Saturday, April 08, 2006

Mortgage Fraud Tension Ratchets Up

Mortgage fraud in Horry County's manufactured home industry, once a whispered topic of conversation among some in the real estate community, has caught the attention of state agencies and real estate groups, which vow to crack down on the problem.

Cleaning up the industry, however, has proved to be a difficult process for short-staffed state agencies charged with protecting the public.

Home buyers who say they've been taken advantage of are frustrated with the limited help that's available and what they perceive as a lack of progress on their cases.

"I've talked with a lot of attorneys, and no one will touch my case," said Robert Romaniello, a Conway man who says he was asked to take part in a fraudulent mortgage.

"They say it would cost me more in attorney's fees than what I could get. It's not worth it to them. And I'm not sure the state agencies are even taking it seriously. I keep getting passed around from agency to agency."

Investigators with the S.C. Department of Labor, Licensing and Regulation talked with Ed and Hanna Hudzik about their mortgage problems in December. The investigators also took the couple's loan documents to Columbia.

"We haven't heard a thing from them since then," Hanna Hudzik said. "They haven't even returned the papers we let them borrow."

David Bennett, administrator for the state's Manufactured Housing Board, said his agency wants to crack down on fraud, but investigations are rarely quick or easy.

The housing board, a division of the state's LLR department, has two investigators who specialize in fraud cases, Bennett said. They oversee about 300 manufactured home sellers statewide.

South Carolina has the highest concentration of manufactured homes in the nation, at about 20 percent, and Horry County has the most manufactured homes of any county in the state - 56,000 of them, according to Rendel Mincey, the county's assessor.

The S.C. Consumer Affairs Department has five investigators to oversee 741 mortgage brokers statewide, as well as thousands of other businesses including pawnbrokers and health clubs.

"With five people covering the entire state of South Carolina, we're not going to be able to check them as often as we'd like," said Charles Knight, one of the agency's attorneys. Questions of size and scale

Experts disagree over the extent of mortgage fraud in Horry County.

"It appears to be a standard practice in the manufactured housing industry," said Sid Connor, a Surfside Beach lawyer who is suing Beach Homes for unfair trade practices and conspiracy.

Connor said fraud is so rampant among manufactured-home dealers that anyone who refuses to participate puts himself at a competitive disadvantage.

"That's how the system has always been, they [sellers] have become accustomed to it and they can't compete otherwise," Connor said.

Bennett said most manufactured-home dealers operate within the law and that fraud is isolated to a few cases.

"It is not business as usual," Bennett said. "There are a few individuals who are doing this, and unfortunately they probably have a good volume of sales. If we know who they are, we will take appropriate action against them."

The housing board can fine home sellers, suspend their license or revoke their license. Bennett said the board also can turn its findings over to law enforcement, which can prosecute sellers under bank fraud and mail fraud laws that carry penalties of up to 20 years in prison and a $250,000 fine for each occurrence.

"The idea that everyone is doing it just isn't true," Bennett said. "There are many, many more legitimate dealers in this state than there are dealers who don't do it the right way." Pieces of the pie

Allegations of mortgage fraud against manufactured home dealers and mortgage companies have grown since The Sun News began an investigation of the problem in October. Among the cases:

Michelle Tatom says mortgage broker Beach Mortgage included a false down payment, incorrect income information and false bank account information on her loan application for a home in the Laurel Woods neighborhood off S.C. 707.

Beach Mortgage owner Eddy Caglione has said his company did not include false information on loan documents.

The Hudziks say Beach Homes put $30,000 into their checking account to make it appear to a mortgage company that they had money for a down payment on their Laurel Woods home. Beach Homes reclaimed the money days later, after the Hudziks' bank statement showing the $30,000 deposit had been sent to a mortgage company.

Similar allegations against Beach Homes have been made by home buyers Barbara and Robert Young, Bill and Susan Watts, and Kathy and Russell Utter.

Beach Homes owner Randy Conner has said his company did not include false information on loan documents.

Louis and Robyn Greco of Conway say Apple Tree Housing deposited $26,000 into their bank account to make it appear to a mortgage company that they had money for a down payment. Apple Tree reclaimed the money from loan proceeds after the Grecos' mortgage was approved.

Similar allegations have been made against Apple Tree by Aynor residents Shirley and Russell Parker.

The Grecos are suing Apple Tree owners Jack and Chris Barnhill, who also own Barnhill Realty. That case is in mediation. The Barnhills say they did not include false information on loan documents.

Romaniello says Barnhill Realty included a false $10,000 down payment on his loan papers for a home he wanted to buy in Conway. The deal fell apart when Romaniello told a mortgage company he didn't make the down payment.

Jack Barnhill told The Sun News on Feb. 15 that he is not aware of any details of Romaniello's loan application.

Connor, the lawyer, is suing Beach Homes owner Conner and others involved in the sale of the Utters' home.

"Everyone in the process makes a cut of the pie," Connor said. "The attorney who does the closing, the real estate appraiser makes his cut, the lender makes points and origination fees, the landowner sells his land and the manufactured-home dealer gets his commission."

Connor said the losers are the home buyers - whose credit is ruined when he or she can't keep up with the inflated house payments - and taxpayers who often have to pick up the tab when government-guaranteed mortgages go into foreclosure.

A taxpayer bill in the works?

Tom Maeser, president of the Fortune Academy of Real Estate in Myrtle Beach, compares mortgage fraud to the savings-and-loan scandal of the 1980s, in which taxpayers spent billions of dollars to bail out failing thrifts that had fraudulently mismanaged deposits.

"If the industry is corrupt, it's eventually going to come back on all of us," Maeser said.

Maeser said budget cuts have diluted state agencies' abilities to investigate mortgage fraud, and that might embolden some manufactured home sellers.

"The state agencies don't have enough people to do the job," Maeser said. "Unfortunately, people might hear that and try to take advantage of it."

He said the state government must change its budget priorities if it expects to deal with the fraud issue.

Bennett, of the manufactured-housing board, said his agency pursues all fraud allegations even with a limited staff. "When we are aware of it, we investigate it," he said.

The board has investigated four complaints against Beach Homes owner Conner and expects to hold a hearing in April on possible charges against the home dealer.

Trespassing at home

Charlie Brindel, executive vice president of the Coastal Carolina Association of Realtors, said the association has received two complaints of mortgage fraud in recent months.

Those complaints have not been heard by the association's grievance committee and Brindel did not give details.

The association can assess fines of up to $5,000 or suspend or revoke a member's license. Serious violations are forwarded to the S.C. Real Estate Commission.

"I was surprised when I started hearing about it," Brindel said of the mortgage fraud allegations. "I've been here over 20 years, but it's only been recently that this issue has come up."

The recent focus on solving this area's mortgage fraud problem is little consolation to people such as Romaniello, who found out Friday he must move out of his home because his mortgage application was denied. The owner of the home where he has been living since Nov. 1, while waiting on his loan application to be processed, said in a letter that Romaniello must leave by March 2 or he will be charged with trespassing.

"Where am I going to go?" Romaniello asked. "Everyone tells me that my case is now up to the housing board, but this letter says I'm going to be arrested for trespassing if I don't leave in less than 10 days. I keep trying to get help, but it seems that nobody wants to be bothered."

About this series

The Grand Strand's hot housing market has fueled a growing concern about mortgage fraud, according to law-enforcement officials, especially as it relates to manufactured homes.

In an ongoing investigation, The Sun News has reviewed thousands of pages of documents and interviewed dozens of homeowners to reveal questionable lending practices in the manufactured home industry.

Among the findings are allegations of falsified down payments, appraisals with inflated home values, misleading information on loan applications and high-interest loans that leave homeowners owing more than their property is worth.


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