The white double-wide with blue shutters in Emerson Estates, sitting on nearly a quarter of an acre of land, seemed a quiet spot in the country. The three-bedroom, two-bath, 1,344-square-foot home also meant their two daughters had their own rooms.

To add to their excitement, they were approved for a loan despite a credit history that included a bankruptcy and repossession of a used car.

But the excitement didn't last.

Their monthly payment started at a challenging $800 a month — almost half the couple's monthly $1,700 income — and jumped to an impossible-to-pay $1,000 within two years, she said.

"I just couldn't afford to make the payments, so I left," Knox, 36, said. "I just wish I'd never done it."

The couple is among hundreds of home buyers who lost their mobile homes to foreclosure in a handful of Montgomery County neighborhoods. In one of them, 67 percent of mobile homes have been foreclosed on since 2001, according to data from Foreclosure Information & Listing Service in The Woodlands.

Home buyers, including the Knoxes, are fighting back with a lawsuit targeting developers, among many others, for selling the homes at inflated prices and underestimating the monthly escrow payments needed to cover the mortgage, insurance and taxes.

The spike in foreclosures and the homeowners' allegations have spawned a web of suits and countersuits that has touched nearly everyone associated with these sales.

The U.S. Department of Housing and Urban Development, which backed many of the mortgages on the homes, has subpoenaed the attorney representing the homeowners for loan files and other documents related to the case. The FBI is also aware of the situation, but representatives from the agencies would not confirm or deny an investigation.

The home buyers involved lived in mobile home communities where a pair of developers — Conroe-based Emerson Manufactured Homes and its affiliated companies and Woodlands-based Lipar Group — were big sellers.

An attorney for Emerson Manufactured Homes, owned by Keith S. Raybon, declined to comment. Raybon, who filed for personal bankruptcy in 2004, has denied the allegations in court filings.

Lipar Group, which developed Lone Star Ranch and was founded by Tom Lipar, also denied the allegations in court filings and settled out of the suit last year. Bryan Dumesnil, an attorney for the company, declined to discuss the settlement terms or the suit, citing a court order not to.

Appraised for far less

The mobile home and lot she borrowed $90,500 to buy were most recently appraised by the Montgomery Central Appraisal District for $33,180, court records show.

The property appraiser's office said the selling prices in four neighborhoods where Lipar Group and Raybon's companies sold many homes were far too high.

"It has been our belief that the selling price for these properties is exorbitant," wrote Steve Compton of the Montgomery Central Appraisal District in a letter to homeowners' attorney William Piper.

Longtime Houston homeowners know market bubbles are one of the risks of real estate markets. But documentation from the lawsuits filed by homeowners and lenders allege a system designed to boost prices by:

•Qualifying otherwise uncreditworthy borrowers for loans they couldn't afford.
•Having the lender make a loan using documents that made it appear as if the homeowners were refinancing a property they'd owned for years, even though they'd only recently agreed to buy it.
•Giving insurance agents and mortgage brokers a reason to cooperate to close the deals — a higher selling price meant bigger loans and more insurance coverage, increasing their fees.
While the home buyer litigation focuses on Emerson Manufactured Homes and the Lipar Group, it also names a long list of professionals involved with sales — including the appraisers, insurance agents and mortgage brokers.

One mortgage broker countered with claims against the home buyers, saying the buyers knowingly submitted false information in their loan paperwork.

And the two biggest lenders that made many of the home loans, ABN-Amro and National City Mortgage, which does business as AccuBanc, have brought their own lawsuits against various sellers, developers, brokers and appraisers alleging the loans were based on fraudulent claims.

Most of those involved in the suits declined to comment directly, or through their attorneys. Many cited a judge's warnings not to try the case in the media and confidentiality agreements surrounding settlements.

Protecting banks?

"I should have used better judgment, but the real point is, they lied and done something, unknown to me, to help me get approved for something I could not afford on my own," wrote home buyer Robin Ingle, in a letter to her lender.

Others admitted to not reading through the documents or not asking many questions during closing. Some said they felt rushed to sign the papers.

"Most mobile home buyers aren't experienced home buyers, and a lot of them are hardworking and don't have time to do the research they should," said Jim Gaines, a Texas A&M Real Estate Center research economist. "They're relying on the seller, the broker and others to tell them the truth."

The lawsuits accuse home sellers of luring buyers with promises of down payments and monthly payments as low as $500. The sellers also allegedly offered to buy back the properties from consumers if they were later unhappy and to cover any penalties the buyer may face for breaking an apartment lease.

After they agreed to buy, the houses were sold and then refinanced, court records allege. The lawsuits lay out steps that plaintiffs say raised the price and allowed developers who had financed the sales to profitably pass those risky loans off to a national lender.

In Emerson Estates, for instance, many potential buyers attended a "pre-closing," where title was given to buyers and the buyers would sign a note showing they owed Emerson or one of its companies for the property.

"To my knowledge, these mortgages to Emerson were executed only so that they could immediately be refinanced," according to an affidavit of an employee who handled title issues for Emerson Manufactured Homes.

The seller and brokers would also arrange for appraisals and insurance coverage that confirmed the high sales price was in line with the market value of the property, the lawsuits allege.

Closings for the refinancing would follow, sometimes days later. The money borrowed from the national lenders — in most cases ABN-Amro or National City Mortgage — would repay the loans made by Emerson, according to court documents.

For buyers who didn't have the resources to qualify for the loans, according to a suit by ABN-Amro Mortgage Group against Emerson, the company would make borrowers look like better credit risks by temporarily depositing money in the buyer's account or listing assets on the loan application that they didn't own.

The series of transactions left many buyers with mobile homes that cost far more than they'd expected. The high price, coupled with rising monthly payments caused by underestimated escrow payments, ended in unaffordable mortgage payments.

That left these buyers two options: succumb to foreclosure or seek concessions from lenders that would lower their payments or total debt, court documents allege.

Rising value

Knox still doesn't completely understand what happened, why she and her husband were ever approved for such a large loan, or why her payments continued to rise.

According to deed records in which Emerson is named the seller, Knox initially financed her home for $82,848.

A month later, a HUD settlement statement — which breaks down the details of the real estate transaction — shows the amount borrowed as $90,500. The loan paperwork shows the house appraised for $113,000, according to Knox.

The couple didn't notice the rise in the size of the loan or that they may have been applying for a refinance instead of a mortgage because they never reviewed the paperwork closely during the closing, she said.

"They had us out within 15 minutes," she said. "They would hold the papers in front of my husband and say, 'Initial here, sign here.' "

According to the home buyers' lawsuit, closings often took less than 30 minutes.

But Matthew Hoeg, an attorney for mortgage broker Royal Lion Mortgage, saw another explanation for the defaults.

He said many homes went into default because Piper, the attorney representing the homeowners, told them to stop making payments once he was convinced something was awry.

"The real story is, you have a bunch of people, not all of them, who submitted or signed fraudulent applications, and all of them are guilty of buyer's remorse," he said. "These are generally pretty young people who after they got in were like, 'Shoot, I can't believe I paid $90,000 for a mobile home.' Nobody twisted their arms, and Piper convinced them they were the victims."

Piper wouldn't talk about what he told homeowners, citing attorney-client privilege.

Royal Lion was dismissed from the case, according to court documents.

Hoeg said the broker was dropped because it agreed not to pursue its claims against the home buyers. The mortgage broker had accused them of knowingly submitting false information.

The broker also settled claims by ABN Amro that alleged Royal Lion Mortgage had failed to ensure it provided accurate and honest applications from borrowers.

Mortgage brokers generally submit loan applications to lenders. This requires gathering credit reports, appraisals, verification of the buyer's employment and assets, and so on. The lender then decides whether to make the loan.

Hoeg, who represents the mortgage broker, contends it was the banks' responsibility to check the claims in the loan documents. The brokers and insurers just used information applicants gave them, he added.

"I do feel very strongly that there may be some stuff that went on here, for instance with the applications and all that, but I have no idea what truly transpired between all these people and the people at the developer's office," Hoeg said. "But I do know the people caught in the middle, the brokers and insurance agents, are just good people doing their job. The system works when people are honest."

Cleaning up the mess

Many resulted in foreclosure.

To mitigate their damages, the two biggest lenders — ABN Amro, which funded almost 700 loans on homes sold by Emerson Manufactured Homes or other companies owned by Raybon, and National City Mortgage, which made hundreds of loans to home buyers in Lone Star Ranch — allowed homeowners to refinance at more favorable terms or walk away from their loans without penalty.

If lenders had not renegotiated, the foreclosure rates in Lone Star Ranch and Emerson Estates could have been much higher, said Marty Lavin, who owns Mobile Home Lending Corp. in Burlington, Vt., and served as an expert witness for National City Mortgage.

While Hoeg said many homeowners walked away at the prompting of their attorney, Lavin doesn't see it that way.

"It's my opinion that had it run its course without any lawsuit being filed, more than 50 percent of those homes in those neighborhoods would have been in default or foreclosed over the life of the portfolio," Lavin said.

In the neighborhood where the Knox family once lived, a visitor doesn't have to drive far to find a vacant mobile home, an overgrown lawn or a for sale sign — at least 190 of Emerson Estates' estimated 285 homes have been foreclosed on since 2001.

Lone Star Ranch saw 216 of its 502 homes foreclosed on during the same period.

The hundreds of foreclosures may have created more problems as other homeowners realized they couldn't sell their units for the price they had paid, a real estate agent said.

That caused a general decline in values because a flood of loan defaults triggers other problems: Banks cut lending and values drop as foreclosed-on houses sell at fire-sale prices.

When a HUD-insured mortgage goes into default and the lender forecloses on the home, HUD pays the lender what's owed and then sells the home at the current market value.

HUD put many of the mobile homes on the market for $30,000 to $40,000, hurting resale values in other communities, real estate agents said.

"Anywhere you have a lot of foreclosures, it hurts the market," said Terry Foyt, a real estate agent in Conroe. "And the foreclosures have given mobile home communities a bad name. Lenders are seeing so many foreclosures on them, it's hard to get a loan on them. It's a shame."

But the depressed prices have attracted speculators and investors that are snapping up the foreclosed properties to rent.

That boon for investors, however, comes at the expense of consumers like Knox.

Her lender, ABN Amro, eventually let her walk away from the loan without penalty, but not before she learned some hard lessons.

She acknowledged she could have been more careful, but she said she couldn't get many answers when she tried, particularly after the closing.

"They said this is just the way it's done," she said.

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