Alan Baugh's curiosity was piqued when the one-story, four-bedroom, three-bath home down the street sold quickly for far more than he thought it was worth.

The county taxed it at a value of $260,000, and the owners originally asked for $319,000, but it sold for $390,000 within a month of going on the market and remained vacant for months.

DARON DEAN / DMN

Alan Baugh, his wife Kris (center) and neighbors got suspicious when home prices soared on Winterwood Lane.

At least four other homes on a three-block stretch of Mr. Baugh's street in Prestonwood Estates have similar stories. The area has become either one of the hottest zones for eager investors or ground zero for a well-oiled mortgage fraud scheme.

Which one it is depends on whom you ask.

"In my mind, this is organized crime – with buyers, sellers and real estate professionals all cooperating with each other," said Mr. Baugh, a mortgage banker.

He and several of his neighbors on Winterwood Lane in North Dallas are suing Eric Farrington, convinced that the local businessman is the "mastermind and kingpin" of a real estate investment scam that uses inflated appraisals and straw buyers to garner large home loans that will go unpaid.

Not so, says Mr. Farrington, a self-made millionaire and convicted felon. He did not return calls seeking comment, but in answering a lawsuit brought by a group of homeowners in August, he stated that his deals were perfectly legal and that residents on Winterwood don't want black people buying or renting in the neighborhood.

Mr. Farrington contends that the neighbors' lawsuit "was filed solely for the purposes of harassment and as a conspiracy to violate federal, state and municipal anti-discriminatory housing laws and regulations."

That's not the case, Mr. Baugh said. The bitter feud began over the flurry of sales in the subdivision that sent the homes' market values skyrocketing about $100,000 higher than market values in the rest of the neighborhood.

Neighbors say two of the homes have been vacant for six months. Three others have been rented out and have undergone minor cosmetic upgrades. One was posted for foreclosure this month.

The homebuyers either didn't respond to interview requests or couldn't be located. None lives on Winterwood Lane.

While the lawsuits wind through a Dallas civil court, longtime homeowners say they have grown weary waiting for word about whether an FBI investigation into the deals will result in criminal charges. Citing department policy, the FBI would not confirm such an investigation.

Scott Gamble, a Winterwood Lane homeowner, said that government agencies – local, state and federal – seem powerless to stop the process and that any relief to the neighborhood will come long after the damage is done.

"We thought the authorities would be all over this and help us," Mr. Gamble said. "But the answer has been: 'What's happening to you is wrong, but we really can't help.'

"So our thrust has been to keep this in the public conscience to help stop the spread of this kind of scheme. We're staying here."

Homes on Winterwood are typically worth about $250,000. They are tucked into a 30-year-old subdivision near Arapaho and Hillcrest Roads, with an easy commute to downtown Dallas and access to Richardson schools.

Mr. Baugh, whose house backs up to a low-income apartment complex, began looking into home sales on his street after learning that Mr. Farrington's company, EFC Capital Mortgage, netted about $78,000 for brokering the first deal. The sellers received $312,000, according to records.

Mr. Farrington's name spread quickly around the neighborhood, Mr. Baugh said. By summer, using public records and real estate listings, Mr. Baugh had documented a disturbing pattern in home sales:

•A house that hadn't attracted a buyer for $254,000 in more than nine months sold quickly for $360,000.

•The house next to Mr. Baugh's, given a $275,000 market value by the county, sold for $390,000. Mr. Farrington's company made $95,000.

•A $290,000 house sold for $390,000, with $85,000 for Mr. Farrington's company folded into the deal.

•And a house with a $238,000 market value sold for $390,000, with Mr. Farrington's company making $78,000, Mr. Baugh contends.

Mr. Baugh said the house next door, which sold in June, isn't worth $200,000 now. The home remained vacant for months, and the backyard pool was trashed from disrepair, with broken equipment strewn across the yard, he said.

"Neighborhoods get ravaged in this kind of deal," said Kristine Baugh, a licensed loan officer who works with her husband. "Homes go empty and deteriorate from neglect. Everybody loses."

Utility trucks have recently been spotted at some of the homes to turn off electricity and gas as renters come and go.

"There's only one outcome for these houses – foreclosure," Mr. Baugh said.

Mr. Farrington, a longtime real estate investor, works out of a Turtle Creek office and lives in an Irving home valued on tax rolls at more than $800,000.

On one of the four Web sites affiliated with his real estate companies, Mr. Farrington sells audiotape seminars such as the "Eric Farrington Little or No Money Down Real Estate Course," which includes a segment titled "How to Put Cash in Your Pocket at Closing."

He sells a self-published book called Adversity Creates Opportunity: Self-made Millionaire's Guide to Success With God's Blessings.

Mr. Farrington also is the ex-husband and former business partner of Sheila Farrington, one of a large group of consultants, housing professionals and elected officials linked to a continuing FBI investigation of possible tax-credit improprieties at City Hall.

The public record shows Mr. Farrington served 15 months in federal prison 10 years ago for conspiring to file dozens of false tax returns that netted him and another man more than $100,000. And he has active federal and state tax liens totaling more than $400,000.

When the North Dallas families sued in August to stop Mr. Farrington's deals, he denied any fraud had taken place on Winterwood Lane. Alleging that he'd been slandered and libeled, he countersued for $5 million, saying harassment and racial bias lay behind the complaints.

In court documents, Mr. Farrington's attorney said his client's company used independent appraisers, financed the purchases through legitimate mortgage companies and closed the sales through independent title companies.

Residents on the street interfered with Mr. Farrington's legitimate real estate deals that involved "distressed properties" nearing foreclosure or needing a quick sale to investors, the documents say.

Mr. Farrington's countersuit describes Mr. Baugh as a ringleader and alleges that he "began an all-out assault to stop the Winterwood transactions," something Mr. Baugh doesn't deny.

Mr. Farrington also accuses Winterwood residents of leveling racial slurs at his employees who were inspecting homes before they were leased. "One employee became so fearful after having his car and windows pounded upon that he fled the scene," the suit says.

Mr. Baugh said he knew of no such incident. "This isn't a race issue. It's a quality of life issue," he said in an interview.

"It's very personal for us. It's not only about where we live, it's in the middle of what we do for a living, and we'll fight it as hard as we can."

All of the sellers were white; Mr. Farrington and his employees are black. The neighbors say they've met only one man who said he was an investor-owner, and he was black. Neighbors say renters have been white and black.

The same month that the Winterwood neighbors sued Mr. Farrington, the state Department of Savings and Mortgage Lending ordered him to stop acting as a loan officer. Mr. Farrington is not licensed as a loan officer or mortgage broker in Texas.

Officials also ordered a licensed mortgage broker in Mr. Farrington's company to stop associating with him and noted that another loan officer's work was unauthorized because his license had expired.

Only the licensed broker is directly affected by the order, which is under appeal. Because they aren't licensed and subject to the department's guidelines, Mr. Farrington and the other loan officer are unaffected by the ruling.

The order arose from a soured real estate deal between Mr. Farrington and one of his investors in October 2004 in which the value of the house climbed dramatically from the original $292,000 price.

"Farrington and others conspired to misrepresent the value of the property in order to secure a loan in the amount $398,600 for the purpose of diverting the funds to Farrington," the order concludes.

The sale, of a home in Lake Highlands, is not linked to the sales on Winterwood Lane. That investor is suing Mr. Farrington. But the Department of Savings and Mortgage Lending also is looking into the Winterwood sales. State officials declined to comment.

The lawsuit brought against Mr. Farrington by the four North Dallas families also named three former neighbors and the people who bought the homes from them. The plaintiffs believe that everyone involved in the deals had to know they were playing with fraud or turned a blind eye to "extra paperwork" that drastically inflated prices.

Mr. Farrington argues in court documents that three home sellers were "willing and enthusiastic about participating in Farrington's program."

But a lawyer for one seller named in the neighbors' lawsuit said that his client knew nothing of an inflated price when he sold his home to a man connected to Mr. Farrington in June, and that bank records and closing paperwork prove it.

The lawyer, Mark Stromberg, spoke to The Dallas Morning News on the condition that his client not be named until an investigation is completed on how a second, forged deed in his client's name ended up being filed instead of the deed he received at closing this summer.

Mr. Stromberg said the papers his client signed in June show that he sold his Winterwood Lane home to one man for $248,500. County deed records, however, show that he sold the same home to another man for $370,000 on the same day.

"It's obvious from the documents that this property was sold twice on the same day," Mr. Stromberg said. "But my client didn't participate on the second deal."

He showed The News private bank records, a sales contract and closing papers that outline how his client sold the house for the lower amount, which is more in line with the market value estimated by county tax appraisers.

Mr. Stromberg said his client worries about being held liable for income taxes on the higher price, which he never received.

"This has turned neighbors against each other, blaming each other, and it's a shame," Mr. Stromberg said.
  http://www.dallasnews.com/sharedcontent/dws/news/localnews/stories/121805dnmetloanwar.2bb6980.html

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