When mercy turns messy

photo The Town & Country Inn in Chattanooga, as seen in this file photo.

The neighbors gathered in room 202.

They needed a place out of the cold to talk, a place to compare notes.

Since power to some of their rooms at the Town & Country Inn had been switched off by a hotel manager earlier that morning, the small group had become frantic about the falling temperatures, expected to dip into the teens that night.

Santos Ortiz, once a dishwasher at the hotel's restaurant, and Devin Johnson, a former hotel cook who shares two rooms with his mother, his girlfriend and his 2-year-old daughter, pace the floor.

The only woman in the group, Linda Stevens, who lives in room 206 and has paid rent with a portion of her disability check, sits on the bed and sobs.

None of them knows how long the power will be off or what else could go wrong at this extended-stay hotel.

"They don't treat animals this bad," Stevens says.

They need to call the police again, Ortiz responds.

"It will be all right," he tells her. "It's going to get better."

Everyone in room 202 thought when they came to Town & Country that the hotel and the ministry inside would be -- if not their salvation -- at least a chance to save some money, get a job and possibly start again.

But now they said it felt like inescapable hell.

The police often were called here, they said, to break up fights between tenants and take reports of quarreling between hotel managers and residents. Residents call to report being locked out of their rooms when they come back from a trip to the grocery store. Residents have called about a missing camera, a missing checkbook, a missing prescription for OxyContin, a missing computer.

For months, conflict at the hotel has been brewing. The hotel owners say they want to get rid of tenants who have fallen behind in rent.

Five people, including those in room 202, will be evicted this month, and the hotel is claiming they owe more than $900 each in unpaid rent and late fees since November.

The hotel and its ministry tried to help them, and now they are turning on the hotel, say brothers Steven and David Bernstein, Town & Country's absentee owners.

"These are hard-core people trying to get over on the system. These people refuse to work. They refuse to do anything," Steven Bernstein said. "They are just waiting. They are just laughing."

But more than a dozen residents tell a different story.

They say Town & Country has been cutting legal corners and disregarding wage and hour laws for years, making under-the-table deals with its residents and employees, unfairly trading housing for labor. And a series of tips about these deals has triggered investigations by the U.S. Department of Labor, the Tennessee Department of State and the Tennessee Human Rights Commission.

"They run this place like a prison camp," said James Breedwell, who lived at Town & Country and ran the hotel's bar and restaurant.


Off the interstate and tucked between a Waffle House and a pawnshop on the east end of 23rd Street, Town & Country Inn is the kind of place you could pass and never see. A low-hanging sign offers rooms by the week, and its two-story buildings, set off the main road, are away from public view.

It was the kind of place you came to when you were in trouble, cash poor or couldn't pass a credit check for an apartment or house. It was close to the bus stop and in walking distance of a Bi-Lo and Family Dollar.

The people who moved in and out of the rooms arrived with baggage: breakdowns, prison time, divorce, addictions, bankruptcy, job loss.

These were people like Michael Belt, who slept in the woods or on business loading docks downtown before moving into the extended-stay hotel two years ago. He had spent years in prison, once in Florida for stealing a car off a showroom floor, then again in Georgia for breaking into a post office. He also was recovering from a crack habit.

When Belt heard about the hotel, he said he was told there was a church, a charity, run from inside. The Grace in Action ministry preached Jesus and provided rooms and food.

"All I know is it was cold outside," said Belt, who lived at the hotel for 15 months and left last March. "I wanted to get in."

And it all seemed real when he met Tommy Peak, the charismatic, sharply dressed minister who runs Grace in Action with his wife, Penny. Peak told Belt he could help him if Belt found a church to pay for his room.

Sponsors paid $176 a week for a room, with $153 going to the hotel, even though the weekly rate advertised outside the hotel was $129. The check should be written out to Grace in Action, Peak said.

A week later, when the church's donation ran out and Belt could not pay the rate for his room, the hotel's manager, Paul Watson, told him not to worry. He didn't have to leave.

The hotel would put him to work.


Two years after David and Steven Bernstein bought the Town & Country property in 2005, Tommy and Penny Peak called the Bernsteins with a vision.

The couple, who had started and folded several ministries, had an idea they guaranteed would work. They would build Town & County into a one-stop shop for the homeless, "a dream center," they said.

Chattanooga had more homeless people than the city knew what to do with, the Peaks told the Bernsteins. Shelters were full and underfunded, and families often were not allowed to stay together.

And the Peaks knew, better than most, how important it was to intervene in these desperate situations. Before the couple met at a Christian singles group in 2001, Penny had been homeless and lived in a battered-women's shelter with her daughter, Angel.

Tommy Peak had run away from home and battled cocaine addiction for a few years in the 1980s before being ordained as a minister at his church, Grace Christian Center, on Brainerd Road, and coming to believe that, in Jesus' name, God would provide whatever he needed.

Town & Country could teach people to reclaim their lives, as he had, as Penny had, by giving the couple office space and setting aside rooms for the homeless. Churches and nonprofits would foot the bill for the rooms and pay a 10 percent surcharge to Grace in Action, which would be used to cover the cost of toiletries, transportation and meals for the ministry.

"It's time. It's time. We have too many babies sleeping in cars, children sleeping in the streets," Tommy Peak said. "This is my heart. There is so many people out there that are suffering, and the Bible says if we do unto the least of these, we do it unto God."

But the deal was smart business, too, David Bernstein said. He called it a "quid pro quo." The Peaks promised to fill spots at the 164-room hotel, as many as 25 a month, more than 300 a year, and the hotel needed work done on the cheap.

The Bernsteins, natives of Louisiana and owners of two other hotels, had bought the dilapidated property in foreclosure and wanted to turn the place around.

Between $500,000 and $1 million in renovations were needed, the brothers said, and a little more than a third of the rooms were operational.

"I wouldn't put my dogs in one of [those] rooms," said Watson, the hotel's general manager who oversaw the hiring of homeless workers at Town & Country for the past three years. "They were that nasty. Things were broken. There were holes in the wall. There was no grass."

That's where Belt came into the picture. Like so many others, he had a past and nowhere to go.

But he could tear down drywall, paint and fix the aging air-conditioning units.


Last summer, Belt's would be one of the first in a string of calls to the Tennessee Department of Labor claiming that illegal deals were being made between the hotel's management and residents.

Ten callers said some employees weren't being paid minimum wage, and many weren't being paid at all.

During her first visit to Town & Country, Paula Horne, a state labor inspector who took most of the calls, said she saw a 13-year-old using a string trimmer on the hotel's lawn. Horne snapped some pictures. Managers and residents at the hotel seemed on edge, nervous. So she started asking questions.

She knew that extended stays often were places that succeeded at straddling the line between what was lawful and illicit. The owners of some hotels, especially those with the poorest residents, acted above the law and counted on the fact that no one would go through the effort or pay the money for an attorney, Horne said. Eviction by intimidation was standard fare. Trading work for lodging was just as common, she said.

"[The employer] thinks it's a washout. The law says different," she said.

In this case, Horne decided the violations being alleged were big enough for the U.S. Department of Labor to step in. The federal Fair Labor Standards Act allows employers to swap room and board for pay, but there are important caveats. A business can't just charge an employee what it would quote a person coming off the street. The employee is supposed to get the product -- in this case, a room -- at its true cost.

But work schedules at Town & Country showed many employees were working nine hours a day, six days a week for a room. The employees say they were on call many nights and were told they couldn't leave the property.

After a federal investigator started calling Town & Country during the summer, poking around the office, asking for paperwork, many employees started to get paychecks.

Then, in November, 15 employees were gathered in the hotel's dining room and told they were being laid off.

The hotel was going under and couldn't afford to pay them anymore, manager Watson said. If employees who lived at the hotel still wanted to work for their rooms, they could sign a paper -- the "Application for Residency in the Town & Country Foundation" -- that would turn their jobs into volunteer positions with the hotel's new nonprofit foundation.

"It was sign the paper or get out," said Damonn Dixon, a front desk worker who was among those told they were being laid off. "They know these people don't have anywhere else to go. In a way, it was like 'we got you right where we want you.'"

David Bernstein created the nonprofit by sending a one-page application with a name, address and signature to the Tennessee Department of State Business Services.

The Tennessee Office of Charitable Fundraising and Gaming is investigating whether the Town & Country Foundation should have been registered and policed as a charity because it may have received donations from Grace in Action. Grace in Action wasn't approved as a tax-exempt public charity until the end of October, after three years of operating at the hotel.

This wasn't the first time one of the Bernsteins' business dealings has been investigated. In 2009, the Georgia Office of State Administrative Hearings upheld the revocation of Steven Bernstein's license as a mortgage broker. His license had been taken away after the state concluded he did not report a criminal conviction on his application.

Twenty years before, in Louisiana, he had been convicted of a felony for forging customs forms. A judge suspended a jail sentence, put him on probation for five years and fined him $2,000.

Georgia court records also concluded that he filed a "false document" claiming to have paid off a lien.

Steven Bernstein said these cases are being appealed, but he didn't provide documents to show an appeal had been filed.

"I am going to sue the crap out of you," he told a Chattanooga Times Free Press reporter Friday.


It's hard to know whom to believe about Town & Country, who is benefiting from what and who the victims are. The business of mercy ministry can be messy. Ask anyone who runs a shelter or volunteers at a soup kitchen.

People don't like being told they have to go to church. They don't like curfews and lights out. They get upset about the food. They get angry when they can't get a ride or a handout.

"Sometimes they bite the hand that feeds them," said Tommy Peak.

And sometimes the guidelines for how to help the helpless go out the window. When you find someone sleeping under a bridge or in the back of a car, it seems less important that the people willing to take him in are doing everything by the book, said Steve Dunn, a Grace in Action volunteer who attends First Presbyterian Church. "If the Chattanooga Rescue Mission is full, if the Union Gospel Mission is going to be full ... there aren't a lot of options," Dunn said.

Legal or illegal, everyone should be grateful for what they received, the Peaks said. It was better than nothing.


Fanny Pacheco was living in shelters with her three young children in Sequatchie County when a church in Dunlap told her about Grace in Action and paid two weeks' rent for her, her children and her partner, Phyllis Richey, to move into a small room.

The one meal a day provided by Grace in Action wasn't great -- usually outdated pastries, frozen vending machine sandwiches or rice and beans -- but at least they had food, she said. When her church sponsorship ran out, the hotel offered Pacheco a job as a front desk worker, and Richey began cleaning rooms.

For six months, she never received a paycheck and it didn't matter because it meant they could stay there, said Pacheco, who left Town & Country last June and now lives in Ohio.

Over the months she started to wonder about the arrangement. The Peaks started asking her to donate her food stamps, which was illegal under state law because Grace in Action wasn't approved by the state health department to serve food or function as a group home.

Some employees were forced to move to the back of the hotel, into the rooms with roaches coming through the shower drain and black mold spotting the walls, the ones unfit for paying guests.

At the same time, Pacheco said she and others started to pick up on inconsistencies with the hotel's bookkeeping. It seemed as if money was coming in. The hotel pulled in, on average, $30,000 to $35,000 a month on room rentals, said Jeff Weekley, a manager and bookkeeper at the hotel for nine months before leaving in December. Eighty percent of the rooms were occupied every night, he said.

But there wasn't any money, according to the managers and owners.

"Twenty-two hours of work cover room and board, but [the hotel] was making people work 40-hour weeks and sometimes more," said Dixon, the former front desk worker. "They just see [their employees] as drug addicts with bad attitudes and bad habits that can't find work anywhere else.

"It's not a charity up there."

And if you didn't like the way things were run, the managers said you could leave, residents said.

If you didn't leave, that's when things would get hairy. That's when your records would go missing and the amount you owed to the hotel would increase unexpectedly. That's when you would get locked out of your room or the heat would go out, they said.


The Bernsteins don't think anyone should listen to the complaints coming out of their hotel. The people stirring up investigations into their business are the real scam artists, they say.

Town & Country gave them work, a "home away from home," as one advertisement reads, and now former residents are painting the hotel's management and the Peaks as the villains because they can't pay their rent and don't want to leave, the Bernsteins said.

"It's all just a power struggle," said David Bernstein.

They never had these problems with the other hotels, the Hampton Inn and the Comfort Suites, they own in Rome, Ga.

"It's because of the caliber of people we're dealing with," said Steven Bernstein. "We run a clean ship. When you are dealing in low-end hotels, this is what happens."

The heat in those rooms should never have been turned off, Bernstein conceded, but he added that in Tennessee it takes so long to go through the legal steps of getting someone to leave.

"It takes forever and a day to evict someone in Tennessee," he said. "Then it takes forever for the court to hear it."

In the end, the federal labor investigation, which has spanned nearly six months and is ongoing, won't amount to much more than a slap on the wrist, the Bernsteins say.

Steven Bernstein said their lawyers and investigators have reached an agreement about unpaid wages. The U.S. Department of Labor, however, said nothing has been settled.

The brothers are looking to sell the property as soon as they can and believe a deal is imminent.


Nearly 30 people still are working for their rooms at Town & Country, knowing it likely will be sold. They are the ones, like Treck Payne, who are angry that people like Michael Belt and Fanny Pacheco told on the owners and have ruined a place that kept some people alive.

Payne served time for burglary before moving into Town & Country with his wife, Sharon, almost two years ago. He has supervised renovations and made sure those working for their rooms hung new Sheetrock, put in a new electric system and installed a new boiler. He and his wife helped clean up the place for the sale.

"If a man gets out of prison, it's hard to start again," he said. "We are doing what we can do just to exist."

And Tommy and Penny Peak -- still driving a van to bring homeless to Town & Country -- are scared. A few potential buyers visited recently and told the Peaks that if the hotel changed hands, they will want the ministry gone in 30 days.

All these years, the Peaks had been praying and believing that God would provide the money for them to buy Town & Country. Now, they likely will be forced to pack up the ministry and look for some place new.

For better or worse, changes are coming to the hotel, Tommy Peak said.

"It hurts," he said. "They said [they] don't want the atmosphere of helping the homeless people, the poor people. [They] are trying to turn the hotel into a five-star hotel. Having people there with dirty clothes on, walking around in a soup line trying to get food, you're not going to have somebody who's successful, who's rich, coming in to stay.

"But being a Hilton or something like the Chattanooga Choo Choo, in that neighborhood, I just don't think that's going to happen."

About this story: This story is based on in-depth reporting in December, January and February. The details and quotes are based on first-hand accounts of the reporter, police records, court records and 36 interviews with former and current residents, police, the hotel's owners, managers, officials with the Tennessee Department of State, officials with the U.S. Department of Labor, an investigator with the Tennessee Department of Human Services, an investigator with the Tennessee Department of Labor, and local volunteers who work with the homeless and local churches.