By Ken Alltucker
The Cincinnati Enquirer
Remo Loreto discovered he wasn't pursuing a conventional real estate investment deal when snarling dogs greeted him at Roger Pepples' Monfort Heights home.
"I ring the bell, and these two giant Rottweilers spring out," Loreto says. "They're jumping up and down, and I'm scared as hell. Roger says, 'Come around back, we'll talk business.'"
It was a jarring introduction to the world of real estate investing for Loreto, trumped only by the events that followed. Loreto, of Dent, claims investor Pepples changed the Northside rental home's agreed-upon purchase price twice before their deal closed in 2002, and the property was in much worse shape than Loreto expected.
"It was just an odd experience," Loreto said.
Pepples is one of nine property investors or title agents who face federal criminal charges in connection with a sophisticated mortgage fraud known as property flipping.
The nine are accused of scamming banks and lenders in three Southwest Ohio counties out of $7.4 million. But federal prosecutors warn that their probe could uncover a mortgage swindle exceeding $100 million - with lenders and unsophisticated home buyers absorbing the loss.
With charges being filed or plea deals being reached, state and local lawmakers are starting to focus on ways to halt future mortgage fraud and housing abuses. Anything from bolstering the state's oversight of real estate appraisers to cracking down on unscrupulous rent-to-own deals is on the table.
The scam, revealed after initial police raids last July and reporting last September in the Enquirer, typically involves an investor who snaps up a single-family house on the cheap and resells it at an inflated price using bad appraisals and fraudulent loan documents.
New laws and policies being considered to prevent reoccurrences include:
Tougher regulation of appraisers in Ohio. State Rep. Chuck Blasdel, R-East Liverpool, introduced a bill in May that stemmed from the Legislature's study of predatory housing issues in Cincinnati and other cities over a year ago. Blasdel's bill calls for new licensing requirements and nationwide criminal background checks for all Ohio real estate appraisers. The Legislature didn't vote on the bill before its summer break.
A Cincinnati ordinance regulating rent-to-own home deals, also known as lease-options. Some neighborhood leaders contend these deals allow unscrupulous investors to skim deposit money and shift home repair duties to renters. But investor groups say lease-option deals are an ideal method for renters with limited income or credit problems to buy a home.
A city blight task force, designed to tackle problem properties with an emphasis on the city's largest neighborhoods. The city budgeted $110,000 for the task force.
Some worry that the proposed laws don't go far enough. Ohio Rep. Steve Driehaus, D-Cincinnati, lobbied unsuccessfully to include restrictions on lease-options written into Blasdel's bill.
"What we were looking for was a bill that would comprehensively address predatory housing issues," Driehaus said. "Blasdel's bill is not a comprehensive bill by any stretch of the imagination."
And some like Loreto say the existing rules and regulations offer little protection for novice investors or homebuyers.
Of the nine people who face criminal charges, six acted as investors buying and selling properties or arranging the sales of properties they didn't own. The other three worked as title agents.
Loreto said Pepples represented himself as a seasoned real estate broker, yet records show that he isn't a licensed real estate agent.
"Roger told me he was an expert in all of this. He was acting somewhat as a broker," Loreto said.
Pepples, through his lawyer, declined to discuss the case. The retired Cincinnati Public Schools math teacher has agreed to plead guilty to federal charges of bank fraud, conspiracy and tax evasion in a scam that cost lenders nearly $2.5 million. He faces a maximum sentence of up to 30 years for the bank fraud alone, but federal prosecutors could recommend a lighter sentence because Pepples is aiding the federal government's widening probe.
Some licensed, most not
Of the six investors who face criminal charges, only one, Roberto Ramirez, was a licensed real estate agent. Ramirez's license was suspended last July, according to the Cincinnati Area Board of Realtors.
Of the three title agents who have pleaded guilty to fraud charges, only one was licensed as a title agent, according to Ohio Department of Insurance records.
But even though Lisa Holderman-Powers has pleaded guilty to the fraud charges, state records indicate her title agent's license is "active," according to a Department of Insurance spokesman. That means she can still work in Ohio, where she has been licensed since August 1998.
The other two title company employees who have pleaded guilty - Charlene Bold, manger of Global Title Agency in Sharonville, and Kristie Neff, a settlement agent at Premier Land Title in Glendale - are not licensed. That's because Ohio doesn't require settlement agents who oversee real estate closings to register with the state.
Bold, Neff and Holderman-Powers all agreed to assist prosecutors in the ongoing federal probe.
While investigators declined to name other suspects in the ongoing flipping investigation, Lisa Holderman-Powers said in a Hamilton County civil case filing that she is a cooperating witness against her husband in a federal criminal investigation.
New laws a burden?
Meanwhile, many investors fear new laws will be too burdensome on legitimate players. They say the best way to handle the unscrupulous players is criminal prosecution - not more bureaucratic layers.
"I think they've finally cracked down on the people who were breaking the law," said Frank Hollister, an investor and president of East Price Hill Improvement Association. "The shame of it is the innocent people who are involved. The banks get hurt, the little guy gets hurt, and the fraudulent investor walks away with cash. Now they're walking away with time."
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