Another Losing Proposition for Homeowners

It's happened again.

Some of the same people who lost money last year to the Metro Dream Homes mortgage-payment scheme lost tens of thousands of dollars more to another debt-payment plan before it was shut down by the Maryland securities commissioner this month.

The commissioner has ordered Edward Offutt and his Offutt Group companies, located in Silver Spring, to cease and desist from selling securities and engaging in investment advisory activities pending a hearing. Calls to Offutt's offices were not returned.

The commissioner's order says Offutt sold partnership agreements promising that an initial investment of $30,000 would return $110,000 to participants. He promised even greater returns on larger investments, up to a $770,000 return on an investment of $120,000. The order says Offutt and his companies are not registered as broker-dealers or investment advisers in Maryland.

Two people who invested in Offutt's plan told me they did so because they were trying to avoid foreclosure on homes they bought in Prince George's County -- at inflated prices -- through the Dream Homes plan, run by a Laurel company, Metropolitan Grapevine, which doesn't appear to be associated with Offutt.

The Maryland securities commissioner shut down Grapevine's operations last year, put the company into receivership and liquidated its assets. A Maryland court found that more than 1,000 people had invested about $50 million in Grapevine programs, which promised to pay home and auto loans on their behalf. At its end, Grapevine had debts as high as $200 million to $300 million and assets of just $2 million, according to state documents.

Grapevine's plan, hatched during the real estate boom, when prices did nothing but rise, set its participants up for foreclosure. It was an invitation-only network spread among family and friends. All they needed was a good credit rating and a lack of healthy skepticism.

They worked with participating real estate agents to buy their "dream homes" at inflated prices but with no down payments. Ten to 15 percent of the home's sale price would go straight into Grapevine's coffers, along with other lump-sum investments. It was supposed to have been invested. With the returns, Grapevine promised to make their mortgage payments (and some participants' car payments) and retire the debts in just a few years.

State officials found it to be a Ponzi scheme, an illegal plan in which newcomers' cash is used to pay off earlier participants. Inevitably, a Ponzi grows to a point at which it can't find enough newcomers to pay all the existing participants, and it collapses, with the newest participants usually losing the most money.

Homeowners who were burned by the Grapevine scheme are now stuck with homes worth hundreds of thousands of dollars less than they paid. There's no Grapevine to make their mortgage payments. Some have already lost those homes to foreclosure, and others are still trying to hang on.

I spoke last week with a 61-year-old Upper Marlboro woman who turned to Offutt in hopes of keeping her home. It's a well-kept four-bedroom Colonial with a two-car garage on a cul-de-sac. She bought it for about $500,000 in March 2007. A foreclosure notice she received two weeks ago says she owes more than that for the first mortgage alone. She declined to tell me how much she owes on the second mortgage. She spoke on condition that her name not be published.

She said she thought Offutt's plan offered her a way to keep her house. "When you're desperate, you do desperate things, and I'm desperate to stay in my home," she said as we sat at her round oak kitchen table.