Maryland Halts Firm's No-Pay Mortgage Offers
Thursday, August 16, 2007
The Maryland attorney general took legal action yesterday against a Laurel company that offered homeowners mortgage-free living through a complex investment program.
POS Dream Home, which also operated as Metropolitan Grapevine, along with its officers, was ordered to stop soliciting new business and to halt operation of its investment program pending a hearing.
"In the meantime, this company will no longer be able to unlawfully solicit investors and risk the potential loss of their money," Attorney General Douglas F. Gansler said in a statement.
However, it can continue to run "legitimate operations," said Raquel Guillory, a spokeswoman for Gansler.
Gansler said the company failed to register with the state Securities Division, in violation of state law, and operated a program that potentially posed serious risks for investors.
Reports about the Dream Home operation appeared in The Washington Post over the past two weeks.
It was the second time in six years the state attorney general had ordered one of the key players, Andrew H. Williams, chief executive of the two companies, to cease operating a securities business in the state.
Williams could not be reached for comment yesterday. Neither could Laveda Whitfield, an agent for the company.
However, Williams defended his operation in an interview earlier this month with The Post. "If everybody knew about our program, everybody in the world would be running in to get this great deal," he said at the time.
Last year, Williams's new company began inviting investors to seminars for "reduced-time mortgage payments," according to the attorney general's cease-and-desist order.
Home buyers agreed to take out loans, then turn over 10 to 15 percent of the money to the company, according to that order. Additionally, the buyers gave the company another $5,000.
In exchange, the company agreed to invest the money in automated teller machines, credit card readers and other "revenue generating devices," and use profits to pay off the mortgage in five to seven years, as well as donate money to charities.
Then at the end of that period, the homeowner agreed to give the company 50 percent of the total equity in the home.
The attorney general's office said the company failed to disclose to investors financial statements, operating expenses or proof of investments, leading to concerns it may not have ever invested the money to create profits to pay off mortgages.
Instead, it left open the possibility that the company used payments from one investor to pay mortgages of others, a practice known as a Ponzi scheme that can end up burning investors further down the chain.
"There is a great risk of loss of investors' money where there is no demonstrated source of income except other investors," Gansler said. "In a climate of rapid change in home values, a program like this can increase risks to lenders and home owners."
Guillory said it is unclear how many investors were involved and what will happen to them. However, the company has claimed that 700 houses are in its program.
In 2001, Williams and others operated a company, BGI, that solicited as much as $3 million in investments for ATMs in what then-attorney general J. Joseph Curran Jr. characterized as a possible Ponzi scheme.
In that case, Williams's company never used investors' money to invest in the machines, Curran's office said at the time. Instead, investor money went to pay off other investors. Williams, his company and another executive consented to the order without admitting or denying wrongdoing.