Charter Homes builder draws scrutiny for odd sales claims, multiple liens

Charter Homes owner Jerry Jaquess fancies himself a white knight for King Park, a neighborhood once known mainly for its
rampant crime, boarded-up homes and vacant lots.

But as he’s constructed a slew of homes and carriage houses there, the local builder has stirred
up several lawsuits, dozens of liens and persistent questions about whether his business is legit.

Charter has built about 50 houses on vacant
properties surrounding Dr. Martin Luther King Jr. Park at 21st Street and College Avenue–lots that sold
for as little as $500 a few years ago. Yet in sales disclosures filed with the city, Charter or its partners
claim they sold most of the homes for $450,000, more than twice what non-Charter homes in the area typically fetch.

Most of the buyers are absentee owners who have
multiple rental properties in the neighborhood, all managed by Charter. And most of the owners list Charter’s
current or former address as their own, raising questions about whether the deals were arm’s-length transactions.

Neighbors, real estate agents and other builders
believe the sales are suspect. They’re worried about Charter’s many unoccupied homes and what might happen
to the neighborhood if the financial pressures facing the company lead to its collapse.

Public records reveal many signs of trouble at the company, which has its headquarters in the
back of a former Ponderosa restaurant near 82nd Street in Castleton. The business is facing numerous
liens and at least 12 lawsuits from unpaid contractors. Jaquess and one of his former companies, Homevestors
LLC, are named in a still-pending 2006 lawsuit filed by two Virginia residents alleging mortgage fraud
and breach of contract. The firm’s title company apparently has folded after facing its own court battle
over questionable practices.

And the Center Township Assessor’s Office has decided to ignore Charter’s sales disclosures when it values homes in King Park
because officials don’t believe the numbers.

"There’s just no way somebody paid that kind of money," said Frank Corsaro, who heads the assessor’s real estate
division. "The buyer and seller perjured themselves if that money didn’t change hands. This whole
thing looks fishy."

Jaquess, 66, who has been building homes under a series of company names since 1970, denies any wrongdoing.

‘Odd type’ of development

Despite its troubles, somehow Charter
continues to build homes. It has filed plans for a handful of houses on College and Park avenues, moves
that unnerved neighbors.

Janine Betsey, executive director of the King Park Area Development Corp., wrote a letter to the city July 2, asking to
delay a hearing on the latest proposals.

"We are very concerned about the continued building of units when many units developed by the same group are unsold and
incomplete," wrote Betsey, who told IBJ her main concerns are making sure the homes are
occupied and that Charter lives up to its promise to repave several crumbling alleys.

Charter is marketing the vacant homes as hip,
urban rentals to IUPUI students. The going price: $400 per month per room, with five renters to a house
and one more for the carriage house.

Just don’t expect much in the way of maintenance or to get anything that resembles the model home, student renters told IBJ.

"It’s weird because you’re expecting a
real nice house and end up with drywall dust all over the place, plastic on appliances and no knobs on
cabinets," said one student who spoke on condition of anonymity, fearing a backlash from the company. "It
has not been a good deal."

Downtown real estate specialist Kurt Flock of Flock Real Estate Group has warned potential buyers as well. He believes several
recent sales of Charter homes reported on the Multiple Listing Service appear bogus and are out of step with the market.

Among them: 2009 Ruckle St., which MLS listed
as sold for the asking price of $455,000. The service also shows 2015 N. College Ave. went for the asking
price of $438,500; and 2008 College traded for $465,000, again the full asking price.

"Do the words Ponzi scheme mean anything to you?" he asked, referring to a fraudulent
arrangement in which funds contributed by later investors are used to pay artificially high returns to
original investors.

Flock
said his "intuition and common sense" make him leery of Charter’s business model.

"That’s an odd type of residential development that’s going on there," Flock said. "I
suppose anything is possible if you control enough real estate in any location and have the money to
create your own market."

Turnaround plan?

Jaquess bristles at the suggestion that Charter has done anything in King Park other than to give "a horrible neighborhood"
a fighting chance at turning a corner.

He said the company has spent $20 million so far building homes in the area, which is roughly bordered by Central and College
avenues and 18th and 22nd streets.

"When I first started building, there was so much crap and crime that no one wanted to live there," Jaquess said.
"I couldn’t move anyone into them to rent until I built a certain critical mass."

He said about 25 college students are scheduled
to move into the homes in the middle of August. The rental-management strategy emerged as credit markets
tightened and residential real estate hit the skids, he said.

Charter will look to sell the unsold homes when the market turns, but for now Jaquess says he
has hired a full-time security person to look out for the students and protect building materials for
new homes.

He said the
company funds its operation through investors and by taking out loans to tap up to 75 percent of the equity in
homes it already has built.

Jaquess said he’s confident the homes will fetch more than $400,000 each and points to comparable sales in the nearby Herron
Morton Place and Fall Creek Place neighborhoods.

But comparing King Park to Herron Morton or Fall Creek Place is tenuous at best, said Joe Everhart,
a real estate agent with locally based The Sycamore Group.

Everhart said people in the residential real estate business tend to roll their eyes at any mention
of Charter Homes, which has managed somehow to always sell its homes far above the market average.

The home at 2008 N. College Ave. sold at list
price after less than a month on the market, at a time when the average new listing sits on the market
for 94 days.

"I can’t
tell you exactly what’s wrong, but something’s not right," Everhart said.

Lawsuits pile up

At least 12 unpaid contractors are pursuing lawsuits against Charter Homes.

Contractor Les Hawkins, who has been fighting
Charter since October 2007, still hasn’t been paid $18,000 for floor coverings and cabinets installed
in homes in King Park.

Hawkins and Charter reached a settlement in December 2007, but he said Charter never made the agreed-upon payments. In a new
filing, Hawkins asks for the appointment of a receiver because Charter is in "imminent danger of insolvency" and
unable to pay its debts.

Among the other lawsuits pending in Marion County Circuit Court:

Foundations by Thompson Inc. of Indianapolis says it is owed more than $85,000.

Peterson Architecture of Noblesville is suing
to recover about $18,000 for work on three King Park homes.

Kokomo building supply company Armstrong-Landon Co. Inc. won a judgment of $84,000 in October
2007 and still is trying to collect.

Behling Construction Inc. of Martinsville is suing to recover more than $16,000 in unpaid work
on 10 driveways at Charter developments.

MCL Window Coverings Inc. of Fishers has sued to recover more than $15,000.

Benchmark Carpentry Service Inc. of Indianapolis
is seeking $10,000.

Cobbs
Painting of Indianapolis says it is owed $28,000.

Two other companies, Trent Electric Co. and Best Flooring Inc., have lawsuits against Charter
pending in Hamilton County.

Jaquess’ answer to just about all of the claims: The work wasn’t up to his standards. He says he "had
problems" with Thompson’s work, Cobbs billed for "half-done" houses and Benchmark’s craftsmanship
was "horrible."

"We do a big volume of work, so we go through a lot of contractors," Jaquess said. "We’re beginning to get
people who are doing the quality work that’s expected. The people that are legitimately owed money are
getting paid. Everyone will eventually get paid."

A wing and a prayer

Actually, it’s possible no one will get paid if a home doesn’t sell. That’s because Charter doesn’t
take out construction loans, which are standard procedure for even the largest and most cash-rich developers.
Instead, the company asks contractors to place liens on its properties, a process that puts them in line
to be paid once a property is sold.

The ongoing work on many of Charter’s properties proves hard-up contractors are willing to take the risk for steady work.

Hence, the liens on three of the company’s newest
homes, at 2003, 2017 and 2019 Central: $126,576 for Stegemoller Plumbing Inc., $17,644 for Peterson Architecture,
and $30,000 for Weber Concrete Construction.

The three lots also are encumbered by a $135,000 mortgage loan from investor Jon Pursell of Carmel, who is listed as the owner
of several other homes Charter built in the King Park area. The agreement calls for Pursell, who could not be reached, to
receive $45,000 upon closing of each lot by Aug. 31.

Charter has mortgaged two other King Park homes, at 2133 and 2130 Park Ave., to locally based
Godby Heating & Air Conditioning LLC, as part of a settlement agreement over unpaid work. The mortgages
are for $360,000 each.

Other recorded mortgages include a $375,000 loan from Green Point Mortgage Funding Inc. of California for 1828 Ruckle, a property
with a preliminary appraisal for tax purposes of $185,900. A sales disclosure claims Pursell paid $450,000 for the home.

Nina L. Bainer, a Hamilton County notary public
who has done extensive work for Charter Homes, took out a $337,500 loan from Vandyk Mortgage Corp. of
Michigan for 2120 Park Ave. on April 1, 2008.

Questionable mortgages


Many Charter properties in King Park reported as sold to the Assessor’s Office do not
have recorded mortgages with the Marion County Recorder’s Office, a standard move lenders use to secure
their collateral.

Even
the mortgages that appear in public records seem questionable.

Robert L. Brown of Fishers owns several homes in King Park and took out $360,000 loans for at
least two of them, at 2045 Broadway St. and 2029 Ruckle. The loans were funded by locally based The Moneystation
Inc. and New York-based America’s Broker Conduit, according to federal Department of Housing and Urban Development disclosure
statements.

The documents
claim Brown made down payments of $90,000 and $100,000, respectively, for the homes. They also say Charter was
paid $400,000 for the home on Ruckle in May 2006. Yet locally based Best Flooring still has not released a lien on the property
for unpaid cabinets and flooring work worth $17,000.

Several properties have first mortgages held by Carmel-based Hinshaw Realty Inc. and second mortgages
held by Horizon Consultants LLC, also of Carmel. Both companies have the same principal, L. Dale Hinshaw,
according to records filed with the Indiana Secretary of State’s Office. Hinshaw could not be reached.

Also raising red flags: Many of the properties
changed hands more than once within a few days. And in some cases, records show that properties identified
as Charter homes on the firm’s now-dead Web site have entities other than Charter listed as the seller.

Several of the homes were sold by David Morton
Designer-Builder Inc., a Carmel custom builder that has constructed homes in Bridgewater and Overbrook
Farms. Its Web site, though, doesn’t claim any connection to the King Park project, and no one at the
firm returned a phone message.

One thing’s for sure: New loans won’t be funded by Mount Laurel, N.J.-based Freedom Mortgage, which acquired Irwin Mortgage
from the struggling Columbus-based Irwin Financial in 2006.

Jaquess, his wife, Carole, and their companies–including Homevestors, Charter Homes and Excel
Realty Group–have been on the firm’s "exclusionary" black list since October 2006.

The company you keep

Charter and the rest of Jaquess’ companies
landed on the list in the same month they were named in a class-action lawsuit alleging mortgage fraud.

The Virginia plaintiffs say they were used as
"straw borrowers"–individuals who provide cover for questionable transactions–in a scheme
led by Fishers businessman Robert Penn, a former partner of Jaquess’.

The suit charged the borrowers were members of an investment club set up to acquire properties
with no down payments or cash. The sales pitch: They could improve their credit rankings and make a profit
without actually owning property or taking on any risk. Tenants would cover debt service on the loans.

The suit alleges that Penn and his group "used
Plaintiffs’ names and credit ratings to falsify mortgage applications, inflate appraisals and mortgage
transactions to induce mortgage lenders to make mortgage loans that are not properly documented or secured,
enabling the defendants to misappropriate the proceeds of such loans."

A spokeswoman for the U.S. Attorney’s Office in Indianapolis says no charges are pending against
Jaquess or his companies, or against Penn. She wouldn’t say whether it is investigating Jaquess.

Jaquess says Penn did the questionable deals
without his knowledge, using the name Homevestors LLC without his permission.

Yet Penn isn’t the only Jaquess partner accused
of impropriety.

Charter’s
title-service company, Greenwood-based HMS Title Services, landed in legal trouble before it shut down in 2007.
HMS was accused in a 2006 federal lawsuit of failing to ensure documented down payments actually changed hands, among other
charges.

HMS denied the
allegations, which were brought by California’s IndyMac Bank. The case was dismissed via a private settlement
agreement June 17, less than a month before federal regulators seized IndyMac in one of the largest bank failures in U.S.
history.

A phone number
listed for HMS Title Services was disconnected, and no Web site could be located.

Other Charter properties

There also are questions about Charter’s four other residential neighborhoods: Fishers Creek duplexes
on the east side; Carson at the Crossing townhouses near the University of Indianapolis; The Reserve
at Royal Oaks in Greenwood; and a group of older duplexes called Windsor Village at East 21st Street
and Arlington Avenue.

Many of the people listed as homeowners in King Park, including Robert L. Brown and Markam Hines, also own homes in other
Charter Homes projects.

Markam Hines’ wife, Ann, said Charter makes the payments on their homes and maintains the properties for them.

"We’re not unhappy with them at this point,"
she said, but declined to elaborate.

Many of the lawsuits Charter is facing deal with multiple properties.

One creditor, Hough Drywall Inc. of New Palestine, sued on July 14 to recover about $234,000 for
unpaid work. Don Hough, the owner, said Charter offered him lien rights to continue work on the homes,
but Hough declined.

"Lien
rights don’t pay any bills," he said, "especially if there’s a big mortgage against it."

Hough said the company persuaded investors to
buy the homes and take on the accompanying interest-only loans by dangling upfront cash incentives and
promises to manage the properties, make the payments and deliver big returns after several years as the
homes appreciated in value.

The housing market slowdown and crackdown on reckless lending appear to have undermined that business model. But Charter Homes
is charging ahead, albeit with a new name. It now goes by Mid State Property Management LLC.

"There ain’t no way those houses are worth even close to $450,000–I think $300,000 would
be pushing it," Hough said of the King Park homes.

The company has a plan to survive, but Hough is skeptical.

"They say they can get out of it if they close four a month," he said, "but it’s
all going to go haywire."

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