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Biggest loser: Schlitt cash kept Hatch's Ponzie scheme afloat
BY LISA ZAHNER - STAFF WRITER (Week of July 8, 2010)

Ira C. Hatch had courted the escrow money held by the Schlitt family companies for years, offering quicker and more exhaustive services to the other real estate brokerages that were vying with the Schlitts for business. 

But the Schlitts proved a tough nut for Hatch to crack. Entrenched in Vero Beach for decades, with family business tentacles in not only commercial and residential real estate, but also in insurance and the building trades, they declined Hatch’s many offers to let him harbor and control escrow deposits. 

But by 2006, after hearing so many clients sing Hatch’s praises, the Schlitts finally agreed. If they hadn’t, the Hatch house of cards might have come tumbling down a year earlier. 

For Hatch, former employees testified, the Schlitt cash infusion allowed him to pay off old debts and keep too many checks from bouncing. In less than a year, the almost $1 million in deposits the Schlitts entrusted to Hatch was gone, making the Schlitts the single biggest Vero Beach loser in what prosecutors are calling an organized Ponzi scheme controlled by Hatch. 

Hatch is accused of 45 counts (reduced from 46 last week) of defrauding clients of his Coastal Escrow Inc. out of nearly $4 million, and using the money to fund his lavish lifestyle, and pay personal expenses, including his home, and high-end cars for himself and his children. 

Throughout the crumbling last few years of Coastal Escrow, former employees testified that Hatch would always tell them he “had a plan” to repay the millions being withdrawn from escrow deposits. 

Assistant State Attorney Lev Evans argued during his opening statements that Hatch actually had five distinct plans to keep Coastal Escrow afloat. One was known as “The Schlitt Plan” -- using the Schlitt money to infuse cash into the failing business. “In 2006 when things were really getting tight, Ed Schlitt had several companies and hundreds of thousands of dollars in rental deposits in his own escrow account,” Evans said. “More than $770,000 sum total at the end of 2006.” 

Former Coastal Escrow Office Manager Amelia Lennon testified that the Schlitt money was used to pay back deposits owed to old depositors. When asked how Hatch kept Coastal Escrow going in 2006, she pointed to the Schlitt money. 

“In November 2006 we got a large new customer, Coldwell Banker Ed Schlitt,” Lennon testified. “We received all of the escrow money for all of their rental deposits.” Despite this huge dump of liquidity, the state presented evidence that Coastal Escrow had only $660,000 in its account in December 2006. 

“At the end of 2006, there wasn’t even enough money to pay back Schlitt,” Evans said. 

Prior to November 2006, the Schlitts kept the rental deposits on their many properties and down payments awaiting closings in a broker-managed escrow account. 

Steven Schlitt, son of Ed and Marguerite Schlitt who founded the family business in 1953, now co-owns and manages the real estate business with sister Linda Schlitt Gonzalez. Schlitt testified that Hatch had been courting his business for years and prodding him by providing fast service and help with escrow mediation to his real estate competitors. 

When Hatch founded Coastal Escrow in the late 1990s, he was an unknown newcomer to Vero compared to the Schlitt family empire and the “old Vero” establishment they represented, so they prudently waited. For many years in Vero, business was done on not much more than a handshake, but only with known people and families. 

“I first met Ira Hatch when I moved back to Vero in 1998,” Schlitt said. But by 2006, the vast majority of Vero Realtors -- as evidenced by a potential witness list of about 800 people -- had used Coastal Escrow and Coastal Title, which had five offices. 

“We had a number of various brokers and owners in town talk about the superior service they received and that Hatch’s offices offered to mediate escrow disputes,” Schlitt said. 

“We also had customers complaining about the delay in the time it would take to get escrow funds refunded from our broker-managed account, sometimes six months,” Schlitt said. 

Attorneys and brokers had also frequented the offices of Hatch and Doty for services ranging from closings to lawsuits. By then, Hatch was entrenched in Vero establishment, despite the fact that his accounts were running in the red. 

So the Schlitts agreed to allow Hatch to manage their escrowed funds. Steven Schlitt said the family finally made the move, depositing initially nearly $776,000 with Coastal Escrow and adding to the balance by $48,000 over the next few months. In exchange, Coastal Escrow paid Schlitt a flat $3,500 per month fee, according to former Hatch employees. 

John Moree, a property manager with Ed Schlitt and Associates, also testified to his rental clients losing nearly $84,000 in deposits when Coastal Escrow closed. 

Schlitt testified that he went to the Coastal Escrow office and tried to confront Hatch as the staff was packing up boxes of files and records on the Tuesday after Labor Day 2007, but that he did not get a satisfactory answer about how or when he and his clients would get their money back. 

At least in some cases, the Schlitts and other real estate companies asked their agents to give up commissions to pay back clients. That generated a whole new layer of victims indirectly affected by the closing of Coastal Escrow. 

Former Coldwell Banker Ed Schlitt agent Don Studley told Vero Beach 32963 that he was furious that funds in the Hatch family bank accounts were not used to make restitution for some of the victims. 

Studley said he camped outside the Indian River County Courthouse during proceedings early on in the Hatch case in September 2007 with a large sign lettered in red, reading “I want my $25,000” on the day the court heard arguments about unfreezing $215,000 in bank accounts that Margaret “Marjorie” Hatch said were hers alone. 

Studley said he’s never seen a dime of the money he lost, commissions he said the Schlitt family used to reimburse clients. 

“I had a client with $25,000 in Coastal Escrow waiting for a closing when Hatch shut the place down,” Studley said. “My commission was $25,000 on the sale, so Schlitt said that my commission would be used to make up for the client’s down payment.”