By Patrick Crowley
The Cincinnati Enquirer
CRESTVIEW HILLS - Legislators in Ohio and Kentucky are proposing new laws designed to prevent another Erpenbeck-type scandal.
Kentucky is farther along than Ohio, with a bill already filed in the General Assembly by state Rep. Jon Draud, R-Crestview Hills. But Ohio Rep. Michelle Schneider, R-Madeira, is working on the draft of a bill that will be filed when the Buckeye State's General Assembly convenes early next year.
"We're getting some draft legislation together and still researching some things," said Michael Miller, a spokesman for Ms. Schneider's office. "But there will be a bill filed when the General Assembly begins meeting in January."
Lawmakers say they want to increase consumer protections.
In an earlier statement, Ms. Schneider said her bill would help protect homebuyers from "unscrupulous builders."
"If Ohio can protect buyers from this kind of scam, we should take these steps now to work with the lending and homebuilding industry to close any loopholes," she said.
Employees of the Erpenbeck Co., a former homebuilding firm in Edgewood,, are under federal investigation on suspicion diverting more than $30 million in property closing checks that were handed over to them at the closings. The money was supposed to pay off first-mortgage construction loans on Erpenbeck-built homes. Instead the money ended up in the company's accounts at the former Peoples Bank of Northern Kentucky in Crestview Hills.
In April Peoples fired its top two executives - President John Finnan and Vice President Marc Menne - because of their close dealings with Erpenbeck Co. president and founder Bill Erpenbeck. Both former executives are also the focus of a federal criminal investigation.
Builders are permitted to accept closing checks from title companies under current Ohio and Kentucky laws with the intent that the money will be forwarded to the lender holding the first mortgage on the property. The practice is common because it reduces the need for the lender to be present at closing.
"Most of the time, this closing practice has obviously served consumers, builders and lenders well," Ms. Schneider said. "But we can't ignore what happens when innocent buyers and lenders are bilked by scam artists. If we need to regulate this practice to prevent that, I want to work with all the industries involved to do that effectively."
Mr. Draud worked for months on his bill, pulling together and meeting with bankers, mortgage lenders, real estate agents, homebuilders, title agents, title insurers, lawyers and fellow lawmakers in drafting the bill that will be considered when the Kentucky General Assembly convenes in January.
"I knew from the start that I had to have some consensus in the industries affected by all of this," Mr. Draud said. "You want input from the people who know best, and bringing people together helps improve the chances of the bill being supported once we get to Frankfort."
Dan Dressman, executive vice president of the Home Builders Association of Northern Kentucky and a Frankfort lobbyist, said the legislation is a "very good bill that is needed."
"Certainly a lot of the provisions are necessary and (the bill) will improve the process and provide some safeguards for consumers," Mr. Dressman said. "Overall the changes should have a dramatic impact on the quality of the closing process."
Under Mr. Draud's bill, title agents would still be allowed to close home sales, but all settlement agents would be required to be licensed by the Kentucky Department of Insurance, carry errors and omissions insurance - provides coverage for professionals against claims arising from negligent acts, errors or omissions committed in the performance of services to a third party - and be bonded.
Lawyers and representatives of institutions would also be allowed to oversee and sign off on property closings without receiving a state license.
Other provisions of the bill include:
Anyone acting as settlement agent would be required to place funds received at closings into a financial institution trust account by the end of business on the day after the closing.
Buyers would not be required to purchase title insurance, but settlement agents must make buyers aware that they can purchase title insurance. The agents must also disclose what title insurance covers and the possible ramifications of not purchasing a title insurance policy.
"We need to let people know there are possible repercussions if they don't purchase title insurance," Mr. Draud said.
Homebuilders would be required to sign an affidavit swearing that all subcontractors have been or will be paid.
"If a contractor is not paying their subs and they sign that affidavit, they could be charged with a Class A misdemeanor, punishable by up to a year of jail time and a fine of up to $500," Mr. Draud said.
"And in addition if they are caught lying, they would be held liable for damages," he said.
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