Legacy of Erpenbeck
Housing Scandal Led to Banking, Homebuilding Reform

Utter the name Bill Erpenbeck in Greater Cincinnati and most people know what you’re talking about.

But many would prefer you didn’t bring it up.

The fall of one of Northern Kentucky’s most prominent homebuilders, along with well-respected former Peoples Bank officers Marc Menne and John Finnan, left deep scars on the psyche of the region.

It also led to more consumer protections and tighter regulations for the homebuilding, banking, auditing and real estate industries on both sides of the Ohio River.

“Billy Erpenbeck was like Camelot,” says Mer Grayson, Central Bank & Trust Co. Northern Kentucky President. Grayson is the former Huntington Bank president who came out of retirement in 2002 to lead Peoples Bank as the Erpenbeck case was unraveling.

“Everybody bowed down to him.”

A Long Legacy

This April marks 10 years since one of Northern Kentucky’s most respected and largest homebuilders imploded. The failure of the Erpenbeck Co., and the $33.9 million bank fraud scandal perpetuated by owner A. William Erpenbeck, his father Tony Erpenbeck and his sister Lori Erpenbeck, impacted 260 individual homeowners, 40 banks and dozens of subcontractors, court documents show.

Today, Bill Erpenbeck and his father remain in jail. Others convicted in the scandal served their time and are working locally and in Florida. Peoples Bank closed, selling its assets to the Bank of Kentucky. Homeowners with damaged mortgages were made whole. Parts of the case still are making their way through the legal system, and it will take a few more years for all issues to be resolved, attorneys say.

Meanwhile, other branches of the Erpenbeck family not involved or in any way connected to the fraud just want to move on.

“As a family we have decided we are not going to get involved in any stories or things like this,” says Ray Erpenbeck, Bill Erpenbeck’s uncle and founder of Erpenbeck Consulting Engineers Inc. “We just want to stay clear of it and get it behind us.”

Clear Title

Things are very different today.

Builders can no longer take a check from the closing table.

Various kinds of title and closing insurance are now available and must be offered to buyers at closing.

Homebuilders associations vet and monitor their members.

Banks ask tellers to pay closer attention to endorsements on checks. Auditors are held to higher standards and title companies and banks on both sides of the Ohio River face tougher scrutiny on outside audits.

“Ten years ago we became very introspective with regards to who it is that are our members, how they operate, and making sure we can adjust our standards to make sure we track what is going on,” says Brian Miller, executive vice president of the Home Builders Association of Northern Kentucky.

The group’s Registered Builders Program ensures members produce quality work and offers a process to handle complaints from subcontractors and consumers, Miller says. His association also tracks liens in the marketplace, to keep track of any legal actions taken against members.

“Things are much better and much tighter today,” says Dan Dressman, executive director of the Home Builders Association of Greater Cincinnati. Dressman led the Northern Kentucky HBA at the time of the Erpenbeck case.

Builders now must sign documentation that says all subcontractors have been paid prior to a closing being finalized. Lenders require this so that buyers are not subject to liens. Builders can be convicted of a misdemeanor if they don’t meet this requirement, Dressman says.

Under Ohio law, title agents must offer buyers and sellers Closing Protection Coverage at the time of closing.

Jay Uhl, president of Oxford Title, says very few people purchase the insurance, but all must sign a form accepting or declining it. The coverage protects against theft, misappropriation of funds and fraud or “any other failure to properly disperse settlement.”

“This is a direct result of the Erpenbeck situation,” Uhl says.

Title companies in Ohio and Kentucky also must offer Errors and Omissions policies.

The Ohio Board of Insurance requires title agencies to pay for outside audits and to ensure that all employees are bonded.

And the Cincinnati Area Board of Realtors amended its Purchase Contracts to inform buyers about and recommend that they buy owner’s title insurance. Oxford Title has seen a large increase in the number of owners title policies being purchased since that change, says Stacey McIntyre, managing partner.

“When clients call me personally and ask about title insurance, if they live in the area, I ask if they remember Erpenbeck, and that cinches it. It’s a big name and it’s a scary name.”

Building Trust

What’s important to other homebuilders like Bob Schroder, vice president at Arlinghaus Builders in Edgewood, Ky., is to ensure that the public doesn’t think everyone in the industry is dishonest.

“This indirectly affected everyone in the industry,” says Schroder, a past president of the Home Builders Association of Northern Kentucky. “It was a sad time and it affected lots of people. There were all kinds of businesses impacted.”

Schroder remembers getting calls from customers who wanted to make sure they had clear title to their Arlinghaus-built homes. They did, and to prove it, Schroder says he went to the courthouse and made copies of documents that showed all lenders were properly paid after closings took place.

“We didn’t change anything we were doing, but it’s the lack of trust that was involved with it all.”

More than a dozen homebuilders contacted for this story declined to comment.

Tightening the Reins

What happened with Erpenbeck and Peoples Bank did point out weaknesses in check-clearing procedures and the process title agents used at the time, Grayson and others say.

It also brought about many changes.

More banks now appoint separate chairmen on their boards.

Grayson says he’s never forgotten what the trauma must have been like for the homeowners who had to live through it.

“It’s one thing to take on a new home and finance it, but to then go through all the issues of having no clear title and two mortgages on the property. Can you imagine the strain on people? On their marriages?”

Grayson says banks look more closely at large stacks of checks presented for deposit at one time by businesses.

And larger banks now more quickly issue documentation once the first mortgage on a new home is paid off.

Kentucky’s Department of Financial Institutions takes a closer look at the relationship between bank officers and a bank’s customers, says Commissioner Charles Vice.

The department sees the Erpenbeck case as “a fraud by a builder and insiders at a bank,” but “we work a little bit closer with external auditors of banks,” Vice says.
“We take a bit more time to review their work and look at weaknesses and internal controls at a bank and if anything unusual was found.”

Beverly Storm, attorney at Arnzen, Molloy & Storm PSC in Covington, represented Peoples Bank during the height of the Erpenbeck litigation and still does.

She said the bank did a Herculean job of making sure homeowners had their mortgages cleared. Peoples Bank is also the only failed bank in Kentucky to return shareholders’ original investments to them.

As for protecting against similar scandals in the future?

“We are just always going to have to live with greed and dishonesty,” Storm says. “And you can’t protect yourself without unreasonable costs and steps.”

The Erpenbeck debacle lingers, in much the same way a haunting film or novel continues to occupy a place in the back of one’s mind long after it’s been digested.

The effects are likely so long-reaching because so many were impacted by a person many saw as a pillar in the community, sources say.

Lasting Impact

The Erpenbeck name has a long history in Northern Kentucky.

Different branches of the Erpenbeck family have been building homes in the region since the 1920s and are associated with many businesses and community efforts.

For example, Erpenbeck Elementary School in Florence is built on land donated by Ray Erpenbeck and his siblings.

It is named in honor of their parents, the late Anthony and Marcella Erpenbeck.

Bill Erpenbeck and his family are not associated with the land donated for the school.

A lot of bitterness remains in the community, says Kenton County Commissioner Jon Draud.

He says he was close friends with Erpenbeck and Finnan, and was a Kentucky State Representative when the scandal broke.

In 2003, Draud sponsored legislation that would have changed the way title insurance is offered at closings, among other things.

The measure died in committee, but many of its provisions came to pass in other avenues.

“I’ve never seen a major scandal any more significant in my lifetime,” Draud says.

At Bill Erpenbeck’s 2006 sentencing for his 2004 fraud conviction, U.S. District Judge Sandra Beckwith said, “This court is not aware of any case that has caused so much damage to so many people.” ■

One of the unexpected impacts of the Erpenbeck case is the chilling effect it had on the ways in which attorneys serve on boards.

The Fallout
Where Are They Now