MORTGAGE FRAUD No new legal help for home buyers

Three years after a scandal, Kentucky and Ohio still haven't beefed up protection.
CINCINNATI (AP) -- It's been almost three years since a mortgage fraud scheme in the Cincinnati area unraveled, leaving hundreds of homeowners without clear title to their homes.
The scandal nearly crippled a bank at the heart of it and prompted vows to increase protection for home buyers in Ohio and Kentucky. Yet neither state has managed to enact any laws governing home sale transactions.
Two former executives at the defunct Peoples Bank of Northern Kentucky are to start federal prison terms this week for helping funnel money into the coffers of The Erpenbeck Co., one of the biggest home development firms in the region.
After home-sale closings, Erpenbeck put the buyers' money into its own bank accounts and failed to pay off $34 million in construction loans.
As a result, people not only bought a new home, but inherited an outstanding first mortgage. Banks holding those first mortgages did not foreclose on those homes and took losses, forestalling a widespread panic.
Bill was too late
Ohio Rep. Michelle Schneider, a Madeira Republican, introduced a bill last year that would have required title agents to explain to home buyers the difference between lenders title insurance, which protects banks making loans, and homeowners title insurance, which protects the buyer.
Schneider said she unveiled the bill too late last year for it to be enacted; she plans to introduce it again as soon as next month.
Many of the victims would have been protected if they'd had homeowners title insurance, Schneider said.
Practices around Ohio vary. Sellers in Columbus typically pay for title insurance for buyers, whereas buyers in Cincinnati usually pay for lenders title insurance.
Kentucky State Rep. Jon Draud, a Crestview Hills Republican, tried in 2002 to limit some of the loopholes used by Erpenbeck and the bank.
Draud's bill called for the licensing of title agents and a requirement that banks and builders verify the release of mortgage liens. The measure got wide support, but it was killed when Draud ran into opposition on unrelated legislation.
Draud said last week he has no intention of reviving the bill.
"All we were trying to do is safeguard people during the closing process," he said.
No law is going to stop someone who's determined to beat the system, said Lisa Bouldin-Carter, national executive director of the Cincinnati-based BorrowSmart Public Education Foundation, which promotes financial literacy.
The people involved in the Erpenbeck scandal "set up a system of defrauding people," she said. "They made up their mind they were not going to be honest, and they were going to steal. What you're talking about is a lack of integrity and common thieves."
Buyers can protect themselves by learning what to expect at a closing, she said, and by hiring an attorney to represent them.
A. William Erpenbeck Jr., head of the home development company, was sentenced last year to two 30-year prison terms, to be served concurrently. Several of his family members are also serving time for their roles in the scheme.
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