Field Of Schemes

Originally commissioned by AARP, The Magazine

FIELD OF SCHEMES
By Anita Bartholomew

Florida real estate has long been synonymous with speculation. In the
1920s, get-rich-quick dreamers bought up property and then, quickly
sold it for a profit to someone who hoped to earn as much selling to
the next guy. After the 1920s bust, some properties, notably a Ritz
Carlton on a barrier island, stood half-finished for years, eyesores
that eventually had to be torn down.

Between the 1950s and the 1980s, the infamous General Development
Corporation (GDC) paved hundreds of miles of roads through mostly
uninhabited land on the border of Sarasota and Charlotte counties.
GDC built some homes, and sold tens of thousands of empty home-sites
to out-of-state buyers, most of whom didn't realize their property was
then in the middle of nowhere. Thousands abandoned the lots in the
area now known as North Port when they realized there was no there
there. And General Development executives went to prison for fraud.

With the pretense of an up-and-coming development unmasked, the county
eventually foreclosed on much of North Port's paved wilderness for
back-taxes. The roads, webbed with cracks and dotted with weeds, lay
unused except, as local legend has it, for landing strips by an
occasional drug running plane. By 1998, 85 percent of the former GDC
area was still undeveloped.

The boom that got rolling around 2003 changed that. Those vacant lots
became hot properties again. First-time home-buyers and investors,
priced out of the more established Sarasota and Fort Myers markets,
rushed in to North Port to buy their piece of paradise.

Just as in earlier booms, people who heard about properties doubling,
even tripling in value, believed that the market could go nowhere but
up. The cycle was about to repeat itself.

Those eschewing caution during the most recent Florida boom included
plenty of solidly middle-class, ordinarily risk-averse people who
signed on to have investment homes built in North Port, Florida, by
Construction Compliance, Inc. (CCI), a St. Petersburg, Florida
builder. Among the dozen or so CCI investors AARP interviewed: a CPA
from Long Island; an engineer from Orlando; a financial planner from
Seattle; a middle manager from Ohio. As real estate prices kept
rising, all around the country, and interest rates for mortgages
dipped to 40-year lows, they decided it was time to get in the game.

Bradenton, Florida registered nurse, Gloria Chaignet, 49, another of
the CCI investors, is a single mom who was looking for a safe place to
grow her kids' small college fund.

In September 2005, Chaignet learned from American Mortgage Link, a
mortgage broker, that she could build a CCI investment home in North
Port for "no money down." The builder's realty company would sell it
for her, at a 10 percent profit, before the building was even
completed. CCI would pay all closing costs, and all construction loan
interest for the house as it was being built— all for a $3,500
finder's fee upfront.

AARP asked if she was aware that her money could be at risk. "Not at
all," she answered. "I had a lawyer review [the builder's documents]
and, while he saw areas of 'caution,' overall it seemed okay," says
Chaignet.

Chaignet says now that almost none of what she was told by those
offering this "deal" was accurate. She was stunned to discover, on the
day she took title to the lot, that the closing costs, on a house and
lot that were to cost $214,000, totaled $26,000. That's a whopping
775 percent beyond the $3,350 that a bankrate.com survey says is the
average in Florida closing costs. When Chaignet asked for an
explanation for the high fees, she claims, "I was threatened with the deal being
cancelled right then and there. I would have walked but I had to pay
$3,500 to get this agreement."

So she signed. She had heard good things about Coast Bank, the local
institution that was financing it. The mortgage broker, AML, had told
Chaignet that CCI, the builder, would pay those sky-high closing and
all other costs. North Port was sprouting new homes faster than a
lawn sprouts dandelions. It still seemed to her to be a solid
investment.

But 14 months later, in November 2006, the booming Florida real estate
market had gone bust again. CCI closed down operations, abandoning
almost 500 customers. Some properties were in various stages of
construction. Some, like Gloria Chaignet's, were still just vacant
lots more than a year after closing.

Worse, Coast Bank, which financed most of the CCI deals, claimed she
owed more than $84,000. "We signed an agreement stating that [CCI]
would pay all closing costs," says Chaignet. "In fact, [Coast] took
that money out of my first draw."

In addition to the initial $26,000 in closing costs, the bank claimed
she owed $42,500 for the lot, and about $15,500 more, including funds
that the bank had released to CCI from her loan proceeds — without her knowledge or consent, according to Chaignet.

The bank demanded mortgage interest payments of about $600 per month —
payments she, again, was originally told CCI would pay.

"I've been paying what I can afford, which isn't very much," says
Chaignet. "And they're still threatening me with foreclosure." The
lot's value (if it sold at all in a market that's all but evaporated),
is, at best, about 25 percent of what Coast claims she owes. Even if
she allowed the bank to foreclose, it wouldn't make a dent in that
$84,000.

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