Saturday, May 11, 2002

Real estate laws leave buyers stranded

By James Pilcher,
The Cincinnati Enquirer

        It's the largest purchase you'll probably ever make.

        Yet business law experts say that someone buying a house has less legal protection than someone buying a used car or a blender, as many throughout the Tristate are discovering as the Erpenbeck ordeal continues.

[photo] Richard and Lynne Boynton are among the home buyers hurt by the troubles of The Erpenbeck Co.
(Craig Ruttle photo)
| ZOOM |
        But other than trying to sue — a process that experts say has little chance of success — or just eating the costs, those stuck in the middle of the fiasco don't have many options.

        “There really is no other recourse,” said Jocile Ehrlich, president of the Cincinnati Better Business Bureau, which covers the entire Tristate. “You feel very much for these people, but there might not be any salvation here.”

        Edgewood-based homebuilder The Erpenbeck Co., and former president A. William “Bill” Erpenbeck, have been sued by local banks, subcontractors and home owners. The company is under federal investigation for potential fraud involving its alleged practice of taking checks at property closings and depositing them into its own bank accounts. No charges have been filed against the company, but Erpenbeck laid off its entire staff this month, halting all construction.

        This has left an unknown number of homeowners with titles that are in legal or financial limbo. Some creditors, such as subcontractors who are still owed money by Erpenbeck, have attached liens to the titles. Worse, there's the possibility that mortgage companies were never fully paid, and borrowers could be liable for the difference.

        The Erpenbeck collapse leaves possibly hundreds more people in the hole for another reason. Those customers paid sizable down payments on homes that have yet to be completed.

        “We're probably going to go on and buy another house and go on with our lives,” said Lynne Boynton, 55, a computer consultant who, along with her husband, Richard, put $35,000 down on a $380,000 home in the Richwood subdivision Triple Crown.

        The house has yet to be completed, and with one wall unfinished, the structure has been damaged by the recent heavy rains, Ms. Boynton said.

        “We don't know who owns this house, and no one will probably want it now,” Ms. Boynton said. “We could get an attorney, but that could cost us as much as we're looking to lose, and there's no guarantee of any money in the end.”

        John Banner, a business law professor at the University of Cincinnati who has a private practice, says that individual homeowners or those seeking refunds for their down payments through legal action shouldn't expect much.

        “The homeowners will be the small guy pushing the rock up a very big hill on this one,” Mr. Banner said. “They are unsecured creditors, meaning the banks and the big contractors will be first in line.

        “The little guy has very little leverage. And once you're in line, it's very hard to get someone to disgorge their assets.”

        And other than the courts, there really are no other agencies to turn to, said Harold Arness, a local real estate lawyer with 24 years of experience.

        The scandal is also having fallout at the Homebuilders Association of Northern Kentucky, of which the Erpenbeck Co. is the chair. Association executive vice president Dan Dressman said that the organization is looking at changing how it handles its complaints, and what complaints it handles.

        “Previously we were only set up to deal with structural problems or disputes,” said Mr. Dressman. “Now, we're not only looking at how to handle the fallout of something like this, but also putting in some precautions so we can catch it ahead of time.”

        There are also some precautions individual homeowners can take.

        Experts stress that homeowners should limit the size of their down payments or “earnest money” checks handed out prior to closing. And those closing on a property should be sure to purchase title insurance in their own name, not in the name of the lender — which only protects the bank or mortgage company.

        Another precaution Mr. Banner said homeowners should undertake is to make sure the property is given as a “warranty” deed — which basically gives the new owner a guarantee that the property is clear of any previous debts. Many deeds are now done as a “quick claim,” said Mr. Banner.

        For those without title insurance protection, the only other option besides litigation that experts give is to eat the outlay, since legal expenses could reach the same levels as the money that's owed. That could mean walking away from down payments, as the Boyntons are considering, or paying off the debts attached to the property, if they are not too large.

        Tom Quirk. a computer systems engineer, considered dropping a lawsuit against Erpenbeck over an $8,000 down payment that he claims he is owed since the company failed to build a $145,000 house in Union to previously agreed-to specifications.

        “I had to hire a lawyer and it's cost me about $1,000 so far,” said Mr. Quirk. “I was going to put the $8,000 behind me and go on with my life. But then the news (of Erpenbeck's troubles) broke.”

        Staff writer James McNair contributed.

Related stories:
Erpenbeck accused in felony theft case
Undaunted, bank opens new branch

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