diabetic neuropathy. He said many of the clients lacked financial sophistication and fell for McDavid’s “slick and high-pressure sales pitch.”
“These are simple, country people who go to church and trust people,” Connor said. “When you get older, your ability to think about these kinds of things diminishes and it becomes more difficult to fight off someone who wants to take advantage of you.”
In addition to the lawsuits and complaints, the S.C. Department of Revenue has filed nearly $240,000 in tax liens against McDavid.
Contact DAVID WREN at 626-0281.