Thursday, June 5, 2003

Erpenbeck buyers off the hook

Settlement covers 211 whose money was diverted

By James McNair
The Cincinnati Enquirer

They still have a mortgage, but Jim and Susanne Martin feel like homeowners all over again.

The threat of losing their home in the Erpenbeck Co. scandal is behind them. Tuesday, the last of 211 people who had bought Erpenbeck-built homes - only to find that the company didn't use their money to pay off its construction loans - got the news that those obligations no longer exist.

Bill Erpenbeck, a company founder, pleaded guilty in April to a single count of federal bank fraud in a plea deal related to the scandal and faces up to 30 years in prison. His company no longer operates.

The $16.8 million in unpaid first mortgages was satisfied in a mediated, out-of-court settlement between the defunct Peoples Bank of Northern Kentucky, eight other banks that had bankrolled Erpenbeck projects, about 10 title insurance companies and more than two dozen title insurance agencies involved in home-sale closings for Erpenbeck. The 211 homeowners, including the Martins, are receiving copies of mortgage releases filed in area courthouses.

"There are still a couple of minor disputes," said Buck Wiseman, a Louisville lawyer for Peoples Bank, "but as of yesterday, the last two properties got released."

The settlements grew out of a lawsuit filed a year ago by Charles and Sherry Mitchell, who had bought a $197,000 Erpenbeck house in the Claiborne subdivision, where the Martins live. They were represented by lawyers Brandon Voelker of Covington and Stan Chesley of Cincinnati in what Boone County Circuit Judge Jay Bamberger ruled to be a class action for 211 homebuyers.

Construction lenders - among them U.S. Bank, Bank One and Provident Bank - held the legal right to seize the homes that served as collateral on their unpaid loans. But Peoples Bank, in its last breath as a bank, fronted the $16.8 million just before selling its operations to The Bank of Kentucky in July. From there, it became a matter of persuading the other parties to share the cost.

Because it allowed Erpenbeck employees to divert home-sale proceeds into Erpenbeck accounts at Peoples, Peoples believed it was liable for about 70 percent of the $16.8 million. The rest, it said, should be borne by construction lenders, title insurers and title agents for their own negligence.

Bamberger appointed Cincinnati mediator Jerry Lawson in January to resolve the dispute. What made the task so difficult, Lawson said, was the sheer number of participants - 70 principals and lawyers at the initial Jan. 28 session in Burlington. Lawson wouldn't give details of the settlements, but said the "overwhelming bulk" of the issues have been settled.

"It resulted in an agreement that this large number of parties could all accept," he said.

Voelker said he will ask Bamberger June 24 to order the construction lenders to relinquish any further claims on the 211 homes. The lawyer said the erasure of the Erpenbeck mortgages would allow his clients to refinance their homes and borrow money for improvements.

"And it coincides with the ability of these people to go out and get the best rates they'll see in a lifetime," Voelker said.

Terrance Monnie, a title agent who did some closings for Erpenbeck, said home buyers now know better than to buy a home without obtaining an owner's title insurance policy, which guards against oversights such as missed unpaid mortgages.

For now, Susanne Martin is just glad to see things return to normal.

"We're resting a whole lot easier now," she said. "The next time we buy a house, we'll be very careful. We'll probably have a lawyer at our closing so that this won't happen again."


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