Saturday, May 04, 2002
3rd-party checks examined
in Erpenbeck probe
By James McNair email@example.com
and Patrick Crowley firstname.lastname@example.org
The Cincinnati Enquirer
CRESTVIEW HILLS The Erpenbeck Co. used Peoples Bank of Northern Kentucky to redeem $15 million in checks made out to other financial institutions for new home purchases, a Peoples director said Friday.
The practice is part of the FBI's bank fraud investigation of what had been the Tristate's fourth-biggest home builder. John Yeager, a Peoples board member and real estate developer, said Erpenbeck cashed or deposited about 50 third-party checks in the last year.
Normally, bank employees verify that check endorsements match check recipients. But less care might be shown if checks are deposited instead of cashed, banking experts say. And banks further drop their guard for regular customers, as Erpenbeck Co. was at Peoples.
Tellers don't look at checks that closely, unless they're being cashed, said Bert Ely, a banking consultant in Alexandria, Va. If you're a regular customer, I don't think these things are looked at that closely.
A day after the Erpenbeck Co. terminated 40 employees in a cost-cutting move, the Edgewood builder confirmed Friday it had cut most of its staff. |
Due to the lengthy restructuring process, the Erpenbeck Co. has decided to reduce it's (sic) staff to a core of office and field personnel, Erpenbeck said in a two-sentence statement that was faxed to the news media.
The cuts left the company with about 10 employees, a far cry from the days when Erpenbeck was, according to its stationery, Building Tomorrow's Dreams ... Today! Construction has all but stopped because Erpenbeck can't pay the subcontractors who do most of the home-building work.
If you have any information about the investigation of The Erpenbeck Co. or the inner workings or business practices of the company, please contact Enquirer staff writer James McNair at 513-768-8498 or at email@example.com.
In fact, Mr. Yeager said Erpenbeck slipped the closing checks into piles of its own. Bank employees then credited Erpenbeck accounts without reading the payee name on each check, he said.
The upshot in the Erpenbeck case is that money paid for the company's houses and condos did not reach the usual recipients in real estate transactions, mainly Erpenbeck's construction lenders and unpaid subcontractors. No one knows how much money is unaccounted for, only that it happened, leaving many home buyers with deeds that aren't free and clear.
This is the largest purchase I've ever made in my life, and I feel like I'm left out to dry, said Scott Gibson. He bought a $205,000 house in Laurel Glen in Springboro in May 2001 only to learn later that the original construction mortgage was never paid off. I don't know if I'm going to own my house or not. I don't like that idea.
Erpenbeck's $15 million in check redemptions at Peoples would appear to compound the legal liability of a bank that is out $6 million in development loans to Erpenbeck. Peoples has not accused Erpenbeck of default, but at least four other area banks have initiated foreclosure actions.
Mr. Yeager, president of Ashley Development in Edgewood, said Peoples will be able to recover much of its money through legal means that is, seizing and selling lots and unfinished homes in Erpenbeck projects. As to home sale proceeds that never reached their intended destination, Peoples would like that obligation borne equally by it and title companies.
We know we have some liability in this, Mr. Yeager said. And there is talk of settling so there are not these protracted lawsuits and (home owners) aren't left with this mess.
Mr. Ely, a former chief financial officer and public accountant, said Erpenbeck's alleged check diversions aren't necessarily Peoples' fault. Title companies or closing attorneys, he said, should have caught the bogus redemptions after the checks cleared.
At the least, he said, they should have ensured that prior mortgages and liens were satisfied.
I'm not sure that Peoples is necessarily the one who's going to be on the hook for these diverted payments, Mr. Ely said. I have a sense that a lot of the loss will be spread around, and a lot of people will take a hit.
"Dealing with the issues'
As in the past two weeks, Erpenbeck Co. would not grant an interview Friday. It faxed a two-sentence statement that said it is trying to clear up its financial entanglements.
We are still working with our lenders and feel confident that, with this assistance, we will be capable of dealing with the issues at hand as well as building a strong base for the future, the company said.
In spite of that assurance, creditors are flocking to the courthouse.
On Thursday, Peoples Community Bank of West Chester not related to Peoples Bank of Northern Kentucky filed foreclosure suits for more than $2 million in Erpenbeck & Kennedy homes it financed. The claims call for the repossession of 19 partially completed houses and condos in Claiborne, Steeplechase, Hearthstone, Savannah Lakes, Fort Mitchell Pointe and Triple Crown Country Club. None of the homes were sold to individuals.
Erpenbeck & Kennedy is a partnership between A. William Bill Erpenbeck Erpenbeck Co.'s former president and Mick Kennedy. Neither has returned repeated calls for comment.
Peoples Community Bank has 10 offices in Ohio and $480 million in assets. Its chief financial officer, Tom Noe, said the bank's exposure to Erpenbeck entities will not be fatal.
We have set aside reserves to cover our potential losses from them, so there won't be any negative financial impacts on us going forward, Mr. Noe said. We are going to do everything we can to protect home owners where there are construction loans still outstanding.
Mr. Noe said he did not know if buyers had placed deposits on any of the 17 homes now in foreclosure. If so, he said, We want to get these sales done as quickly as possible and make everybody as whole as possible.
In Hamilton County, Provident Bank became the first bank to obtain court judgments against Erpenbeck.
Common Pleas Court Judge Richard Niehaus granted the bank a $1.8 million judgment against Erpenbeck Co. and a $776,301 judgment against its sister Aston Oaks Builders, the developer of a condo project in Miami Heights.
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