The Star-Ledger

Victims Of Housing Scam Find A Solution

The Star-Ledger — Friday, July 2, 2004

Star-Ledger Staff

When Diedra Marshmon moved into her three-family house in East Orange on Nov. 15, 1999, things immediately started to go wrong.

"I tried to get heat, but there was no heat," she said.

Marshmon, who used money from her late husband's insurance policy as a down payment, found pipes with pinhole leaks throughout the basement. Eventually, she spent $3,000 for a new heating system.

La'Wannda Hudley got her rude awakening when her brother went to take a shower in her two-family house. That July 3, 2001, shower flooded the entire house. "The pipes were not connected," said Hudley, who had to get a second job to pay for repairs to the house. "The pipes under the toilet were old and molded."

Both women, first-time home buyers, were promised newly renovated homes by Barry Fauntleroy, president and owner of Eon Institute Inc. and Neighborhood Properties Group LLC.

Hudley and Marshmon call themselves predatory-lending survivors. They were among 150 families in Essex County identified by New Jersey Citizen Action, a consumer advocacy agency, as victims of a flipping scheme.
And now the two women are the first to get new mortgages through what is called a "federal workout solution." Some 30 families are going through the same process; 19 of them hope to get new mortgages by the end of the year.

Fauntleroy, who was last seen living on a boat in the Caribbean, bought foreclosed properties in East Orange, Irvington and Newark, and sold them to home buyers for between two and five times what he paid for them.

In Hudley's case, Fauntleroy bought her two-family house on 18th Street in East Orange for $70,000. She bought it, believing that it would be fully renovated, for $142,000.

It was a complex scheme involving the sellers, lenders, loan officers, appraisers, title companies and buyer's and seller's attorneys.

Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, which first identified the property-flipping scheme in 1998 in Asbury Park, said 18 families lost their homes through foreclosures.

The federal workout solution, which is nearly as complicated as the property-flipping schemes that defrauded homeowners, took four years, said Jim Ragan, vice president of the reconstruction loan department for the Bank of New York. The bank is providing unconventional mortgages that include the cost of the repairs to the house.

"It's one of the most complex solutions I've ever seen put together," Sen. Jon Corzine (D-N.J.) said yesterday as dozens of officials and people associated with the housing industry celebrated the first of the federal workout solution mortgages in front of Hudley's house. "It was a real Rubik's Cube to be able to come together like this. This wasn't done easily."

The solution involved bending the rules, said Corzine, who was instrumental in helping getting federal waivers for the scammed home buyers.

For example, the federal Department of Housing and Urban Development, backers of Federal Home Administration mortgages, put a moratorium on pending foreclosures. The houses were sold to New Community Corp., a nonprofit agency, then sold back to the homeowner.

In other cases, families that don't want to remain in their homes will be given a deed-in-lieu of foreclosure. HUD will provide those families a letter of credit repair to help their blemished credit that resulted from the scam.

Corzine said because of the complicated nature of home buying, the solution has to be applied on an individual basis.

East Orange provided Hudley with a $34,000 grant that will pay for repairs that should have been done initially. Marshmon got a $50,000 grant. The values of both the properties are nearly equal their fair-market value.

Both women said they feel like they are getting a fresh start with their new mortgages. They would have faced foreclosure had it not been for the "federal workout solution."

"We started out as victims," said Hudley. "But we ended up as survivors."

Joan Pranksy, an attorney who has represented many of the victims of flipping scams, gave this caveat to potential first-time home buyers: "If it sounds too good to be true, then it probably is."

She said the government should play a bigger role in the housing industry. For one, it should better scrutinize those it allows into its community to develop moderate-income housing.

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