Entries in manufactured home fraud (1)

2:39PM

North Carolina AG files suit in overvalued manufactured housing case

An elaborate scheme deceived consumers into buying overpriced manufactured homes and agreeing to loans they couldn’t afford, North Carolina Attorney General Roy Cooper says in a lawsuit filed this week. [Press Release]

Cooper won a temporary court order Wednesday against several defendants named in the suit. He is seeking to stop the scheme permanently and win back money for consumers. 

“People who need an affordable place to live don’t deserve to get trapped in a tangled web of deception,” Cooper said. “Dishonest sales practices and tricky financing often leave consumers stuck with payments they can’t make on homes that are worth less than they paid for them.”
The complaint filed by the Attorney General on Wednesday names three companies as defendants along with several of their employees and officers:
  • Phoenix Housing Group, Inc. (Phoenix) sells manufactured homes and land/home packages and arranges financing for buyers. The company, headquartered in Greensboro, also does business as HomesAmerica and Southern Showcase Housing and has offices in Asheboro, Asheville, Burlington, Granite Falls, Greensboro, Hendersonville and Winston-Salem. 
  • K&B Homebuilders, Inc. (K&B) sells stick-built homes, modular home/land packages, and foreclosed homes in North Carolina. K&B was founded by a former Phoenix employee and currently employs several sales agents who used to work at the Phoenix store in Granite Falls.
  • W.R. Starkey Mortgage, L.L.P (Starkey) of Plano, Texas provided financing for consumers who bought homes from Phoenix between January 2007 and September 2008.

 

Both manufactured and modular homes are built in factories and then installed on lots.  Modular homes are generally transported by truck and must meet state and local building codes.  Manufactured homes can be transported on their own wheels and must meet federal building code.
Wake County Superior Court Judge John R. Jolly agreed Wednesday with Cooper’s request to temporarily enjoin five defendants in the case from continuing their deceptive practices while the lawsuit moves forward: K&B, Roger Bailey, former sales manager at the Phoenix Granite Falls store and current owner of K&B; Yo Xey Her, also known as Joe Herr, former Phoenix sales agent and current K&B employee; George William Varsamis, a sales agent for both Phoenix and K&B; and Travis Kanupp, officer and owner of K&B. 
Approximately 10 consumer victims have contacted Cooper’s Consumer Protection Division about the scheme. Affidavits from 11 consumers and former employees from Burke, Catawba, Caldwell, Randolph and Yadkin counties were filed with the complaint.
As alleged in Cooper’s lawsuit filed Wednesday, here’s how the deceptive scheme worked:
1.      Phoenix lured customers into its Granite Falls store with signs and advertisements in local newspapers that promised they could buy a manufactured home for $500 down.
 
2.      Phoenix sales agents told customers who responded to the ads that they could purchase a house, including the land, for whatever amount potential buyers said they could afford to pay a month. Phoenix often hid the total purchase price because its houses were overpriced. 
 
3.      Phoenix arranged for inflated appraisals on the properties it sold so that the company could sell the homes and land for more than they were actually worth.
 
4.      Many Phoenix buyers could not qualify for a mortgage. Bailey, then-sales manager of the Granite Falls store, and other Phoenix employees fabricated financial documents, falsified buyers’ assets and income, and forged buyers’ signatures on loan documents to secure loans for them. In some cases, Phoenix employees paid other businesses to provide false credit references for buyers.
 
5.      Most Phoenix customers couldn’t afford a down payment, so Phoenix paid for the consumer to receive down payment assistance “grants.” Phoenix also sometimes paid to “buy down” a consumer’s loan, temporarily reducing loan payments for the first year of the loan. But Phoenix never told consumers that the reduced payments were only temporary, and it inflated sales prices to cover the costs of the buy downs and down payments.
 
6.      Phoenix sales manager Bailey worked with Marina McCuen of Starkey to secure loans for buyers. McCuen failed to verify the financial information provided by Phoenix. The mortgage company even hired a Phoenix employee to process its loans, a task that should have been handled directly by Starkey. Starkey paid Phoenix $300 for each loan closed. 
 
7.      Starkey padded its profits by charging discount points, which are usually paid at closing in exchange for a lower interest rate over the life of the loan. Starkey imposed at least two discount points on all Phoenix customers but did not reduce homebuyers’ interest rates, a violation of North Carolina laws against usury.
 
8.      Buyers found out at closing that their monthly payments would be several hundred dollars more than Phoenix had told them. At that point, consumers were told they would have to pay Phoenix $2,000 to $5,000 to get out of the deal—an amount most buyers could not afford.   
 
9.      Some homeowners have now lost their homes to foreclosure, or are in danger of being foreclosed on because they cannot afford their mortgage payments. Phoenix assured buyers that they could refinance within a year to lower their payments, but in reality, buyers cannot refinance because the homes are worth less than homeowners owe on them.
 
10. Taxpayers could also be hurt because some of the loans may be insured by the Federal Housing Administration or the U.S. Department of Housing and Urban Development.
The Attorney General contends that defendants Bailey and Travis Kanupp started K&B to run the same kind of scheme after Phoenix fired Bailey in September 2008, and that K&B has used deceptive tactics to sell and finance houses in Catawba, Burke and Caldwell counties.
In addition to the temporary restraining order now in place against K&B, Bailey, Kanupp, Her and Varsamis, Cooper is asking the court for a permanent ban on all defendants from engaging in the deceptive activities alleged in the complaint, plus cancellation of consumers’ contracts, refunds, and civil penalties. 
Other individuals named as defendants in the lawsuit are: Gary Good, president of Phoenix; Dennis Parris, vice-president of Phoenix; Dennis Setzer, former sales agent at the Phoenix Granite Falls store; Marina McCuen, who worked with Bailey to provide loans for customers of the Phoenix Granite Falls store; Ike Vinson, McCuen’s supervisor with Starkey; and Kathy Smith, a licensed appraiser who conducted appraisals on land/home packages sold by Phoenix and K&B.
The Attorney General’s Office has worked with the N.C. Office of the Commissioner of Banks (NCCOB) in investigating this matter. NCCOB filed a separate administrative proceeding yesterday against the mortgage lenders, brokers, and loan officers that originated these loans.