                  Hugh Robinson may lose his home to foreclosure. The sales
                  tactics of builder Keystone Development Co., plus an inflated
                  appraisal, caused him to spend more than twice what the home
                  is worth, Robinson says.
                  David Kidwell/Pocono Record
            Hugh Robinson knew the end was near.
            Robinson had lost his job as a truck mechanic and decided to sell
            his home in A Pocono Country Place, Coolbaugh Township.
            When he called in a local real estate agent, he received the shock
            of his life: His four-bedroom colonial home was worth $80,000 on the
            resale market, only 44 percent of the $183,750 he paid for the new
            home just a year before.
            Unable to make his $1,624-a-month mortgage payment and realizing
            selling his home wouldn't pay off his $147,000 mortgage, Robinson
            had few choices, one of which was foreclosure.
            "I'm going to lose everything," said Robinson, shaking his head.
            "How could this happen to me?"That's the question hundreds of other
            homeowners ask themselves each year in Monroe County. The number of
            real estate foreclosures handled by Monroe County Sheriff's Office
            has risen dramatically, from 120 in 1990 to 569 in 1999.
            Some homeowners arrive on the road to foreclosure following the loss
            of a job, divorce or other personal misfortune.
            In Monroe County there's another way to get on that path: Buying a
            new home at a price far above its actual market value.
            More than it's worth
            A disturbing pattern of home sales by several local home builders
            and mortgage brokers using inflated appraisals was revealed in
            Pocono Record interviews with federal and state banking officials,
            law enforcement, local real estate agents, builders, appraisers and
            homebuyers, along with documents obtained from Monroe County
            Courthouse and from state officials in Harrisburg.
            Robinson was among those doomed from the beginning, the victim of an
            exploitative operation that persuades people to buy a home they
            can't afford at a price far above what later emerges as its real
            market value.
            Appraisals establishing an unrealistically high value for the home
            are the key to the scheme.
            A bank extends a mortgage loan based on a home's appraisal. If the
            prospective homebuyer doesn't have enough income to support the big
            mortgage, sometimes phantom secondary financing is set up to
            convince a bank that the customer can carry the load.
            Many starry-eyed home buyers find out the hard way that their dream
            home is not worth even half what they paid for it after being wooed
            by high-pressure sales pitches.
            The homeowner has no possibility of recouping his investment or
            paying off the mortgage in total. In many cases the only choice is
            to walk away, with the sheriff taking over the property, selling it
            at auction for whatever price someone will pay, and the creditors
            taking the money.
            "There are local companies that are fishing around the waters of New
            York and New Jersey, marketing to minorities and promising them the
            moon," said Thomas Buneo, a Bushkill appraiser and member of the
            National Association of Independent Appraisers. "But they overcharge
            them for the house and the land and the closing costs. I see a lot
            of people in danger of losing their homes."
            Two local home builders, Keystone Development Company of Tobyhanna
            and Raintree Homes of Tannersville, have routinely relied on
            inflated appraisals to sell their new homes at much more than their
            actual market value, according to local realtors.
            And at least one local mortgage broker, Northeast Mortgage of
            Stroudsburg, has closed loans using inflated appraisals, say
            prosecutors with the Pennsylvania Bureau of Professional and
            Occupational Affairs.
            Keystone Development Company clients are also being approved for
            high-interest loans thanks to mortgage applications containing false
            information, such as non-existent secondary financing, closing
            documents show.
            Raintree Homes president Gene Percudani declined to speak with the
            Pocono Record, but through his attorney, Randall Porte, denied using
            inflated appraisals.
            Tom Senofonte, president of Keystone Development Company, also
            denied using inflated appraisals or illegal financing.
            County-wide impact
            The ballooning number of foreclosures affects all of Monroe County,
            as home values decline and entire neighborhoods become depressed and
            unsightly.
            School districts already overburdened by 45 percent population
            growth in the last 10 years find themselves dealing with the
            children of financially beleaguered families.
            "People are being put in highly stressful family situations where
            they are having trouble paying the bills, and these family stresses
            spill over into the school in the form of academic difficulties and
            discipline concerns," says David Pollack, president of the Pocono
            Mountain School District board of directors. "Those stresses lead to
            stresses in the school district, which require support services
            which are extremely expensive. This is a major problem."
            Local banks have been forced to tighten their lending, making it
            harder for buyers and local mortgage brokers to close legitimate
            loans. Private mortgage insurance companies have been reluctant to
            insure loans in Monroe County.
            "Foreclosure impacts everyone," says Robert Howes, vice president of
            lending services for East Stroudsburg Savings Association. "And it
            affects overall real estate market values and makes mortgage
            insurance companies more leery about lending in areas that are
            seemingly soft markets."
            Recurring story in PCP
            That is especially true in A Pocono Country Place, a 3,800-home
            private development in Coolbaugh Township where both Keystone and
            Raintree build many of their homes.
            "The prices are depressed in PCP because there's a constant stream
            of foreclosures," says Tom Wilkins of Wilkins Real Estate. "And a
            homeowner can't sell because they're competing with those
            foreclosures."
            There were 120 foreclosures in Coolbaugh Township last year,
            according to Monroe County Register of Deeds Office, and most of
            those were in PCP. While the Pocono Association of Realtors puts the
            median Monroe County home price at $113,499, the high number of
            foreclosures in PCP has dropped the median home price in Coolbaugh
            Township to $66,019.
            Yet the price of 35 Keystone Development homes sold in and around
            PCP in 1999 ranged from $140,000 to $230,000, Monroe County Assessor
            records show.
            "We are doing nothing illegal," said Tom Senofonte, Keystone's
            president. "If you want to buy a brand-new home with amenities,
            that's what it costs. It's not my fault that the resale market is
            bad. The only way I contribute to it is if I sell a house and they
            stop paying on their house."
            Keystone customers showed the Pocono Record copies of their
            appraisals as well as settlement sheets showing that Keystone
            Development provided non-existent second mortgages, or "phantom
            financing," for them because they didn't have enough money for the
            required down payment.
            Legitimate secondary financing assures the lender that the client
            has enough cash to qualify for the loan. Such secondary loans are
            almost always recorded with the county's deed office, banking
            officials say, to protect the lender.
            But with illegal phantom financing, the secondary loan exists only
            on paper, so that the buyer can qualify for a loan. It is not
            recorded and never collected.
            Since there is no requirement to record second loans at closing, a
            phantom loan simply vanishes.
            Appraisal complaints
            Despite the record number of foreclosures in Monroe County, law
            enforcement has shown little inclination to curb local real estate
            fraud, with the exception of one case in progress.
            Last summer the state Bureau of Professional and Occupational
            Affairs filed a 136-count civil complaint against appraiser Dominick
            Stranieri of Stroudsburg, claiming he submitted three inflated
            appraisals to Northeast Mortgage. The complaint cited appraisals in
            Stroud Township and East Stroudsburg in 1997 and in Chestnuthill
            Township in 1998.
            Stranieri denied the charges through his attorney, J.B. Dilsheimer
            of Philadelphia.
            The fact that some home builders and mortgage brokers use inflated
            appraisals is common knowledge in the local real estate community,
            but it is treated like a dirty little secret.
            "This is like a fire racing on," says Vicki Gainer, owner of Phyllis
            Rubin/ Coldwell Banker and president of Pocono Association of
            Realtors. "We'd like to think that maybe the whole industry has
            their eyes open and won't tolerate it, but we are aware that things
            go on in the marketplace."
            Local builders and real estate professionals say they abhor the use
            of illegal means to sell a home and lament the poor image it places
            on the local real estate industry. They say there is nothing they
            can do about it, though, and that it is up to law enforcement to
            stop illegal practices.
            While the case against Stranieri has provided some hope that law
            enforcement is taking notice of Monroe County's foreclosure problem,
            at least one local legislator says it is not enough.
            "This is absolutely one of the worst things going on in the
            Poconos," said state Rep. Kelly Lewis, R-189. "It's ruining the
            financial futures of too many people."
            Lewis is gathering documentation of home sales dependent on inflated
            appraisals and says he will present his evidence to the state
            Attorney General's Office and the Federal Bureau of Investigation.
            While Lewis collects information, others question why the Monroe
            County district attorney and the state attorney general have failed
            to take action to date.
            "I don't understand why the attorney general doesn't investigate,"
            said Joe Fisher, a Cresco appraiser who reviews appraisers for the
            state and for many lending institutions. "Any appraiser that does
            this is setting up people for foreclosure."
            Monroe County District Attorney Mark Pazuhanich says his office is
            ill-equipped to handle real estate prosecutions.
            "Over the past five years we've seen some information about highly
            inflated appraisals designed to make these deals run," said
            Pazuhanich.
            "It sounds like something we should be aware of, and there certainly
            is no impediment to dealing with it locally. But our office would be
            in a very difficult position with that large of an investigation, so
            we'd probably refer it to the state attorney general."
            Pazuhanich said his office received information concerning inflated
            appraisals three years ago, and the information was passed on
            informally to the office of state Attorney General Mike Fisher.
            Sean Connolly, a spokesman for Fisher, said a formal referral is
            required for the attorney general's office to get involved. Connolly
            added that real estate prosecutions in Pennsylvania are first
            handled either by the department of state, the state Bureau of
            Professional and Occupational Affairs, or sent back to the local
            district attorney.
            While civil charges may be filed by BPOA, few cases end up with the
            attorney general. Criminal complaints are rarely seen, if ever.
            Without pressure from law enforcement, say local real estate
            professionals, it's business as usual for home builders, mortgage
            brokers and appraisers who take part in selling homes priced far
            above their real value to people who can't afford it.
            "The real crime here is these guys are literally stealing from
            innocent people," said Robert Hay, the real estate agent who
            delivered the grim news to Hugh Robinson that his home was worth
            less than half what he paid.
            For Robinson, it's a nightmare without end.
            The day after company president Tom Senofonte was interviewed by the
            Pocono Record, Robinson received several phone calls from Keystone.
            "They said I spoke with the newspaper and demanded that I come in
            for a meeting with them. They said they had to talk to me," said
            Robinson. "They ignored me all year, and now they want to meet with
            me. I don't want anything to do with them. They are crooks."