Not So Quick Fix
A Baltimore Couple Says a HUD Program Designed to Help New Homeowners Renovate May Cause Them to Lose Their Shirts
Like many people in their position, the Johnsons blame their contractor. But they also blame a popular federal program designed to help people renovate homes and the consultant vetted by the U.S. Department of Housing and Urban Development to guide the project, George R. Evans.
“He told us to call him ‘doctor,’” says Anna Johnson, whose husband bought 2209 Linden Ave. last November. “We’re novices, so we’re trusting the HUD inspector.”
Evans, a lecturer at Morgan State University’s Department of Industrial, Manufacturing, and Information Engineering, says he’s no longer involved in the matter. The contractor, Melvin Easley of Community Asset Builders LLC, claims he never got the $30,000 and wants even more money from the Johnsons for work he says he did on their house. He referred a reporter to his lawyer and threatened a lawsuit if the newspaper writes anything “negative.”
The Johnsons say they are considering a lawsuit against Easley and others.
The story begins in November 2004, when Eric Johnson bought the three-story rowhouse divided into three apartments. It was in rough shape, so Johnson, 35 and a first-time homebuyer, took out a combination mortgage and construction loan from National City Mortgage, which was backed by HUD. Under the HUD program, called a 203k mortgage, the house serves as collateral for a loan. The amount of the loan is based on the projected worth of the house after the renovations are completed—in the Johnsons’ case, they were eligible for up to $200,000. The money covers closing, carrying, and renovation costs and is loaned with the understanding that the structure’s rehab be completed in six months.
After prospective buyers find a house and apply for a 203k loan, an appraiser decides what the post-renovation value of the building will be, and that sets the maximum loan value. The buyers contract a HUD consultant—sometimes called an inspector—for their project and take bids from contractors. The winning contractor submits plans for the work and bid specifications, which are signed off on by the buyer, HUD consultant, and lender. As work on the home is completed, the HUD consultant, contractor, and buyer fill out forms called “draw requests,” certifying the work completed and specifying its cost to date. Each draw request goes to the bank, which then releases the funds to the contractor.
In the Johnson’s case, things were taken out of order. Against HUD’s rules, draws were made before the work was done. The Johnsons say they didn’t know they were doing anything wrong.
The Johnsons were approved to buy the house on Linden Avenue for $85,400, packaged with a rehab loan of $89,916 and an additional “contingency reserve” of $13,487. In a bid to prevent fraud, HUD requires borrowers to choose a consultant from a HUD-approved list. The Johnsons say they chose Evans at random, and he guided the project from there.
The first couple of contractors who looked at the job told the Johnsons it would cost more than $150,000 to make the house right. “That’s way out of our ball park,” Eric Johnson says. So the couple asked Evans for advice, and Evans suggested Melvin Easley, who bid about $90,000, plus the reserve, to convert the apartment house into a single-family home.
The house the Johnsons bought contained three apartments, and some of the tenants did not leave until police officers removed them for drug violations, the Johnsons say. That delayed work for several weeks. Easley began demolition on Dec. 12, 2004.
Easley promised to work quickly, the Johnsons say, but by mid-January Easley’s workers appear to have done nothing but fill the home’s living room with broken plaster and construction debris. The contractor had not worked on the house for several weeks, the Johnsons say.
The couple say they got suspicious when Evans presented them with a bill for $30,000—money they’d have to raise on their own because the house required repairs that were “beyond the scope of work” in Easley’s bid. Soon after that, the couple discovered that the two “draws” they had already approved for the work totaled not $13,000, as they say Evans told them they would, but $30,226.50.
Eric Johnson says he had unwittingly given Easley and Evans a blank check.
“The contractor, the inspector, and me were all supposed to sit down together to do the paperwork, so I could see what was being drawn,” Johnson says. “That’s not what happened.”
Instead, the Johnsons say, Evans came by with blank draw slips for Johnson’s signature. Johnson says he signed them without realizing that HUD’s rules require no money be disbursed until the work the money is paying for is done—Johnson’s signature certifies the work was completed to his satisfaction.
“This was the first time I ever bought a house, never mind a construction loan,” Johnson says.
Drawing money ahead of construction is not unusual in the 203k program, although “it’s illegal to do it, I’ll say that up front,” says Earnest Black, a HUD inspector not involved with the Johnsons’ house. “But a lot of people involved have no money.” Black served as the HUD inspector on another Reservoir Hill renovation that went awry, at the home of Vivian Lee Carpenter, who says she and her husband lost $47,000 to an unlicensed contractor (“Renovating Without a License,” Mobtown Beat, May 18). When things go wrong, HUD can “prosecute the consultant,” Black says, adding that usually the federal department merely takes the offending consultants off the list of HUD inspectors.
Among the money drawn for the Johnsons’ home so far, according to the draw slips Johnson signed: $2,100 for windows, $3,000 for “plaster/drywall,” $2,275 for plumbing, $4,100 for heating, $2,100 for “cabinetry,” and $1,000 under the category of “decorating.” The Johnsons say they don’t know who got that money—Easley, Evans, or someone else. They do know that they have received no furnace, cabinets, new windows, or decorating.
Eric Johnson fired Easley in frustration and contacted the bank to try to find out where the money went. The bank ignored Johnson’s letters, the Johnsons say, then froze the disbursements for the renovation. In June the bank sent a letter stating that the couple was in default of their loan because the renovation was not yet finished—this despite Johnson’s payment of his $1,500 mortgage every month. The couple claims that Easley changed the locks on the house in January and would not respond to calls and letters. They have a receipt from Pop-A-Lock that they say proves that they had to break into their own house to continue the renovation using a new contractor.
The Johnsons hired a structural engineer, Reuling Associates Inc., which visited in mid-January and noted rotten joists and rafters and “extensive, demolished construction debris that had not been removed from the house on the first and second floors,” according to Reuling’s report.
In a letter to National City Mortgage, titled “Project Status Report” and dated March 3, 2005, Evans wrote that Johnson ordered Easley to do much more to the building than the original plans called for, including modification of the floors and “removal of walls and ceiling structures.” According to Evans’ letter, “this sent the project removal costs out of control.”
In an interview, Evans blames Johnson for demanding too much work from the contractor (Johnson says he didn’t even get a “scope of work” list and blueprint for the project until a month after work was supposed to have started, when he got it from the bank). Evans says the Johnsons have no one to blame but themselves, and as evidence he points out that the couple has not been able to convince state or federal prosecutors or the Maryland Home Improvement Commission to step in.
“Eric Johnson tried to take the contractor everyplace,” Evans says. “Everyone turned him down because, once they found out the facts, there was an issue of credibility.”
Yet Evans’ own credibility appears to be questionable. Evans says he is “head of engineering research at Morgan State University,” although the school has no such position and Evans is, in fact, a part-time lecturer.
And Evans’ doctorate in engineering management is from Western States University for Professional Studies in Doniphan, Mo., an unaccredited correspondence school that holds no classes, proffers no tests, and grants degrees based on “life experience,” charging about $2,900 per degree. Evans also claims to have earned his master’s and bachelor’s degrees from that same institution. Evans did not return a reporter’s calls with follow-up questions about his academic credentials. His supervisor at Morgan State, S. Keith Hargrove, chair of Industrial, Manufacturing, and Information Engineering, responded to inquiries about Evans’ status and credentials with a terse e-mail that he requested the paper not quote.
Reached by telephone, Easley said repeatedly that the matter “is in litigation,” although no case had been filed as of press time.
“They done me a real dirty trick,” by signing the contract and firing him before he could complete the work, Easley says. He adds that the Johnsons’ allegation that he was paid $30,000 for a small amount of demolition work was “bullshit,” and claims to have lent the Johnsons money. (The Johnsons acknowledge borrowing $900 from Easley to pay part of a $3,400 construction-insurance premium.)
Harry L. Chase of the law firm Chase, Chase, and Hammerschlag says he was representing Easley, but was unfamiliar with the facts of the case. “Eric Johnson hired him. [Easley] did what he was supposed to do,” Chase says. “Then Eric Johnson changed his mind and fired him. That’s all I know.”
Chase claims that National City sent an inspector to the property who found that Easley had “done all he was supposed to do.” In fact, the inspector, John May of JEM Appraisal Services, wrote that “the only work that has been completed is some demo work,” and noted “trash and debris” in the house, according to a letter supplied by the Johnsons.
Easley and Chase promised to provide records to a reporter, but did not return subsequent phone calls.
As of Aug. 18, the Johnsons say their bank is beginning to respond to them more reasonably (a call to the bank’s counsel was not returned). They are living with relatives and raising money to renovate what they still think of as their dream home.
“I want this story to get out because there are a lot of people in this neighborhood who this happened to,” Anna Johnson says. “This can happen to any consumer that trusted a HUD inspector. The bank trusted this guy, we trusted this guy.”
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