By James McNair
The Cincinnati Enquirer

Banks and title insurance companies squabbling over a $16.8 million tab to satisfy 211 home loans left unpaid by the Erpenbeck Co. are heading to mediation to discuss sharing the cost.

Two months ago, Boone County Circuit Judge Jay Bamberger approved a deal calling for Peoples Bank of Northern Kentucky - Erpenbeck's primary bank - to front the $16.8 million. The money, it was agreed, would go into an escrow fund, then pay off Erpenbeck construction loans that were never satisfied when people bought the 211 homes.

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Peoples put up the money, but few of the 211 construction loans have been paid off. Meanwhile, some of those homeowners would like to rid themselves of the Erpenbeck mortgages. Jim and Susanne Martin, for one, would like to take advantage of low interest rates and refinance their house in the Claiborne subdivision near Independence.

"If we can refinance, we can save $360 a month," Susanne Martin said, "but we can't do it until that lien is no longer on our house."

Peoples Bank has not paid off the majority of the 211 loans because it believes that Erpenbeck's construction lenders and the title companies that handled its home-sale closings should together cover about 30 percent of the $16.8 million. Peoples agreed to absorb most of the cost because it was the bank that allowed checks made out to construction lenders to be deposited into Erpenbeck accounts.

But Stan Chesley, whose class-action lawsuit led to the $16.8 million set-aside, doesn't want Peoples to hold the money hostage during its negotiations with other banks and title companies. The Cincinnati lawyer wrote a letter to Peoples' lawyers Wednesday, insisting that the money be freed, said Brandon Voelker, Mr. Chesley's co-counsel in Covington.

"They (Peoples) can't be using the release of these liens as leverage against the third parties," Mr. Voelker said.

Peoples' lawyers, Mark Arnzen and Beverly Storm of Covington, did not return phone calls for comment. In an earlier interview, Ms. Storm said she was disappointed that the banks and title companies were not willing to pay what Peoples considers their fair share of the $16.8 million.

"A lot of them are trying to get themselves off the hook," she said. "Just because Peoples guaranteed that the liens will be taken care of, I don't think it's right that everybody says, `We're out of here.' "

Although Judge Bamberger ratified the $16.8 million settlement, he did not dictate how the cost would be distributed. With talks at an impasse, the judge appointed Cincinnati mediator Jerry Lawson to the case Jan. 7. Mr. Lawson will sit down with the parties in a Jan. 28 morning session not open to the public. If an agreement is reached, it could be presented to Judge Bamberger in a hearing scheduled that day at 2:30 p.m.

Of the $16.8 million in unpaid construction loans, U.S. Bank held about $10.2 million, Bank One about $2.2 million and Provident Bank about $1.5 million. Smaller banks hold the rest. Provident Bank said it has released some of its mortgages, but wouldn't give a dollar amount.

"We've been working at this very conscientiously," said Jim Whitaker, Provident's general counsel. "We have settled some claims, but we have some other claims pending."

Bank One would not comment on the matter.

"We are working to balance the interests of homeowners and Bank One shareholders," said spokesman Jeff Lyttle, "and I just don't think that this is the kind of thing we would go into before a hearing."

U.S. Bank did not return a telephone call for comment.

Leo Grote, owner of a title company in Blue Ash, is among those reluctant to absorb any liability for money missing from the eight closings he handled for Erpenbeck. With a federal grand jury conducting a criminal investigation of Erpenbeck Co. principals and the top two former officers of Peoples Bank of Northern Kentucky, Mr. Grote believes there's a chance that Peoples should pay the entire $16.8 million.

"I'm anxious to find out whether or not any of the bank officers are going to be indicted as co-conspirators along with Erpenbeck," he said. "If so, they should be fully responsible."

E-mail jmcnair@enquirer.com.