Townhouses' financing fiasco saps savings and shreds hopes

Inflated prices, bad borrowing and foreclosures in Garner spawn fraud probes

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.