By James McNair and Patrick Crowley
The Cincinnati Enquirer
RICHWOOD - With a large Christmas tree filling the living room, flaming logs in the fireplace and a Teletubbies show on TV competing with the chatter of their three children, the residence of Steve and Whitney Remley would appear to be the quintessential happy home.
The scene captures just about everything that the couple envisioned when they paid $200,000 in cash in July 2000 for their dream house in the Steeplechase subdivision. "We love this home," said Mr. Remley, 32, balancing his 8-month-old daughter Paris on his knee.
Steve and Whitney Remley could lose their home which they purchased for cash from the Erpenbeck Co.|
(Patrick Reddy photo)
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For all the holiday joy, however, a pall drapes the Remley home. Because the builder, the Erpenbeck Co., didn't apply the Remleys' $200,000 toward the payoff of its construction loan from U.S. Bank, the bank has the right to foreclose on the house. That hasn't happened, but it could. The thought has left the Remleys in constant fear of losing their home.
"I worry," Mrs. Remley said, "that someday the bank is going to walk in here, look around and say, `Give it back.' Then what are we going to do?"
It is one of many questions still being asked eight months after the collapse of one of Greater Cincinnati's biggest home builders. The Erpenbeck insolvency not only idled more than a dozen developments in seven counties but also has left a legion of banks, subcontractors, home buyers and other creditors to swarm atop the remains of the Erpenbeck carcass. Their claims exceed $100 million. Their lawsuits will transfer much of the recovered wealth to the Tristate's legal community.
In the meantime, the Erpenbeck cleanup is adding to the annals of regional history - and contributing to its folklore.
It spawned what is thought to be Kentucky's biggest-ever banking scandal - and uncovered dealings between Erpenbeck and a former organized crime family. It prompted changes in the way real estate closings are conducted - and revealed a Kentucky cabinet member's penchant for Elvis impersonation. It made home buyers rethink the need for owner's title insurance - and recast Don McLean's American Pie as the swan song of Erpenbeck Co.'s Titanic.
"It's nothing like I've ever seen," said Beverly Storm, a Covington lawyer who represents Peoples Bank of Northern Kentucky, the biggest single casualty in the Erpenbeck fiasco. "This is bigger than Beverly Hills Supper Club and bigger than the Home State bank collapse. There's been no other situation that's involved so many different components."
The Beverly Hills Supper Club in Southgate burned down in 1977, killing 165 people and generating a torrent of lawsuits. Home State Savings Bank failed in 1985, touching off a statewide banking crisis and forcing the Ohio General Assembly to authorize a $129 million bailout of the Cincinnati thrift.
Today, the Erpenbeck Co. exists on paper only. Two law firms now own its former headquarters in Edgewood, and its former president, A. William "Bill" Erpenbeck, lives in Fort Myers, Fla. The Erpenbeck legacy, meanwhile, has evolved into a WrestleMania event involving lawyers of almost every skill. Corporate and banking lawyers, real estate lawyers, civil litigators, class-action specialists and bankruptcy lawyers are grappling in multiple rings.
Among the feature matches: Home buyers with loans versus Peoples Bank in Boone County Circuit Court; home buyers with cash versus Peoples and Erpenbeck in U.S. District Court; subcontractors versus Peoples in U.S. District Court; subcontractors versus Erpenbeck in U.S. Bankruptcy Court; Peoples shareholders versus Peoples in Campbell County Circuit and an intriguing match-up between Erpenbeck and the estate of the sister-in-law of the late numbers kingpin Frank "Screw" Andrews. Other confrontations involve U.S. Bank, Bank One, Provident Bank and PNC Bank, GE Appliances, Martin Marietta Aggregates and Clear Channel Communications.
Unlike a wrestling meet, however, no one is winning.
"If everybody's feeding, it's just litigated into dust, ultimately," said Fred Foote, an associate professor of business law at the University of Cincinnati's Raymond Walters College in Blue Ash.
The courtroom extravaganza promises to liven up even more when the biggest heavyweight enters the fray: the U.S. government. Federal authorities aim to pin fraud charges on as many as 10 people, and indications are that Erpenbeck family members, Erpenbeck Co. employees and two former Peoples Bank executives could be squaring off against each other.
Inching toward normalcy
While court cases threaten to drag into eternity, things are finally returning to normal in some sectors of the Erpenbeck universe.
Almost 210 people will have Erpenbeck's unpaid construction mortgages - $16.8 million worth - removed from their homes, thanks to a class-action settlement approved Nov. 15 by Boone County Circuit Judge Jay Bamberger. And several of the company's unfinished projects are resuming under new ownership or under the direction of owner-banks.
Towne Properties of Cincinnati bought the Chestnut Park condo project in the Aston Oaks section of western Hamilton County in July. The empty buildings and lots were bought at a discount from PNC Bank, which used a U.S. Bankruptcy Court auction to divest its collateral from a $5.2 million loan gone bad.
In southern Warren County, Bank One is on the verge of selling its repossessed interest of the Oakwood Lakes condo development through a sheriff's sale to a Chicago firm, said Paul Doe, president of the homeowners association there. The 216-unit development, whose units sell for an average of between $225,000 and $250,000, was hurt by Erpenbeck's failure to pay for maintenance and to complete the rear section of the community.
"It's taken longer than I thought, but we're optimistic that the sale can get done by the end of the year," Mr. Doe said. "We're anxious to see the community completed."
Bank One would not comment on its Erpenbeck exit strategy.
At four other Erpenbeck condo projects - all financed by U.S. Bank - a replacement developer is already at work. At the bank's direction, Great Traditions of Sharonville is picking up where Erpenbeck left off at Wellington Place in Alexandria, Grand Cypress at Legendary Run in Clermont County, and two West Chester projects, The Lofts and The Fairways at Wetherington.
Great Traditions was no stranger to three of the four: It was the master developer of both Legendary Run and Wetherington.
"We're very intimate with them, and we felt we were in the best position to reposition them from being Erpenbeck projects to something we could complete on behalf of the bank," said Jim Sullivan, chief financial officer of Great Traditions.
Mr. Sullivan said the company expects to complete about 75 units by the end of February. By then, work will have begun on 15 more at Grand Cypress, he said. Two units have been sold.
Joe Andersen, assistant general counsel for Minneapolis-based U.S. Bank, said the bank hasn't decided what it will do with the raw land in those projects.
"We might ask Great Traditions to develop it, we might sell it, or we might develop it ourselves," Mr. Andersen said.
U.S. Bank was Erpenbeck Co.'s biggest lender. It won't say how much it is owed. It isn't ready to guess how much it will get back.
"It depends on a whole bunch of assumptions, and there are so many uncertainties," Mr. Andersen said. "We have a high level of confidence in some of our estimates, but I can't tell anybody with any certainty that we're going to collect every penny or that we're going to recover X percent."
Homeowners in those projects, at least, are relieved that construction has resumed and that the blight left by Erpenbeck is gone, said Rex Wolfgang, a Woodlawn lawyer who represents homeowners associations at five Erpenbeck developments.
"We have a developer who has an interest in getting this done in a proper way," he said of Great Traditions. "They've gotten rid of the old wood and trailers that were out there and are doing landscaping."
When it wasn't building homes, the Erpenbeck Co. was a rollicking party. Employees and suppliers recall epic drinking sessions and the company's annual Caribbean cruise. On one cruise, Gene Strong, head of the Kentucky Economic Development Cabinet, and several others donned Elvis outfits and crooned for guests as "The Cruisin' Elvi." In many company outings, employees were forced to join Bill Erpenbeck in singing his favorite song, American Pie.
But subcontractors such as Gary Hampton find little to laugh about.
Gary Hampton is owed more than $20,000 by the Erpenbeck Co.|
(Patrick Reddy photo)
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A 47-year-old independent contractor in Clermont County, Mr. Hampton restores homes and repairs roofs. For four years, he installed roofs on houses and condos for the Erpenbeck Co. It gave him a steady stream of work, even if he never knew when he was going to be paid for it.
"Getting paid was a constant battle," he said.
The last check never arrived. Erpenbeck, he said, owed him $21,619 when it folded. He had already paid his work crew, so the money came out of his pocket. It came to about half of what he expected to earn in 2002.
The stress got to him. He started smoking again, six years after quitting. He went to a hospital with chest pains, thinking he was having a heart attack. It was a stress attack.
"It was hard," said Mr. Hampton, a muscular but soft-spoken man. "I had to borrow money from the bank to make all my payroll." He goes from job to job. On this day, he is awaiting a call about doors that he and his crew will install in a home in Norwood. His lawsuit against Erpenbeck, he suspects, is futile.
"Bill Erpenbeck hurt a lot of small people," he said. "I hope he's happy with himself. He needs to pay his debts. He needs to pay for what he's done."
In spite of state lien laws that are supposed to ensure that they get paid, subcontractors are faring poorly in the hushed dismantling of the Erpenbeck Co.
Cincinnati lawyer Robert F. Brown, who sued the Erpenbeck Co. in May for $132,350 on behalf of Tate Builders Supply in Erlanger, said subcontractors are "at the end of the line" when it comes to being paid by insolvent debtors. Tate supplied bricks for Erpenbeck-built homes.
"The little guys have really gotten hurt," he said. "This case is such a mess, there is not much of a mechanism for so many of these folks to get paid. The homeowners have gotten some relief, but most of the subs really don't have much of a chance of getting anything."
A Kenton County judge awarded Tate its entire claim. But with dozens of other creditors seeking payment from the defunct homebuilder, Mr. Brown said he does not expect to collect. Tate will survive, he said, but was nonetheless hurt by the soured deal.
"We won a judgment, but at this point, it's not worth the paper it's written on," Mr. Brown said.
Joining the "subs" at the back of the creditors line are 50 or so people who paid cash for their Erpenbeck homes at closing. Judge Bamberger ruled that they are not entitled to the same class-action relief given to people who had financed their home purchases. If the banks that hold their unpaid first mortgages decide to foreclose, the cash buyers could come out of the debacle with no money and no home.
One of those on that bubble is Louise Schulte, an 85-year-old widow who bought an Erpenbeck condo in Sherwood Lakes in Boone County for $78,900 in cash. In 2000, she sold the house that she had lived in for 53 years, on 20th Street in Covington, in favor of condo life. Today, her unit is decorated neatly for a Christmas she can't fully enjoy.
"I've cried many a tear," Mrs. Schulte said, wringing her hands as she speaks. "I try to put it behind me, but I get frightened every day when I go to the mailbox. I'm afraid I'm going to get a letter telling me they are foreclosing."
U.S. Bank, which holds the construction mortgages on half of the 50 cash-buyers' homes, said it doesn't know what it will do. The other large mortgage holders - Bank One and Provident Bank - would not comment.
"The easy thing for us to do would have been to start a foreclosure action on all these people," Mr. Andersen said. "But we just haven't reached a conclusion. We're looking at our options."
Steve and Whitley Remley don't know what to expect. They just want to keep the house they paid $200,000 for in Steeplechase.
This hasn't been an easy year for the Remley. Paris, their 8-month-old daughter, was born with a heart defect and has already been through two surgeries. Even in the face of a possible foreclosure eviction, the Remleys are more concerned about the health of their baby girl.
"We can deal with what happens with the house," said Mr. Remley, a social studies teacher at Grant County High School. "It's not easy, but we'll get through it. We're more worried about what happens to her. We just want her healthy. The whole thing with the house is stressful and scary. But it's really nothing when you have this little baby here to worry about."
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