GARNER - To see what the national housing meltdown looks like, take a drive to Sandlin Branch, a modest tree-lined townhouse development on the edge of town.

Since December 2005, 45 of the 112 townhomes have been auctioned off in foreclosure sales. At least seven others are being dumped at drastic price reductions as owners scramble to salvage their credit ratings. Banks that repurchased the mortgage loans now hold assets worth a fraction of their original value.

The same ingredients that caused record national foreclosures and sent shock waves through credit markets are here: questionable lending practices, sharply escalating interest rates, deteriorating home values and unqualified borrowers.

Sandlin Branch also shows how the housing frenzy in the early part of the decade allowed for unscrupulous practices. The Atlanta developer who sold the townhouses is under federal investigation for mortgage fraud. Investigators would not elaborate, but records show he established inflated prices by selling 12 of the first 17 townhomes to relatives, which allowed for higher profits as mortgages were resold to other banks.

Last year, Wake County had a record 4,461 foreclosure filings, a 20.2 percent jump over the year before and the biggest increase among the state's three largest metro counties, according to the state Administrative Office of the Courts.

Statewide, foreclosures rose 9.4 percent last year to 49,754, also a record. Nationally, filings soared 75 percent to 2.2 million, according to RealtyTrac. Somewhere in all those numbers is Sandlin Branch.

Offer seemed sweet

Sandlin Branch opened in the 1980s as an apartment complex, housing for Garner's working class. Then in 2003, a new owner converted the tiny 870-square-foot units to townhouses and started selling them at prices between $105,500 and $113,500. The price was steep for many who lived there, but the seller made it seem easy: no down payment and affordable interest rates, according to some buyers. Those rates were scheduled to adjust much higher, but it didn't slow these buyers. Many bought a house for the first time.

One of those was Dennis Coyle, who earns $19,000 a year as a maintenance worker for Wilco-Hess Oil Co. He bought the unit he was living in.

"The way they gave a deal, how could you turn it down with no down payment and you'd own a house?" Coyle said.

His brother, James Coyle, wanted the same deal.

James Coyle, a retired blackjack dealer, moved to Sandlin Branch from Connecticut in 2004, one year after Atlanta developer Farbod S. "Fred" Zohouri purchased the complex for $6.25 million.

Zohouri, a prolific Southeast developer who proposed building two 105-story replicas of the Eiffel Tower in Pompano Beach, Fla., in 2001, soon started selling the apartments to tenants and investors. In 2005, with the national housing boom at its peak, Zohouri revved up his sales pitch. Tenants say his company put signs in the median along roads such as N.C. 50 with slogans touting no down payments and monthly mortgage payments the size of rents.

Today, the Wake County Tax Assessor values the townhouses at $47,615 apiece.

Many buy into scheme

But in 2005, Zohouri had already sold 17 of the units for $113,500, including 12 purchased by his sister, Gloria Hammond, and her husband, Ray, of Flowery Branch, Ga. Appraisers and loan officers said that helped him set a higher-than-market price; subsequent appraisals came in at $105,500, the price for later buyers.

Zohouri's representatives told buyers the units would be further discounted to $84,200. To sweeten the deal, Zohouri tossed in $7,000 cash bonuses for each unit purchased, several buyers said. Zohouri's mortgage company, Integrus Mortgage, handled most of the financing, so borrowers had little trouble being approved for loans.

Most closings came during a marathon session at the complex that began early one Saturday morning and didn't wind down until 2 a.m. Sunday, buyers said in recent interviews. Because Zohouri's sales staff and lawyer were present, most residents never hired a lawyer or got their own appraisals, relying instead on values that Zohouri set.

James Coyle bought the Kentucky Drive unit he'd been renting, even though his income was low.

"I shouldn't have done it, but I had a chance to buy a house, which I had never done before," he said. "I was shocked I was approved."

Others with modest incomes also got loans.

J.T. Brown, a retired sheriff's deputy from Georgia who had invested in another Zohouri project in Atlanta, bought four units to rent out. So did Marty Rich, a maintenance worker for the Raleigh Housing Authority who earns less than $40,000 a year.

Wilma McCarter, 53, an assembly line worker, bought the apartment she had lived in for eight years and three adjoining units.

The apartment manager "said they were selling," McCarter recalled recently. "I said, 'I'd like to get four.' The next thing I knew, I was approved."

Payments on her adjustable rate loan started at 7.45 percent and could adjust to 10.45 percent interest after two years, according to a deed of trust filed in the Wake Register of Deeds; her interest rate was typical of those of other buyers. That meant monthly payments on the unit would rise from $522 to $798, but McCarter figured she could refinance to a lower rate as rising rent in coming years would pay off the loans and finance her retirement.

She was wrong.

Call police, bank says

As loans began adjusting upward, buyers attempted to refinance; that's when they found out that they had overpaid for their homes. Owners began walking away -- either letting banks foreclose or selling to others at cut-rate prices to keep their credit rating intact, a process known as "short selling."

One owner called Debbie Nicely, a loan officer for Fairway Mortgage in Raleigh, to refinance. Instead of loaning money, Nicely urged her to call Garner police.

"I was suspicious because of the age, the size of the units and the price they were selling for seemed way too high," Nicely said in a recent interview.

Zohouri's development company, United Housing Sandlin Branch LLC, paid an average of $55,803 for each of the 112 units.

Lenders and appraisers familiar with Sandlin Branch now agree that the units were overvalued, and the market bears them out: Townhomes originally priced at $105,500 are now selling regularly in the $40,000s. In June, one sold in a foreclosure auction for $37,000.

The higher prices had been set with the initial sales, most of them to the Hammonds, who still own their townhouses. Gloria Hammond did not return repeated calls, but buyers and former owners said she is Zohouri's sister. Zohouri's phones have been disconnected.

Investigations begin

Other appraisers, including Dodd & Associates of Raleigh, which was called in after the first sales, perpetuated the values on subsequent deals because there were few other comparable townhouse sales in the Garner area to use.

"If someone sold [17] of anything for a price and you came along and bought another just like it, it would be hard to say the next one wasn't worth the same," said Robert Dodd, who owns the appraisal company.

But several months later, Dodd reported the matter to a Wake sheriff's investigator. Nicely had told him she thought the units were overvalued, and he saw Sandlin Branch townhouses priced on the Multiple Listing Service for $80,000.

The Sandlin Branch sales have attracted the attention of several investigators. The sheriff's department turned the matter over to Garner police, who asked the state banking commission to investigate.

Loan officers and appraisers think Zohouri intended to make the mortgages look attractive to purchasers on the secondary market. By valuing the townhouses at $105,500, loans for $84,200 looked like 80 percent mortgages with the remaining 20 percent of the purchase price coming from other lenders.

Zohouri's development company, United Housing Sandlin Branch LLC, actually did issue second mortgages for the remainder of the purchase price. But most buyers said they were unaware of the second mortgages and never made any payments on them. A year after all the units were sold, Zohouri canceled the second mortgages, according to buyers and documents filed with the Wake Register of Deeds.

The state banking commission has suspended the license of Zohouri's mortgage company, Integrus, to operate in North Carolina. But Mark E. Pearce, the deputy banking commissioner, declined to elaborate.

The investigation has shifted to U.S. postal inspectors, who have broader jurisdiction into Georgia. U.S. postal inspector Michael J. Carroll in Raleigh confirmed an "ongoing investigation into the purchase and resale of property at Sandlin Branch for potential mortgage fraud." He declined to elaborate.

No charges have been filed, but the Federal Deposit Insurance Corp. is also investigating Zohouri, according to bankruptcy court documents filed in Brownsville, Texas.

Investigators and a former attorney said they don't know Zohouri's whereabouts. The investigation isn't the only problem for Zohouri, who is listed as the chief executive of 64 Georgia corporations. Last year, a federal court in Minnesota ruled that Zohouri owed a South Dakota bank and a Delaware company nearly $41 million from a separate land deal.

Losses shake up lives

At Sandlin Branch, life has spiraled downward. The homeowners association that once kept the grounds clean is fragmented. Foreclosures and padlocks caused vacancies to go up and kept rents from rising. Some longtime residents are planning to move.

Brown, the retired Georgia deputy, defaulted on his townhouses. He expected rising rents to cover higher expenses. But, as foreclosures multiplied and owners competed for tenants, rents stagnated.

Brown, who made no down payments, said he still lost more than $20,000 because he couldn't keep the apartments rented.

Retiree James Coyle sold his townhouse last year for $49,900 after he could not lower the mortgage payments.

"I tried to refinance," Coyle said, "but the lenders wouldn't do it because the values had gone down so much because of foreclosures." He moved into a nearby apartment and had to take a job as a convenience store clerk to pay a $350 deposit and $550 in advance rent.

Dennis Coyle couldn't refinance to lower rates, either, and he also moved into an apartment. He quit making payments on his townhouse in August and hopes to short-sell any day now. "With a lower interest rate, I would have been OK," he said, "but now nobody will give me one. The value of the house is not there."

And Wilma McCarter, the factory worker, moved to an apartment in February after running through her life's savings trying to keep up with rising payments.

"A lot of people were approved who shouldn't have been," said McCarter, who deeded her four townhouses to another owner in February. "This was to be my retirement. I have no retirement.

"I fought all my life to keep my credit," McCarter said. "I'm just glad it's over, and now I'll start all over again."

(News researcher Denise Jones and staff writer Jack Hagel contributed to this report.)

4,461 - Foreclosure filings, Wake County, 2007, up 20.2% over 2006

49,754 - Statewide foreclosure filings, 2007, up 9.4% over 2006

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