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Lenny Dykstra: 'Bank Fraud' Led to Bankruptcy

Thursday, 9 Jul 2009 | 6:44 PM ET

Lenny Dykstra sat down with CNBC at his $24 million hilltop estate behind the gates of Sherwood Country Club.

Dykstra Discusses Bankruptcy
CNBC's Jane Wells discusses former Major League Baseball player Lenny Dykstra's bankruptcy and the financial issues he currently faces.

In our exclusive interview, he wanted to explain why he filed for Chapter 11 this week, which stopped a planned foreclosure of the mansion scheduled for today. "Bottom line...this case is about bank fraud," he says.

We are posting the entire interview. To understand certain parts, here is a thumbnail sketch of what Dykstra claims happened.

He says when he bought Wayne Gretzky's estate two years ago, a broker from Washington Mutual promised him a single $17.5 million loan, but delivered only $12.5 million.

Dykstra says he was urged to go get a second $8 million mortgage, to complete the $17.5 million and allow him to have some extra cash, as the house, Dykstra says, appraised for $25 million.

Dykstra says the broker promised he could refinance both mortgages into one affordable payment after 60 days. But the baseball legend claims the mortgage broker disappeared.

There was no re-fi.

Meantime, he was paying close to $200,000 a month in mortgages, and his income was only $125,000, that money coming from a promissory note he received after selling his car wash business.

Unable to continue paying more than he was making, Dykstra says he was forced to sell the promissory note back to the owners of the car wash to pay off the second mortgage. That erased his nest egg, he says.

Dykstra refused to talk about Index Investors, which, as we reported yesterday, is the company actually moving to foreclose on his mansion, saying Dykstra owes $910,000. Dykstra is suing Index and its owner, Jeff Smith, for violating state usury laws, among other claims.

Finally, Dykstra says he is 111-0 in making good stock market bets, though he would not say how much money he's making. And when I asked him where he plans to be financially in a year, he said, "I'll be living the dream."

Lenny Dykstra's attorney, Jon Hayes, says that the baseball legend's assets far exceed the $0-$50,000 listed in the emergency Chapter 11 filing.

"Lenny has not filed his property schedules yet, and therefore the computer defaulted on the statistical box of the first page of the petition at zero," Hayes says.

He added that the property schedules are due in two weeks.

"I expect them to show assets exceeding $50 million," Hayes says. But if they are $50 million, and debts are $31 million, leaving a net worth of $19 million, can you file for bankruptcy? Hayes says it's very common to do so. "We filed to stop the foreclosure."

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