The Rules of Engagement

From the Florida Herald Tribune, we have Michael Braga writing about: Sweet deals turn bitter amid CCI's decline, fall.

The allure of a handy profit with no money down was too much for some of those now caught between Bradenton's Coast Bank and St. Petersburg's Construction Compliance Inc.

Mike Wood, a Zephyrhills resident, is one of those investors who might just walk from his unfinished homes.

Wood contracted with CCI to build two houses in North Port neighborhoods in 2005.

He was told about the investment possibility from a friend who worked for American Mortgage Link in Tampa. Wood then told 20 friends and relatives, who also leapt at the chance of making $30,000 to $40,000 with no money down.

Rule 1: If you find an "opportunity" to make $40K with "no money down", run! Run like the wind!

The first house was a three-bedroom model valued at $190,000. The second was a slightly bigger three-bedroom model valued at $220,000.

"All I had to do to complete the deals was to show that I had 10 percent of the value of the home liquid," said Wood. "I was never asked for the money. I never paid one red penny out of my pocket."

American Mortgage Link processed all the paperwork and handled the closing, and the loan was financed by Coast.

Wood said the deal was a no-brainer because he would be getting a house for 10 percent less than its appraised value and would have no out-of-pocket expenses.

Rule 2: If the entity selling you the object, also appraises it, the appraisal is fraudulent.

"The builder pays all the closing costs and the interest through the draw period," Wood said.

"With the market going up, there was a built-in profit of 10 percent and the potential to make 15 to 25 percent more based on appreciation rates at that time. I could make as much $40,000 on the flip, and in the worst case I would have to hold the property for a while."

Rule 3: Greed kills!

CCI finally started work on his first home in summer 2006 and abruptly stopped in October.

"They have never touched a blade of grass in the second home," Wood said. "Two years out and $80,000 drawn against my credit, and all I've got is a lot that is worth $20,000 to $25,000."

Wood said he does not know whether he will hire a lawyer. He said he might be better off walking away from his obligation.

"I'm not going to convert $80,000 in credit into a lot worth $20,000," Wood said. "If I walk away, it won't help my credit. But I'm 35. My wife and I make a lot of money. We have liquid assets, and I know plenty of lenders willing to loan us money.

Rule 4: Know the law!

You're on the hook for the entire amount. The bankruptcy laws have changed.

Wood added that though CCI said it would pay all closing costs and interest payments for its customers during the construction phase, nothing actually came out of the company's coffers.

Closing costs and interest were paid from the loan itself, Wood said. The initial draw of around $50,000 from Coast was used to pay all the commissions to mortgage brokers, title agents and others associated with the closing.

Rule 5: Commissions kill!

How can you be out $50K at the start of the race, and still think you're getting a deal?

The truth is that these people have never seen $50K in their life; they've never had to actually save up $50K so they treat it like monopoly money.

But in the case of Wood's second home in North Port, CCI withdrew $80,000 from Coast and has not spent a penny on construction.

"The lot hasn't even been cleared yet," he said.

Congratulations, sucker!!! You've been left holding the bag.