Wednesday, August 07, 2002

Check cutters: Not our fault


Title firms want out of paying Erpenbeck tab

By James McNair, jmcnair@enquirer.com
and Patrick Crowley, pcrowley@enquirer.com
The Cincinnati Enquirer

        While banks embroiled in the Erpenbeck scandal haggle over responsibility for $16.8 million in missing proceeds from home-sale closings, the title companies that cut the checks are asking to be absolved of wrongdoing.

        The diversion of the $16.8 million into Erpenbeck Co. accounts at Peoples Bank of Northern Kentucky left more than 200 buyers of Erpenbeck homes with two mortgages — their own and Erpenbeck's original construction loan. Peoples, in announcing the sale of its assets to Bank of Kentucky, said it would set aside $16.8 million to guarantee a remedy but reiterated its intent to have other closing parties share the tab.

        Those parties include banks that allowed Erpenbeck representatives to take delivery of construction-loan payoff checks. They also include the many title insurance companies that acted as the fiscal agent for Erpenbeck transactions, handling all incoming and outgoing sums.

STORY ARCHIVE
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INVESTIGATION
If you have any additional information on the business dealings of the Erpenbeck Co. or Peoples Bank of Northern Kentucky - or on the involvement of any parties not yet identified in our coverage - please email Enquirer business reporter James McNair at jmcnair@enquirer.com or Kentucky Enquirer reporter Patrick Crowley at pcrowley@enquirer.com.
        But title companies insist that they did nothing improper at the home closings. In most instances, they say, construction lenders awaiting loan payoffs designated Erpenbeck to receive payoff checks on their behalf.

        “There were some closings where a lender would have written instructions, giving (Erpenbeck) authority to hand deliver the check,” said John Hust, a Symmes Township lawyer who represents Advanced Land Title of Blue Ash. “Even beyond that, every construction lender knew what was going on. It was a common practice.”

        In a May 8 lawsuit before Boone Circuit Judge Jay Bamberger, Peoples Bank named 14 banks and 21 title agencies among those that must share responsibility for the missing money. .

        In a legal answer filed Tuesday, Cincinnati title agent Leo Grote said Peoples Bank was at fault for allowing checks made out to banks to be diverted into Erpenbeck accounts. Mr. Grote said construction lenders routinely allowed builders in the Tristate to take delivery of mortgage payoff checks. Mr. Grote cited a 1999 transaction in which Firstar Bank, now U.S. Bank, notified Erpenbeck, by letter, that “funds may be hand delivered” to the bank's office in downtown Cincinnati.

        “Prior to discovery of the misdeeds of Erpenbeck ... the first lenders never advised the closing agents they were dissatisfied with the custom and practice, nor did they ever request or demand the practice be discontinued,” Mr. Grote states in response to Peoples' lawsuit.

        Mr. Grote asks that Peoples and Erpenbeck foot legal expenses.

       



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