Friday, April 26, 2002
Payment practice is revised
Erpenbeck probe just coincidence
By Ken Alltucker, email@example.com
The Cincinnati Enquirer
It's been a Tristate custom: letting big builders like the Erpenbeck Co. carry the payment checks from new home buyers directly to the bank. The privilege allowed selected home builders to perform a function usually done by the title firms, which ensure all proper parties at a closing get paid.
But the custom's dying. Title insurers say there's no connection, but the change comes as the FBI is investigating Edgewood-based Erpenbeck for bank fraud.
We discontinued that practice, said Charles Cain, vice president with LandAmerica Financial Group, which owns Insured Land Title. The company, one of the biggest locally, has four offices in Greater Cincinnati. With conversations with other settlement (title agents), they've discontinued that practice, too, Mr. Cain said Thursday.
The changes, which Mr. Cain said started about two months ago, mean that checks to purchase new homes will go directly to pay those holding the debts on a property and ensure the buyers have clear ownership.
The FBI isn't discussing its probe of Erpenbeck Co. No charges have been filed. But John Finnan, a bank president interviewed by agents, says the FBI is trying to determine whether former Erpenbeck president A. William Bill Erpenbeck diverted payment checks written by new home buyers.
Neither Mr. Erpenbeck nor current company officials could be reached.
If checks written at a closing aren't used to pay the debts associated with the project, the builder's lender or contractors may never release claims or liens from the property.
Some Erpenbeck home buyers have filed suit for problems such as cracking concrete and other problems needing repair. So far, nobody has lost a home because of Erpenbeck's legal and financial problems. But industry observers warn the risk exists.
It's unsettling for new homeowners who thought they made a smart decision by buying a new home from Greater Cincinnati's fourth-largest builder.
This is the first home I've ever bought, said the Rev. Keith Blair, who purchased an Erpenbeck home at The Woodlands at Fowler Ridge in South Covington. I guess I'm skeptical of what the future holds.
Title companies typically serve as the middleman in real estate closings agents that receive checks from buyers and distribute funds to lien holders to ensure the buyer gets free and clear title to the property.
But in Greater Cincinnati, many title companies had special relations with large, well-known builders like Erpenbeck, those in the industry say.
Instead of taking the check directly to the bank, title company representatives have entrusted Erpenbeck and other large builders to handle the check written to pay off debt.
With numerous builders over the years, it's been a common practice, not just our entity, said Mr. Cain.
The arrangement benefited both title companies and builders. It saved the title company the hassle of depositing a check. Builders appreciated it because they usually made it to the bank faster than the title company, saving interest on outstanding loans.
There are no state laws governing this practice in Ohio or Kentucky, according to government officials and title executives.
There is not a lot of law in either Ohio or Kentucky, Mr. Cain said. Escrow is pretty much managed by custom and prudence.
One thing about our industry, it is locally driven, said Mike Nolan, president of Ohio Land Title Association, an industry trade group.
Mr. Nolan said it's common for his firm, Chicago Title, and other Cleveland-area title companies to follow the home lender's instructions during a real estate closing.
The thing they want the most is a good first lien, which means the other liens get paid off, Mr. Nolan said.
Insured Land Title handled the closings and provided title insurance for about 40 to 45 Erpenbeck homes over the past two years, Mr. Cain said. Several other title companies handled Erpenbeck closings, too.
In all cases, home owners opted not to purchase title insurance for themselves. The only title insurance issued in these cases is for the bank or mortgage company.
Greater Cincinnati home buyers rarely buy their own title insurance, Mr. Nolan said.
Normally homeowners don't think twice about rejecting the insurance. But some Erpenbeck home buyers like Evan Rizzo, 33, feel a little uneasy.
I would feel we are safe, said Mr. Rizzo. But I'm definitely going to the courthouse and have it looked up.
Contributor Ray Schaefer assisted with this story.
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