Amid rapid growth, subdivision developers draw criticism

Springfield-based The Real Estate Co. sells between 15 and 25 houses a month, and a company official said the value of property and sales managed tripled in 2006 to about $90 million.

But some of the company’s biggest critics are its customers, many of whom told Springfield Business Journal they’re dissatisfied with the construction quality of the homes and the terms of their financing agreements.

Some occupants have forfeited their down payments to pursue a mortgage loan through more conventional means despite poor credit or limited income. Others are quietly considering their options as they work through the company’s advertised credit-repair process.

Members of six households who spoke with SBJ in the last month said they’ve watched newcomers cycle through their neighborhoods every few months. Some left willingly; others were evicted for failing to make payments. In at least one subdivision, a row of houses sits empty.

Augusta Hills and Golden Meadows on Springfield’s outskirts and White Oak in Republic are some of the subdivisions where residents have voiced complaints about The Real Estate Co. Their homes were built by Elegant Homes and Design of the Ozarks, a Springfield-based company owned by developer Dave Poppenga.

Poppenga recently filed a defamation lawsuit in Greene County Circuit Court against SBJ that demanded the publication retract a Feb. 26 story about alleged mortgage fraud that mentioned home foreclosures in Olde Ivy, a subdivision he co-developed southeast of Springfield.

Eric Gagnepain, co-owner of The Real Estate Co., said his company began partnering with Poppenga in 2003. Under the agreement, The Real Estate Co. investors – mainly in Missouri, Colorado and Virginia – purchase homes built by Elegant Homes and Design in subdivisions developed by Poppenga. The Real Estate Co. also works with eight other builders, including Allen Bird and Cantrell’s Patriot Homes, Gagnepain said.

He said the arrangement with Elegant Homes and Design has worked well. But a number of customers who have contracted to buy the houses from investors say the homes built by Poppenga were constructed poorly. Among the complaints: cracked foundations, energy inefficiency and plumbing fiascos, such as sewage backing up into bathtubs.

Gagnepain said Elegant Homes and Design has done a “good job of building and servicing homes” owned by The Real Estate Co. investors, and he described the construction as “satisfactory.” He also pointed out that the company considers its occupants homeowners and that they are responsible for home repairs after the warranty expires.

When buyers sign a contract for deed, they become the equitable title-holder, but an investor holds the legal title and deed of trust, Gagnepain said. While buyers sign a “residential lease agreement” with the company, The Real Estate Co. says its buyers become homeowners when they sign a contract for deed.

Customers sound off

Gagnepain said The Real Estate Co. hired a full-time employee about six months ago to address customer complaints and concerns.

“These customers are our lifeblood,” he said. “They put food on our table. Two years ago, customer service needed to improve, but right now, it’s very good.”

Retirees Bobbie and Erma Riley disagree.

The Rileys recently moved out of their three-bedroom, two-bath home at 3284 N. Eakins Ave. in Augusta Hills northwest of Springfield. The Rileys, who are on a monthly fixed income of $2,000, were paying $1,126 interest-only payments each month for a $212,000 home in hopes of refinancing after two years.

Erma Riley said The Real Estate Co. never fixed foundation cracks, plumbing problems or a broken gas fireplace she complained about. When the couple sought a traditional loan, they learned the payments would have soared to nearly $1,800. Their decision: break their contract and move out.

“It’s a rip-off is what it is,” said Erma Riley, who has since bought a house in Ash Grove through a conventional loan. “We’re not giving them every penny we get.”

Gagnepain’s records indicate the Rileys called with complaints 15 times in six months, and he said all items covered by warranty were repaired.

Just around the corner from the Rileys, Phillip and Tara Plosser moved their family into a $253,000 five-bedroom home at 2927 W. Grandview St. just days after the January ice storm. The Plossers, who have been using a generator to avoid $400 monthly utility bills, were prepared to move out before meeting May 7 with Gagnepain.

After expressing concerns about poor construction quality and their financing plan, the Plossers contracted for a smaller house valued at $192,000 one block over. Despite the company’s poor record of returning his calls, Phil Plosser, a tow-truck driver, said he is pleased with the new arrangement.

In response to construction complaints, Elegant Homes and Design attorney Bryan Wade told SBJ via e-mail that Elegant Homes and Design issues a limited one-year warranty for all of its construction and has contracted with Builders Warranty Co. to address warranty issues. Builders Warranty Co. has not received any complaints regarding foundations, Wade wrote.

Also, no formal complaints against The Real Estate Co. or Elegant Homes and Design are on file with the Missouri secretary of state or attorney general offices.

“We hope the Real Estate Co. will continue to sell homes constructed by Elegant Homes, as Elegant Homes builds and constructs a superior product in the market,” Wade wrote.

However, Gagnepain said his company’s contract to purchase homes built by Elegant Homes and Design is nearly expired, and there are no plans to extend it.

Rebuilding credit

Gagnepain said The Real Estate Co. is committed to helping customers achieve homeownership, and that contract-for-deed financing is the best way for them to reach that goal.

“We try to position them with every advantage so that they’re successful,” he said.

A contract for deed allows people with damaged credit to rebuild their credit by paying interest-only payments – in addition to taxes and insurance – on a mortgage loan obtained by one of the company’s investors, Gagnepain explained.

A client typically puts down $2,995 on a house and then agrees to make the interest-only payments for 18 to 24 months, Gagnepain said. The Real Estate Co. keeps payment records, but until recently, was having difficulty reporting to the three major credit bureaus, said Finance Director Bill Strong.

Suzanne Basham, a single woman on disability, said she contacted The Real Estate Co. after hearing the company’s radio ads, which promise to help customers repair their credit. But after nearly a year of $1,500 interest-only monthly payments on a five-bedroom house at 2967 W. Grandview St., Basham said her credit rating hasn’t budged.

“That’s the sad thing,” she said. “You think your credit’s getting repaired. I could have bought a house through a mortgage company two years ago.”

Basham, who admitted to being behind on a few payments, said she’s also disappointed by the company’s unresponsiveness to her requests for repairs. Her sprinkler system doesn’t work; her backyard deck wobbles; and her mailbox has fallen over in strong winds.

On May 2, the same day SBJ interviewed Gagnepain, The Real Estate Co. sent out a letter to its customers notifying them that Westar Escrow Servicing had been hired to process payments and report to the credit bureaus. The letter – signed by Finance Director Strong – was sent out by Greenleaf Cos. LLC, a sister company to The Real Estate Co. that works with investors.

Strong said the credit reporting process has been a “nightmare.” Experian – one of the credit bureaus – requires a year’s membership before reporting is allowed, he said.

“If I wanted to report them bad, you can go to any collection agency anywhere in America,” he said. “But if someone’s paying on time, it’s a big pain.”

Strong also said some people who hear The Real Estate Co. ads may not understand that the credit-repair process hinges on their ability to pay bills on time.

“Some people in the past have gotten the impression that we can wave this magic wand and fix it,” he said.

Kyle Powers, a Culligan Water employee who lives at 3002 W. Grandview St. in Augusta Hills, said The Real Estate Co. delivers on its promises as long as customers make their payments. Powers, who put $2,000 down toward the $212,000 sale price, has been making monthly payments of $1,106 for almost a year.

“As long as you try to pay these people, they’ll work with you,” he said, adding that The Real Estate Co. notified the credit bureaus of inaccuracies on his credit report.

After moving into the three-bedroom, two-bathroom house in June, Powers said Elegant Homes and Design touched up interior paint, fixed a piece of dangling siding and spread topsoil in the back yard.

A ‘trouble-free’ investment

Gagnepain started The Real Estate Co. with brother-in-law Scott Dasal and Rob Batchman in 2003. All three previously worked for MCI/Worldcom before launching the business, which initially bought, refurbished and resold single-family homes before changing its strategy.

“We realized that the only way we could ever really control what we were doing from one home to the next was to build houses,” Gagnepain said.

After floating the concept to several area builders, The Real Estate Co. struck a deal with Springfield concrete contractor Poppenga, Gagnepain said. Poppenga would build homes, and The Real Estate Co. investors would buy them.

Today, the company works with nine builders in southwest Missouri, northwest Arkansas and Kansas City. Oklahoma is listed as the next market on the company’s Web site, www.buyyourhomehere.com. The Real Estate Co. is a licensed brokerage with three local real estate agents who are members of the Greater Springfield Board of Realtors.

Gagnepain said one-third of investors learn about The Real Estate Co. through word-of-mouth referrals, and most are intrigued by the “trouble-free” nature of the investment. Rather than becoming full-time landlords, investors use their cash and good credit to obtain a loan, and The Real Estate Co. handles marketing and management of the properties, he said.

Gagnepain said The Real Estate Co. and its investors make their money when customers reach the refinancing stage, usually 18 to 24 months. At that time, the company and investor collect previously agreed upon fees, and the investor transfers legal title to the existing occupant.

“We’re in it with (the investors),” Gagnepain said. “They know we have a vested interest in the success of the client. … They also know that if we’re not successful, we will compensate them for their payments.”

How The Real Estate Co. affords tens of thousands of dollars in mortgage payments each month for its unoccupied housing stock is unclear. Gagnepain’s explanation: “We sell a lot of houses.”

Every customer who has reached the refinancing stage – The Real Estate Co. would not provide a total – has successfully obtained a loan, although mortgage payments typically increase, Gagnepain said.

Year to date, The Real Estate Co. has helped six customers obtain refinancing and three more will be completed in May, he said, noting that another 18 are in process and are expected to close in the coming weeks.