However the Erpenbeck Co. scandal shakes out, officials in the real estate and banking industries want to make sure it doesn't happen again.

        With claims topping $100 million and the FBI conducting a major bank fraud investigation, the Home Builders Association of Northern Kentucky has formed a task force to review home buying and lending procedures corrupted in Erpenbeck transactions dating back to January 2000. The collapse of Erpenbeck, Greater Cincinnati's third-biggest home builder in 2000, affected home buyers, banks, subcontractors and title insurance companies, most of which have turned to the courts for relief.

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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.

        The Industry Issues Task Force, led by Huntington Bank commercial lending officer Dan Pack, is taking a hard look at everything from new-home purchase contracts to the transfer of money from closings. Many of the proposals discussed could alter behind-the-scenes steps such as giving subcontractors better financial safeguards and making it easier to monitor builders' finances.

        “The main purpose is not only to hold everyone accountable but to protect the consumer,” Mr. Pack said. “We don't want to push any more paper than we need to, and you don't want to penalize the guy doing it right.”

        The 16-member task force is meeting twice a month with the goal of submitting a final slate of proposals in September. Mr. Pack said the review was prompted by the Erpenbeck scandal.

        “Obviously, everybody's talking about the Erpenbeck situation, and I've come to the conclusion that there's not a whole lot you can do if someone isn't operating on good faith or integrity,” he said. “But I'm sure we can come up with some measures, outside of bills, that we can do as an industry to conduct standard business.”

        Tom Rechtin, owner of Rechtin Heating & Air Conditioning in Bellevue, is one of three subcontractors or suppliers on the task force. He said he would like closings for new homes to be conditioned on proof that subcontractors have been paid in full.

        “There needs to be a procedure that protects everybody, from the supplier to the general contractor to the homeowner,” Mr. Rechtin said. “It's going to require the cooperation of the lending institution and will require more effort on the bookkeeping end. But to get paid, who cares about the extra effort?”

        As demonstrated in the Erpenbeck case, the act of completing the sale of a newly built home is far from perfect.

        Builders, anxious to stop the interest meters on their construction loans, often insisted on delivering loan-payoff checks to their banks themselves. Banks and title companies are often slack in verifying those payoffs and the discharge of corresponding mortgages. And in sharp contrast to a society in which consumers are hounded by sales pitches, home buyers in Greater Cincinnati — until now — were seldom offered title insurance, which would have provided the ultimate safety net for Erpenbeck customers fighting to keep their homes.

        While industry sectors seal the cracks in their procedures, legislators in both Kentucky and Ohio are in the early stages of reforming the home-buying process through new laws.

        In Kentucky, state Rep. Jon Draud, R-Crestview Hills, has drafted proposed measures. One bill would require title insurance agents to be licensed. Another bill would require contractors and subcontractors to put payments made to them into an escrow account — and make it a felony to misuse any amounts over $300. Still another would require home sellers to give buyers an affidavit stating that all construction debts have been paid. Lying about it would be a misdemeanor.

        Even with the additional consumer protection, Mr. Draud — an acquaintance of former Erpenbeck Co. president Bill Erpenbeck and former Peoples Bank of Northern Kentucky president John Finnan — said the bill wouldn't shut down criminal opportunities completely.

        “There won't be any way to develop a foolproof situation,” he said, “but I think it could definitely be a better process than what exists and a better way to enforce banking laws.”

        That runs parallel to Mr. Pack's view of things. The banker would like to see pure trust replaced by sound business practices in the sale and financing of homes.

        “It's just been operating on trust and faith and belief in someone who, all of a sudden, took a direction that you could no longer operate with,” Mr. Pack said, referring to the Erpenbeck case. “Hopefully, nothing like this will ever happen again to this magnitude.”

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