Sour notes ring in Arpeggio Village

LOVELAND – Pioneers at north Loveland’s Arpeggio Village subdivision, a cluster of 71 homes on two streets, have watched their comfortable suburban world fall apart around them over the past two years.

The first homebuyers stood by as a mortgage fraud scheme unfolded, one that Colorado Division of Real Estate investigators say inflated home prices in the neighborhood beyond all reason. They cringed as values crashed amid the rash of resulting foreclosures.

Forty-three of the well-appointed homes – more than two out of three of the subdivision’s properties – have slipped into foreclosure since early 2007. Some of the foreclosures were by design as buyers walked away from their mortgages after allegedly receiving kickbacks on the artificially high sale prices.

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Other loan failures resulted when investors in multiple properties found themselves unable to lease the homes as they had planned.

“This whole thing that went down is frustrating, and unacceptable in my mind,´ said Rick Brown, who with his wife, Teri, were among the first buyers in Arpeggio Village. “It shows a lot of people were getting in over their heads. Greed got in the way.”

What happened in this subdivision, described in legal documents as Alford Lake First, is emblematic of the housing bust that is a root cause of the recession gripping the region, nation and the globe.

Grace Builders Inc., a now-defunct Fort Collins residential contractor, started work in early 2004 on the 75-lot subdivision with open-space buffers and mountain views a short walk south of 57th Street, just east of Taft Avenue.

The single-family ranch homes on Brandywine Drive and Coral Burst Circle were different than most other new offerings on the market. They were compact, most with walkout basements, and all with finish features – including lustrous granite surfaces and hardwood flooring – that buyers would expect to find only in higher-end custom homes.

Fat fraud target

Arpeggio Village’s unique position made it a sought-after neighborhood. It also made it a target for a fraud scheme similar to hundreds uncovered by investigators nationwide, according to Colorado Division of Real Estate Director Erin Toll. She also said the scheme at Arpeggio Village was connected to a much larger fraud network that spread from Castle Rock to the North Front Range, involving the sale of 105 homes worth $45 million.

“Our investigation found that Grace Builders did many, many of these transactions,´ said Toll, whose agency regulates the state’s real estate brokers, appraisers and mortgage brokers. “The builder and the broker would set up these (limited liability corporations), sometimes with the investors. They would artificially overvalue the property, then give themselves huge consulting fees paid through the LLCs.”

Toll said her agency is sharing its findings with state and federal law enforcement agencies. The Colorado Attorney General’s office has confirmed it had received referrals in the case from the Division of Real Estate.

The Colorado Real Estate Commission, following recommendations from Toll’s investigators, during the last two years voted to revoke the licenses of three brokers who listed homes in the Arpeggio Village neighborhood.

According to the minutes of a commission meeting in January 2008, commissioners reviewed a complaint alleging that broker Kimberly Preston “participated in mortgage fraud by not disclosing on the HUD statement that buyers received a rebate” and that she “failed to account for or remit, in a reasonable time, money belonging to others” during the transactions. They voted unanimously to revoke Preston’s license and imposed a $40,000 fine.

The Colorado Attorney General’s office told the Business Report that they had received a referral on Preston’s case from the real estate commission.

Two other brokers

In August 2007, the commissioners unanimously recommended that the attorney general revoke licenses of Tracy Todd and Steve Boyer, affiliated with Greeley-based Executive Realty Group, for their handling of another Arpeggio Village transaction.

Preston, founder of Loveland-based Colorado Real Estate Consultants LLC, pitched opportunities to buy Arpeggio homes to potential investors, 12 of whom purchased two or more houses in the neighborhood at greatly inflated prices during 2006 and 2007. The $449,000 average price that investors paid exceeded prior sale prices in early 2005 by $100,000 or more.

Among the first purchasers of multiple properties was Maury Dobbie, widely known in the region as president of the Northern Colorado Economic Development Corp., who bought three homes in the neighborhood for a total of $1,254,900.

Dobbie and her husband, Steve Dobbie, who was not a party to the transactions, lived in one of the homes until recently. Maury Dobbie said Preston had assured her that tenants were waiting to sign leases on the other two.

“I absolutely did not see it coming,” Dobbie told the Business Report. “I was duped. I believed her. I did nothing wrong, other than to believe what I was told.”

Dobbie, listed on sale documents as Maury Golder-Dobbie, closed on her first purchase in April 2006, and by August that year had added the two other homes. She said Preston also told her rising values in the neighborhood would net a healthy return on her investment.

Some just walked

But the promised long-term leases never materialized. For some investors, that didn’t matter. According to real estate division investigators and neighborhood residents, some out-of-town buyers took a portion of the sale proceeds then simply walked away from their mortgages.

But Dobbie said she never received such a payment, and that she and her husband had intended to become permanent neighborhood residents.

In spring 2006, the Dobbies’ Fort Collins-based media company, MediaTech Productions Inc., was hired to provide audio, lighting and other staging services for a presentation that Preston and Grace Builders owner Jim Holman delivered to prospective buyers gathered in a ballroom at the Fort Collins Marriott.

“It was pretty well attended,´ said Jann Simmons, who was Arpeggio’s first resident in 2004. She also lived with Holman for a period of six months while he and Preston made the investment push. “I would say 200 people were there.”

The ensuing flood of purchase offers ran through the summer and fall of 2006 and into early 2007. Two late investors, Keith S. Kullby and Gunnar Weber, accounted for 11 Arpeggio Village purchases.

Kullby, who could not be located to comment on this story, bought six homes for a total of nearly $2.8 million during a single month in early 2007, obtaining financing from six different mortgage lenders. Weber bought five for almost $2.3 million during eight days in January the same year, also through a variety of lenders.

Weber last year pleaded guilty to theft charges in an unrelated Greeley real estate case and earlier this month was sentenced to 90 days in the Weld County Detention Center.

Medicine Creek Consulting

Simmons said that at Holman’s urging she considered selling her own home, for which she had paid $230,000 in August 2004, to an investor. She said Holman recommended she list it with broker Steve Boyer at Executive Realty Group.

It was during that transaction that Simmons said she learned how the third-party LLCs and the consulting fees paid to them played out in Arpeggio Village real estate deals.

After Boyer had secured an exclusive listing on Simmons’ home in March 2007, Tracy Todd submitted a purchase offer on behalf of his mother-in-law, according to a description of the deal contained in minutes of a Colorado Real Estate Commission meeting at the time of Todd’s license revocation.

The contract contained a provision, added by Todd, that required a $72,250 consulting fee be paid to Medicine Creek Consulting LLC. Simmons said she overlooked that provision when she executed the contract.

“I found out later there was this big fee in the contract,” Simmons said. “Then I got this call from Steve Boyer, telling me the deal was off, that we weren’t going to close, and that he couldn’t talk about it.”

The commission minutes show that Boyer cancelled the deal after investigators from the state real estate division seized the transaction file. Shortly after that, Simmons said she ended her relationship with Holman.

Holman, who according to Simmons has left Loveland for Weld County, did not return several phone calls from the Business Report seeking comment.

Cascade of foreclosures

The cascade of foreclosures began almost as the last investments were made during the summer of 2007. Throughout 2008, they piled up until a total of 43 home loans in Arpeggio Village made their way to the Larimer County Public Trustee’s office.

Short sales by banks and foreclosed owners and trustee sales followed, with recent sale prices averaging just under $280,000, a far cry from the $449,000 paid in 2006 and 2007. Even some early buyers in the neighborhood, families who bought homes in 2004 and 2005, paid more than current listings ask.

“It’s sad,” Toll said of the circumstance in Arpeggio Village. “When we have things like this happen, with the artificial inflation of prices in the neighborhood, it hurts everyone. The whole neighborhood suffers.”

Arpeggio resident Rick Brown said the small number of original buyers in the neighborhood have weathered the storm so far, and are now looking forward to a rebound in values as the foreclosures are cleaned up.

“I do think there’s some optimism,´ said Brown, who is Jann Simmons’ son-in-law and next-door neighbor. “We’re seeing new owners come into the neighborhood, instead of the renters we’ve been seeing the past couple of years. With that, I think it will turn around. We think it will bounce back.”