Bonfire of the homebuilders

Several developments built recently near Columbus, Ohio, by Dominion Homes Inc., are scarred with empty houses, overgrown yards, and front windows with neon-orange foreclosure stickers. Dominion often offered "buy-down" mortgages in which it forgave or reduced early payments, according to borrowers. One young couple, Travis and Kelly Gunther, say this enticement helped persuade them to borrow all of the $180,300 they paid in 2004 for a Dominion home in a neighborhood called Williams Creek. Kelly has worked intermittently as an executive assistant; her husband, a plumber, recently went to Iraq to work for a private contractor. Kelly claims Dominion told her the couple's initial monthly payment of $1,160 would rise $100 a year, to $1,360 in 2006. In fact, the payment rose by more than $200 a month each year, to $1,599. She says Dominion salespeople described annual homeowner association fees of $50 a year that ballooned to $285, while taxes turned out to be double the company's projection.

Although she feels misled, Kelly concedes that she and Travis didn't carefully scrutinize the fine print spelling out their loan terms. "I wanted the house with the tree-lined streets," she says. Earlier this year the Gunthers lost their Dominion home in a foreclosure and are moving to a nearby rental apartment.

Adrian Lee, a firefighter in Pataskala, Ohio, is negotiating to avoid foreclosure on the new four-bedroom house he bought from Dominion in 2004. "I know I'm in too much house for what I can afford," he says. Admitting that he shares blame for his predicament, Lee says of the Dominion sales team: "They didn't explain the [$163,800] loan to me. I didn't know after the buy-down mortgage that my payment would be so high. The same people who help you get a home won't help you maintain and keep it."

The foreclosure next door
Lori M. Steiner, a senior vice-president with Dominion, says in an e-mail that the Dublin, Ohio company doesn't discuss individual customers. But Dominion says it diligently reviews each sale to make sure buyers are financially prepared to take on the mortgages they seek. The company says it has done extensive research in the Columbus area and that the spike in foreclosures there reflects broader economic problems that have nothing to do with its financing business. Ohio, hurt by a loss of manufacturing jobs, has one of the highest foreclosure rates in the nation, along with California, Florida, Michigan, and Texas.

Even some home buyers who are content with their loans claim they've been injured by builders' lending to others. Robert V. Phillips, a lawyer in Rock Hill, S.C., represents residents of a subdivision in Columbia, S.C., who allege in a federal court suit that the value of their homes has fallen as a result of foreclosures stemming from Beazer's reckless mortgage practices with other customers. The suit, which seeks class-action status, claims that Beazer salespeople encouraged prospective buyers to "falsify information on loan applications." This made it "inevitable that the subdivisions...would experience a foreclosure rate which significantly exceeds the statewide average," and that has hurt the value of the plaintiffs' houses, the suit alleges.

Beazer has filed a motion to dismiss the action, noting that the plaintiffs don't claim to have been misled or directly harmed by the company. "The complaint," Beazer argues, "is based upon speculative allegations of causation and conclusory statements."

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