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Feature

Where Credit is Due

Canton's Can-Do Mortgage Broker Goes For Broke--But is the Housing Boom Lowering On Him?

Frank Klein
View a slideshow of photos by Frank Klein.

By Edward Ericson Jr. | Posted 2/21/2007

There is no way the bank is going to throw David Esteppe out of his home. He's going to leave first. And, he says, he's taking the barely used, $1,549 stainless-steel range with him. And the refrigerator. And the rest of the appliances. "I have all the receipts for everything I purchased," Esteppe says on a sunny day in early January. "So those appliances are going, those cabinets."

Much of what Esteppe is leaving behind at 519 S. East Ave. doesn't work, he claims: the toilets ("I can put two pieces of toilet paper in there and it won't go down," he says), the lights under the kitchen cabinets. Small glitches in this otherwise beautifully rehabbed two-story rowhouse a block from the Creative Alliance at the Patterson have kept it from selling for the past eight months, he says.

That and the asking price, which started at $385,000 and dropped, twice, to $325,000.

"I need at least $410,000 to pay off the note," Esteppe says. (The lenders took the house back in the first week of February.)

Land records show that Esteppe bought the place for $205,000 and tacked on a $120,000 construction loan in the spring of 2005. But during several rounds of refinancing, he borrowed another $80,000 on top of that, and in the nearly two years since he bought it, his rehab remained unfinished, he contends. And so the house would not sell.

Potential financial ruin stings after a few years during which Esteppe, working for a commercial moving company and investing in real estate, says he earned quite a bit more than the average 34-year-old. "I had to sell my boat," Esteppe laments as he heads to work as a mortgage broker. It was a 30-foot Rinker cabin cruiser with twin V8s.

For his hard times, Esteppe blames two former buddies: his builder, Matt Riemer, and his mortgage broker, David Carey, who he contends conspired together to steal about $30,000 from him, setting off a cascade of financial setbacks that ultimately resulted in foreclosure.

Carey says that's balderdash. He says that Esteppe's house was "100 percent" finished when it was listed for sale in January 2006 and wonders how Esteppe managed to mortgage it for more than his asking price. Riemer did not respond to requests for comment, although the lawyer for both says Esteppe has no legitimate complaint--and actually owes Riemer's company money.

Carey, who recently pronounced himself "the biggest lender in Canton," has become well-known to residents and rehabbers in Southeast Baltimore over the past five years. His handsome face smiles from a billboard over O'Donnell Street, beckoning customers to his main business, the 6-year-old Equitable Trust Mortgage Co. As a lender, developer, and builder, Carey's banners have hung on homes from Brewers Hill to Butchers Hill. Riemer's name is less well-known, but his construction and property management company, Bayside Properties, has rehabbed more than 350 homes in the Canton-Fells Point area, according to its construction manager, Greg Morris. Many of those homes were, like Esteppe's, financed by Carey's companies.

Those hundreds of rehabs, sometimes adding huge third stories, elaborate decks, and long, tall rear additions to formerly modest rowhouses, have helped make Southeast Baltimore home to thousands of young professionals seeking the best of city life. They have also created jobs for tradespeople and a bonanza for investors looking to "flip" houses for unheard-of profits.

During the past decade, Carey has fashioned himself into Canton's biggest cheerleader, with such sales prowess that, last month, he quietly sold a hole in the ground for $325,000.

With ownership stakes in multiple finance companies, development firms, construction companies, and even a kitchen-cabinet retailer, Carey operates a vertically integrated luxury-home conglomerate rooted at the center of Canton's real estate hothouse. But as that house cools, Carey's tightly coiled business empire shows signs of wilting, and some observers wonder whether he can hold it together.

Others--Esteppe, for instance--wonder if Carey's one-stop home shop, combined with close ties to the real estate company where Carey's wife and business partner work, and to Bayside Properties, could create conflicts of interest. "`Keep it all in the circle.' That's what Matt [Riemer] said to me," Esteppe contends. "You keep it all in the circle."

Carey says Esteppe's allegations are baseless, and he admonishes a reporter not to focus on Esteppe, or the leaders of several neighborhood associations critical of Carey's work, or the $5.5 million lawsuit a former business partner has filed against him, alleging fraud. "I'm a fairly intense guy that has a lot of stuff going on," Carey says. Focus on the negative if you want, he adds, but "you'd be wasting your time."

Born 35 years ago to a union ironworker and stay-at-home mother, Carey grew up in Dundalk and graduated from Archbishop Curley High School. He attended Essex Community College but "never finished," he says, because he was too busy working.

At age 17, Carey signed on as a busboy at the then brand-new Bay Café, a cavernous red-brick hotspot overlooking the marina in Canton. Carey says he worked there from its opening in 1989 until 2001, when his lending and rehab businesses overtook his working hours. "I grew up there," Carey says. "I got my--what do you want to call it?--`worldly education' there."

"He's a street guy," Carey's lawyer, Anthony Palaigos, sums up. A street guy, to all appearances, made good. Today Carey resides with his wife and three young children in a custom-built, 5,400-square-foot brick colonial on 3.6 acres in Ellicott City. The pool is in its own house, which measures about 1,100 square feet and includes a fireplace, according to the Howard County tax assessor's office, which values the spread at $1.6 million.

"I don't know the exact square footage," Carey demurs during an interview in his Fells Point office. "It's not over the top."

Seen sometimes in a Hummer, other times in a Denali, still other times driving a 2004 Porsche, Carey also owns part of a three-car limousine service, C&C Limousines (he calls it a bad investment), which he says counts a Bentley in its fleet. (Records on file at the Maryland Public Service Commission, which regulates the company, do not list the Bentley.) But he declines to discuss his vehicles. His garage, he says, is full of "my kids' toys."

On a freezing January day, Carey, a strapping 6-footer with an open face and a barrel chest, is dressed in a beige summer-weight suit and a sharply pressed blue oxford shirt, open at the collar. He sits next to his lawyer in the narrow conference room of his renovated three-story office at 1609 Eastern Ave., cautiously answering questions. Palaigos changes his mind twice before consenting to a tape recorder's open microphone, and the session grinds haltingly until Palaigos leaves and Carey offers a tour of the office.

"I could have bought any building on this block," Carey says. "But I bought this one to show people what can be done" with this kind of narrow rowhouse. Carey is animated by the work of beautifying these aging houses; his demeanor lightens noticeably when the conversation turns to kitchen renovation and clever tricks for hiding ductwork. He offers a tour of several houses the following day--both to show off the quality of the work and to put to rest any questions about conflicts of interest.

"You meet them," he says of his customers and employees--two groups that overlap noticeably in Carey's business life. "Meet everyone and draw a conclusion from it."

 

The trick to peeling the Formstone off a house is to start from the bottom, Carey says, and get behind the concrete coating, which is stuck to a metal lathe that's screwed to the bricks. "I used a hatchet to do it," he recalls. "You get up behind it and you can sort of bend the section, and it will come off."

On a tour through Canton and Brewers Hill in his white Denali, Carey is talking about his first project. It was a $24,000 rowhouse he'd bought at auction on the advice of David Naumann, his boss at the Bay Café and his mentor. Carey went home and told his parents about his investment. "Dad liked it, Mom cried," Carey says, but they co-signed his first loan. The address was 839 S. Kenwood Ave.; for six months in 1994, Carey worked on it every day while waiting tables and serving as a bar back by night at the Bay Café.

Though land records show Carey borrowed a total of $73,000 from 1st Preference Mortgage Co. with no co-signers, Carey remembers borrowing from John Alascio, another mentor and former Baltimore bar owner with whom he still partners. "That's where I got the idea for private financing," he says, explaining that as a young man he gamely visited several banks, hoping to win them over with his work ethic and sterling personality. When the bankers smiled and turned him down, Carey got the idea in his head to, someday, become a better sort of lender--less rigid, more helpful--like the older guys he looked up to at the Bay Café.

Indeed, all Carey's roads seem to lead back to the Bay Café. It's where Carey met his wife, Theresa Suliga-Carey, then working as a hostess, in the early 1990s. It's where he got his start in real estate. And Bay Café proprietor Naumann remains to this day a business partner. (Reached on his cell phone while vacationing in Florida, Naumann declines to be interviewed.)

Most important, the Bay Café has nurtured kindred spirits to help Carey revitalize Canton. Two of the three homeowners Carey introduces to a reporter have ties to the Bay Café, including Devon Gallagher, who like Carey worked there part-time before becoming a mortgage loan officer himself.

In a phone conversation before a meeting with a reporter, Gallagher says he knew Carey "long before I did business with him--five or six years now." Asked to relate the best thing he's ever seen Carey do, he answers immediately: "Complete my house. He acted as my finance, he acted as my designer, he acted as my contractor, and as a friend in the whole process. I had not rehabbed a house before."

Carey's guidance was no trifling matter, because Gallagher's rehab--like many in Baltimore--was complicated by complex regulations and neighborhood politics.

Gallagher lives on the 700 block of Grundy Street, a quiet enclave backed to the Haven Street industrial zone. Known to generations as part of Highlandtown, residents of this street now often identify with Brewers Hill. Lately, the area has become a battleground between established residents and would-be developers--especially Carey, who has lent to many in the neighborhood, and with Naumann, owns or controls at least four houses on the 600 and 700 blocks of Grundy.

"The neighbors here, they hate people trying to come in here and change the front of the houses," Gallagher explains. "Brewers Hill fights at zoning [board hearings]. I spent six months--I got completely shot down."

Denied their request to build a 16-foot two-story addition on the back of the house (even after they amended it to nine feet), Carey and Gallagher changed plans on the fly. During a tour of Gallagher's Grundy Street property, Carey proudly shows off some of the ingenious work-arounds he devised to make up for the missing space. The master bath, for example, has the requisite shower and a separate claw-foot tub, but the tub is filled via a spigot in the ceiling. Carey says routing the plumbing through the ceiling saved enough space to make the tub-shower combo feasible, and Gallagher was impressed by the result. "He would come up with ideas in the middle of construction and just make it work," Gallagher says. "He was fluid."

"Devon, how much did I charge you for the design and consulting work here in this house?" Carey asks Gallagher.

"I think it was, like, zero dollars," he replies.

Carey walks through the rest of the house pointing out each luxurious detail and its retail price, then--ka-ching--announcing the much lower price Gallagher paid on account of his association with Carey. He pronounces the result "a Rolex house on a Timex budget."

Gallagher estimates he spent about $135,000 plus interest to accomplish his rehab. Land records show he bought the place in February 2003 for $103,000, borrowing nearly 100 percent of the purchase price from Carey's Equitable Trust. In August 2005, Gallagher took out a construction loan from Regal Bank and Trust totaling $271,214 and paid back the first loan. Last July, he refinanced into a 30-year adjustable rate mortgage through Equitable Trust at $280,000. That means his rehab cost him $177,000, assuming he didn't throw in any cash on top of his loans.

Carey estimates the home is now worth "between $359,000 and $379,000"--or almost $100,000 more than Gallagher owes--although Carey hastens to add: "I wouldn't advise him to sell in this market."

 

The big reason Gallagher did not get his addition, and why maybe nobody will get one on Grundy Street any time soon, stands on the corner of Grundy and Fait Avenue.

Festooned by a Carey for sale banner, walling off the south end of the block, 739 Grundy is nearly twice as big as its neighbors. It casts a shadow over three backyards as it sits, empty, awaiting a buyer now for nearly a year.

"Actually--there's a friend of mine living there for a month," says Anthony J. Comegna, a Sparrows Point welder who bought the home in 2004 for $150,000 when it was still the size of most houses on the block. He says with the rehab and addition he's invested a total of $400,000 in the house--including a $261,000 loan from Carey's Equitable Trust Mortgage.

But although neighbors consider 739 a David Carey production, Comegna says Carey was just the lender. He blames the city for the debacle.

"Everything was OK with the city," Comegna says in a phone conversation from his Baltimore County kitchen. "Then the neighbors went in and complained. . . . Then they sent in inspectors, [who] said it is too big, and I had to go in for a new hearing."

The process dragged for more than a year and a half, Comegna says, first costing him interest payments and then causing him to lose the government-backed rehab loan that Carey had gotten him. "Then I was in a real jackpot," Comegna says.

Comegna says he turned to private loans (unrelated to Carey's companies) and ran up his credit cards to finish his house. "I'm still paying credit card bills," he says. "If I didn't have friends and family, I wouldn't have got it done."

Comegna says he built the 30-by-15-foot three-level rear addition because he had planned to settle there with his family. But then his wife had a baby, so they decided to move to the county. Awaiting a buyer now for 11 months, told by his real estate agent (Carey's wife, Theresa) that his house is worth less because of the neighborhood opposition to big additions, Comegna pays his mortgage (currently $286,000, refinanced through Equitable Trust in December 2005) each month and sums up his position in two words: "It sucks."

Neighbors say Comegna's house sucks and they're afraid Carey wants to build more just like it.

"We are for development," says Karen Lenkey, president of Neighbors of Brewers Hill. "But the kind of development that David Carey has undertaken is not exactly appreciated."

Adds Mary Lou Hennigan, president of the Brewers Hill Community Association (yes, there are two separate neighborhood associations in this four-by-four-block neighborhood): "I think he's someone who thinks he can get his way all the time."

Carey says his critics are ill-informed and shortsighted. "The major obstacles are just naysayers who I believe do not understand the full picture," he says, suggesting that his critics consider Canton's explosive economic growth in this decade and the resulting growth in the city's tax base. He says they should ask themselves "if the positive growth outweighs the negative discomfort that's generated."

With stable young buyers like Gallagher in the offing, Carey is certain that it does. He says neighbors who prevent small additions like the one Gallagher originally planned are consigning their neighborhoods to irrelevance as young people start families and move up to the bigger houses they'll need.

"I'm almost 30 years old," Gallagher says. "In five years I'll probably be married with a kid, and then I'll have to move back to the county."

 

Todd Helm moved the other way, and he got his dream home because of David Carey--well, actually, more than his dream home.

Living in Churchville, some 40 miles northeast of Baltimore, and commuting to his work at a commercial printer in Rosedale, Helm nonetheless became a regular at the Bay Café, where Carey recruited him into the Canton renaissance.

"I had to twist and pull to get him into Canton," Carey says, laughing. "His mother didn't want him to move to Baltimore."

Helm, an impish man with a wide smile, says he finally relented and bought 3112 Fait Ave. for $105,000, turning to his friend Carey for the rehab and financing. The two disagreed on the level of luxury. "He's telling me what he's going to do, and I'm saying, `How much is this gonna cost?'" Helm says, chiding his own shortsightedness.

Over Helm's misgivings, Carey got a zoning variance to add a room to the back of the house. "I said, `Todd, if I put the kitchen on and you don't like it, I'll give you the money back,'" Carey recalls. He went on to install tumbled marble tile in the baths, hardwood floors, granite counters, and even granite kicks beneath the cabinets--leftover pieces from the granite tile around the gas fireplace.

When the house was finished a couple of years ago, Helm took on a border in the basement. Soon that man, David Poe, asked Carey to help him build a house like Helm's. Poe bought 621 S. Curley St. from Carey for about $400,000, according to Carey, who says he himself almost certainly lost money on the deal (the house is currently valued, for tax purposes at $156,720). "But Dave's a great referral service," Carey says of Poe. "I want to bring people in here."

Helm also sends Carey business. "How many referrals did I get? I can't even count how many I got from Todd," Carey says. "Todd, how much did I charge you in contract fees for helping you out?"

Helm: "Nothing."

Carey: "Did you find my advice to be a conflict?"

Helm: "It was easy. Anywhere you sent me they all knew you."

Carey's pitch extends beyond the prospect of a trouble-free new house to live in. He recalls trying to recruit Helm a few years ago at the Bay Café. "I was saying, Todd, move to Canton," Carey says. "Not only can you live large, but it's an investment."

Helm has taken that advice to heart. Land records indicate that Helm owns two other residences in Southeast Baltimore, both of them, like the Fait house, listed as his "primary residence" in state tax records. Last May, he bought 342 Imla St. from his mother for $100,000, and then borrowed $108,000 from Equitable Trust at 7.625 percent. Last August, he paid $243,000 for a condominium on Boston Street, borrowing from two other lenders a bit more than the full purchase price.

The close ties among friends and clients is a point of pride for Carey, who says he considers "my contacts" his proudest business achievement.

What remains unclear today is whether this network of young go-getters can absorb all of the properties Carey has some kind of hand in--and at the ever-spiraling prices they've recently commanded within his circle.

Claire Corcoran, a Southeast resident and small investor, says she has heard of several "friendly foreclosures" of Carey-connected properties--so called because an investor with no equity simply hands the keys back to the lender. "I have a friend who did that," she says, declining to name him. "[Carey] paid $200,000 for a shell on the 500 block of [South Decker Avenue]. And the owners just handed the keys back to him, and there's no way--no way--he could get 200 for that shell now. Maybe 160."

Corcoran says she has heard of other givebacks in recent months. "He was flying high," she says of Carey. "But he also was making all these risky loans right at the top of the market."

One such giveback appears to have happened the day of Carey's first meeting with a reporter, and the house involved, 1016 S. Ellwood Ave., illustrates many of the issues Carey faces as a one-stop redevelopment shop with many corporate names.

 

"You don't know who you're dealing with, actually," says Mary Griffin, who lives at 1014 S. Ellwood Ave., next door to the sunken concrete vault that used to be a two-story rowhouse where a friend of hers once resided. "The people I get the letters from were different from the people who bought it."

The people who bought it were a young couple, engaged to be married, named David Daniecki and Jodie Howell. The pair planned to rehab and expand the house and move in this year, they say--but they left all the details up to David Carey, who strengthened the foundation but razed the building.

Griffin's correspondents were Lisa Junker, who is often seen proffering drawings by Mike Coster of b4 Design, an old Bay Café associate of Carey's, at the Baltimore City Board of Municipal and Zoning Appeals, and John Elder, the former city-employed engineer whose long criminal record and links to multiple building collapses were examined in City Paper last year ("Collapse," Feature, Aug. 2, 2006). Elder oversaw the basement underpinning at 1016 Ellwood. Carey's signature appears on a "minor privilege" application to install five "Oriole Bay Windows" in the house, but Griffin says she never spoke to Carey.

By December, Carey's workers had demolished the entire structure, leaving holes in Griffin's house that nearly doubled her BGE bill, she says ("Collapse," Mobtown Beat, Dec. 20, 2006). Although Peter Piunti, proprietor of Rocco's Roll-Off, presented himself to Griffin as the job's foreman, Carey's partner and construction manager, Mark Hendricks of 3d Concepts LLC, tells City Paper that he is to blame for not pulling all of the proper permits. Since then, Carey's workers have sealed the holes in Griffin's home.

Griffin remembers how the workers dug out the basement and poured concrete last summer. "They were mixing cement"--she pronounces it "SEE-ment"--"on my pavement. It was just going all over," the 40-year resident and 20-year school crossing guard says, eyes twinkling. "You know a big company that has the money to buy that building and do all that, they should have enough to buy one of those plastic [cement-mixing] tubs."

Daniecki and Howell bought the house for $240,000 last April. Daniecki says he took out a $73,750 home-equity loan on his Mount Washington condo to help pay for the rehab. The couple also took out a loan from Regal Bank and Trust, brokered by Carey, totaling $499,725 to cover the purchase and construction. "We're looking at $600,000" in total investment, Daniecki said in December when first contacted by City Paper.

The plan was to add a third story to the house, dig out the basement, even install an elevator. But strangely for a man so heavily invested, Daniecki could not in December recall the name of the general contractor for his rehab.

"I don't know. Dave Carey Construction?" Daniecki guessed. He allowed that it could also be Bayside Properties. "His work is very good," Daniecki said of Carey. "I was very impressed by what he did on Curley Street."

In December, Daniecki summed up his Carey home-buying experience thus: "I just bought it. This is the first time I've done anything like this. I just kind of trusted him."

But Daniecki's plans changed, so by the time Carey's crew had carted away the broken chunks of the house, Daniecki was transferring the remaining hole in the ground--for about $325,000--to one William E. Curran.

"The guy I'm selling to, I kind of know him. He works with Dave Carey," Daniecki said in December. "He's been making payments for the last couple of months. I've been trying to settle it for a month."

Daniecki says the property was not listed by a real estate agent; he just asked Carey to take it back or find a buyer to pay him the amount he had spent so far. And although Daniecki had hopes for "getting out even," he says that he ended up losing between $4,000 and $5,000 in transaction fees. Daniecki says he had plans to buy a different, smaller house from Carey instead of the 1016 S. Ellwood project. But that deal fell through, he says, because the house in question "is not done" and Carey stopped returning his phone calls.

"Never again with these guys," Daniecki says amiably when reached on Jan. 25, the day after he closed the sale on 1016 S. Ellwood. "Dave's a good guy and he does awesome work, but . . . Dave has a lot going on--I don't know the half of it."

Carey says Daniecki "never gave [the house] back, but he was being forced to sell it." He adds that the $325,000 selling price for a concrete foundation is not as crazy as it might seem, since the architectural plans are complete and permitting is done, making the raw-looking 16-by-40-foot hole substantially more valuable than the lived-in house that used to stand there. "A normal person riding by might say, `What the hell is he buying?'" Carey says. "But there's a lot of things out of the way."

On Jan. 22, the city charged Daniecki and Howell with building-code violations for demolishing one wall without a permit and failing to register the house with the city's Department of Housing and Community Development, as is required for non-owner-occupied residences. The two have a court date on Feb. 28, and they say they're bewildered by this turn of events.

"The reason I went with Dave is because he's done this [kind of extensive rehab] 200 times, and I just wanted a nice house," Daniecki says. "I don't know about permits, and where to get them, and when to get them, or how to get them or any of that."

"I didn't know it was going to be torn down," Howell says. "I thought it was just going to be redone."

The new owner of the concrete hole at 1016 S. Ellwood Ave., William E. Curran III, says he bought the property because of its size and location--just two blocks north of Boston Street. "This is a house that's gonna be my primary residence," Curran says. "But even from an investment standpoint, I think it makes sense. I plan on putting $300,000 in it, to rehab . . . [and] I think it will appraise for $800,000 when it's done."

This will be Curran's third house financed through Carey, but perhaps that loyalty is to be expected: Curran, 29, is not only Carey's cousin but also his business partner (he owns part of Canton Kitchens).

Curran says Carey is "one of, if not the, hardest-working person I know. He's self-made and he works his butt off to get things done."

 

Not everything in Carey's circle is so cozy or so amiable. The former president of Carey's Equitable Trust Mortgage Corp., Brendan Kluge, filed suit on Jan. 25, 2006, in Baltimore County Circuit Court, claiming that Carey and two other partners--William Scott Lucas and Richard H. Sapp--cut him out of the business while they ran Equitable Trust like a personal piggy bank. Kluge's lawsuit claims he can prove this if only Carey, Lucas, and Sapp will release to him Equitable Trust's financial records, which he has a right to see as 25 percent owner of the company. He also demands to see the financial records of what he says are "related companies." These companies--Equitable Trust LLC, ETM LLC, and 1st Equitable Funding LLC--are "alter egos" of Sapp, Lucas, and/or Carey, Kluge's suit contends. (Carey says 1st Equitable Funding is himself and Alascio.) Kluge wants the judge to liquidate Equitable Trust and give him at least $1.5 million in compensatory damages, plus $4 million in punitive damages.

In its response and counterclaim, Equitable Trust says it has given Kluge all the records he's entitled to, and more.

Reached on Jan. 24 at his office at the Kluge Group, a home builder/auctioneer/real estate investment adviser in Bel Air, Kluge declines to comment on any aspect of the suit or his current business. "My attorney has advised me not to say anything," he says. "As much as I would like to, I can't."

The lawyer, Gerald Walsh, is keeping mum also, as are the lawyers for Equitable Trust Mortgage, Robert B. Scarlett and Andrew M. Croll.

Sitting on his couch last November, David Esteppe pages through his loan documents with the impatient obsession of the truly screwed: "They told me, `Don't worry about this, don't worry about this, don't worry about this and this and this!'" He shows the loan documents from 1st Equitable Funding LLC with a variable interest rate of 11.5 percent. Esteppe also paid $9,750 up front, even though the loan was due in full in 12 months. Carey's company deducted an additional $2,750 or so for other loan fees, and in no time Esteppe's rehab escrow was reduced to about $107,000 even as he paid $3,114.58 each month in interest alone. "They said I was getting $120,000 to fix the house on the settlement sheet," Esteppe says. But he did not receive $120,000 to do his rehab.

"That's illegal," Esteppe says, and he may be right. But he may be wrong.

Last April, after Palaigos sent Esteppe a bill from Bayside Properties demanding $12,146, Esteppe hired a lawyer and sent a complaint to the Maryland Department of Labor, Licensing, and Regulation's Division of Financial Regulation. Esteppe claimed that Carey and Riemer "planned among themselves a course of conduct which is dishonest," and "arranged to pay themselves over $27,000 from the Rehab Escrow and force me to pay much more than the amount of the estimate for the rehabilitation of my residence."

Bayside Properties had taken $15,000 more out of Esteppe's construction loan up front as a "general contractor fee," according to Esteppe, then let the project languish for months while Esteppe struggled to pay the interest on his loan. (Bayside owner Matt Riemer hung up his cell phone when a reporter called for comment on this story.)

Two lawyers and two other outside home-lending experts who reviewed Esteppe's loan documents for City Paper contended that 1st Equitable appeared to violate the federal Real Estate Settlement Procedures Act (RESPA)--the alpha and omega of mortgage-loan law--by failing to list all charges on the settlement sheet.

The experts agree that Esteppe may have a legal case if his was an ordinary mortgage. But his loan documents say his is a "commercial loan." Indeed, the state rejected Esteppe's complaint, saying that it does not police commercial loans.

And there's the rub. Unlike the low-income single mothers typically victimized by "flipping" fraudsters in the past decades, Esteppe was engaged in his fourth investment-property deal since 1999, and thus might be considered more a player than a victim. His ties to the tight circle orbiting Carey were, until recently, very close.

Esteppe served as best man at Riemer's wedding. And that 30-foot powerboat Esteppe had to sell off? Esteppe and a partner bought that from Riemer, too, paying $30,000, both men say. And Esteppe bought the East Avenue house for $205,000 from Riemer's father-in-law, William M. Fiorito, who had paid $50,000 less for the house six months before, according to land records. (Fiorito did not return phone calls for this story.) Fiorito was a David Carey loan customer, too, and Esteppe's loan documents indicate that Fiorito made less on the sale than Carey's company collected on his loan.

"Well, I'll give you my opinion--RESPA's not applicable. It's a commercial loan," says Palaigos, who represents both Carey's 1st Equitable Funding LLC and Bayside Properties.

Indeed, the tax record of the East Avenue home indicates that it was not Esteppe's "primary residence."

"In Maryland, if something is commercial, you're screwed," says Andre Weitzman, who litigated a number of Baltimore property-flipping cases in the late 1990s and examined Esteppe's loan documents for City Paper. He allows that Esteppe's loan "may not be a commercial loan" if Esteppe actually resided in the house.

"I lived here, all my things were here, and I was here whenever I wasn't at work," Esteppe says. He is shopping his grievances to lawyers and says he has also contacted federal authorities about what he regards as a scam.

Carey has no patience for that: "The exact same loan had rendered him large sums of money on other pieces of real estate structured the same way."

In fact, Esteppe's first loan from Carey was handled through Carey's former employer, 1st Preference Mortgage Corp. That loan, to rehab a house on South Decker Street, was made through a federal program known by its HUD code: 203(k). It's the kind of loan Carey secured for Anthony Comegna.

HUD 203(k) loans allow even a first-timer to buy an ugly house and borrow both the purchase price and the money to rehab it, backed up by federal dollars. With little or no money out of pocket, a commercial 203k lender will hand over as much as 110 percent of a home's estimated value--after the rehab. So important was the 203k program to Carey's business model that he retains the e-mail address canton203k@aol.com. He says his companies make far fewer 203k loans these days because the city has used up its quota.

But the program, while a godsend for some young and less affluent homeowners, has also been mired in scandal as rings of sharp operators looted the program for tens of millions of dollars. HUD has changed its oversight, but improvements have been slow in coming ("Not So Quick Fix," Mobtown Beat, Aug. 24, 2005; "Oversight, Out of Mind," Mobtown Beat, Nov. 9, 2005).

After his HUD loan from 1st Preference his first time out, Esteppe went back to Carey three more times, borrowing from Equitable Trust twice and then 1st Equitable. He says that until his final deal went bad he didn't see any difference in the shifting loan products or corporate names. "I was doing what I was pretty much told," he says of his house-flipping experiences.

He says Carey even helped him with tax forms--a crucial check to see if the borrower has enough income to pay off a loan without selling the house. With Carey's help, Esteppe says, "somehow my W-2 always looked [like I made] more than I was actually making."

 

In his office, with attorney Palaigos by his side, Carey distances himself from Bayside Properties, saying that while he and Riemer are friends, and that Riemer has done a lot of work for him, he has no control of or influence on Bayside. Carey even tries to distance himself from the 1016 S. Ellwood project, asserting that he does not recall signing a request for a minor zoning change. At one point Carey starts to describe his loan customers as unqualified, but on Palaigos' advice amends it.

"A lot of borrowers that come and do private finance are not credit-or asset-worthy to go and put 20 percent down, or get a more aggressive rate," Carey explains. "And, therefore, I look at, you know, I meet the person, I look at their budget, I take a look at the property, and if I believe they can make money, I do it--at a very high risk to myself. . . . All of this money that I lend privately, a certain portion of it has to be put up by me, and the rest personally guaranteed by me."

Carey is talking about 1st Equitable Funding, the company that Esteppe says tripped him up. But Carey insists that his own wealth ultimately undergirds loans like the one he made to Esteppe. "Here you have an investor that has nothing in, that can walk away," Carey says. "I'm the one that's 100 percent personally at risk for it."

Palaigos takes pains to separate the various businesses through which Carey operates. Equitable Trust Mortgage Co., which makes mortgage loans, is "totally separate" from 1st Equitable Funding, which makes construction loans. D. Carey Construction Management and D. Carey Development, both LLCs, are separate businesses. Mike Coster's b4 Design--often the source of sometimes inaccurate drawings presented to the city Board of Municipal and Zoning Appeals--has "nothing to do" with David Carey, although Carey says at age 17 he worked on Coster's investment properties. Canton Kitchens, which Carey co-owns, sells fine kitchen cabinets to anyone for the same price.

Palaigos dismisses questions about possible conflicts of interest among Bayside Properties, Carey's companies, and Raimondi Realtors, where Carey's wife, Theresa, and occasional business partner David Naumann work with Coster. "If such a conflict of interest would exist, I would advise [Carey] to disclose it to all parties concerned of the affiliation, and then the parties can do what they want to," Palaigos says. "[But] I don't believe it does" exist.

Later, while touring various properties away from his lawyer, Carey describes the sudden influx of deals that began in a torrent around 2000, some six years into his real estate career. "Everything was informal," he says. "I always viewed myself as a guy out trying to hustle." As he maneuvers his big SUV through his Southeast Baltimore domain, Carey adds, "I started all these [corporate] entities to do it better than everyone else."

After 13 years of hustle, though, Carey's empire may not be as large, or flush, as it appears. Although Carey says he is a millionaire, all the properties City Paper was able to trace to Carey are mortgaged heavily, and even Carey's Ellicott City home--the one with the pool house on three-plus acres--carries more than $1.7 million in debt. Property records show that in November Carey refinanced the house through a New Jersey company called First Financial Equities. He took out a $1.4 million adjustable-rate mortgage plus a $350,000 line of credit. On the day before that he had owed $750,000.

Carey says he borrowed the money against his house--and hundreds of thousands more against his $600,000 Ocean City condo--to fund his private-lending business.

"I buy and sell in the same market [my customers] buy and sell in," Carey says. "A lot of people think I just drive around and got the world by the short and curlies . . . but from a private-funding standpoint, I have a lot of exposure."

On a blustery late January morning, Carey parks the Denali in the paved lot at the Bay Café and gets out. The summer crowds are gone, the famous bayside deck is desolate. He gamely poses for a photograph on the deck where he used to tend bar and walks back to his leather-appointed truck, remembering the old days.

"I used to ride my bike to work and ride my bike home," Carey says. "I didn't know it at the time, but I had the life then."

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