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Built to Sue

Jeff Miller built flawed homes -- and his financing was a little too creative.


Jeff Miller has been fulfilling the American dream at an unusually rapid pace.

During the late 1990s, Miller's company, Miller Enterprises, regularly ranked as one of the metro area's busiest homebuilders. From 1997 to 1999, he secured 155 single-family residential building permits in Independence, 90 in Lee's Summit, 78 in Grandview and 28 in Overland Park. Each permit represented another family's finding $140,000 or $185,000 or $210,000 to give to Miller. His business tax returns show $19 million in revenue in 1999, more than $22 million in 1997 and about $17 million in 1996.

Many of his buyers know Miller only by reputation and by his effect on their lives. Few have had face-to-face meetings with the man.

Sheila Smith met him once at a neighbor's house. Miller, who Smith says knew her neighbor "socially," was standing in the living room when Smith stopped by one day.

While the neighbor was in the other room, the awkward silence caused the gregarious Smith to reach out. "Can I ask you a question? Who are you?"


"Jeff ...?"

"Jeff Miller."


Smith describes the forty-year-old as "almost like a mannequin." Manicured nails, thick brown hair carefully styled, teeth perfectly straight, wearing Timberlands that had never been near timber.

Miller, his wife and their three sons live in an ostentatious redbrick mansion at 186th and Metcalf in south Johnson County. The property, flanked by two ponds and guarded by a pair of terra-cotta Greek statues, is visible from Metcalf. The Johnson County assessor's office values the property at $1.5 million.

It's hard to imagine that Miller's home has any of the same flaws that trouble his buyers.

To build his empire, Miller partnered with Maplewood Real Estate and recruited attractive young salespeople of his own to show off his properties. They would walk prospective buyers around partially completed homes, with the drywall dust still hanging in the air. They would point to a vacant lot and paint an imaginary picture of a home there.

Miller was more than happy to sell dirt.

And in Miller's world, financing was "creative" or "special." Bankruptcy was "okay." That's where Miller's operation separated itself from the other large builders in town. Miller created a financial arm for his business, staffed with people who claimed to be able to get "anyone" financed.

Last August, Missouri Attorney General Jay Nixon sued Miller on behalf of 36 homeowners, asking Miller to stop. The attorney general's office alleged that Miller used bad building practices and bad materials, lied when he said the homes had been approved by city inspectors, bumped up prices at closing, promised refunds that never came, forged signatures on loan documents, lied about what the payments would be, and didn't fix what was broken.

Sheila and John Smith found Miller by chance. They were driving around a new Grandview neighborhood last spring when they saw a Maplewood Realty sign. They called the number and heard what they wanted to hear: A low down payment could get them into a brand-new home. The Maplewood folks could arrange for the financing even though the Smiths carried $12,000 in credit card debt.

They were making good money, John as a medical technician and Sheila as a service representative for Southwestern Bell. And they needed more room, badly. Though the couple had eight children between the ages of 21 months and twenty years, they were crammed into a south Kansas City townhome they owned.

"It sounded good," Sheila Smith says.

It looked good too. With its vaulted ceilings, giant master bedroom and dual vanity, the 2,300-square-foot home in the Kerrington Woods subdivision in Independence won their hearts.

After learning the home's price was $184,500, the Smiths met Maplewood Realty's John Owens on a Saturday in the parking lot of a McDonald's near Metcalf and I-435. They gave him a $9,500 cashier's check but didn't sign anything. Owens said he would take care of the paperwork on Monday.

They set a closing date for April 28. But as the date drew near, Owens called to delay. The agent offered to let the Smiths lease their new home for six months.

"I said, 'Heck, no, we're not in no big rush,'" Sheila Smith says. "We were trying to be cautious here, not get taken."

Though the family was crowded, the monthly payment on the Smiths' townhome was only $300. Another few weeks of coziness wouldn't hurt. Then Owens offered to let the Smiths move in before closing, as a favor. It was a favor that would come back to bite them at the closing three weeks later.

Even when everything is legitimate, closing on a new home is nerve-racking. Savvy real estate people deal forms like blackjack cards: disclosures, inspections, insurance, releases. Sign here and initial here and here. Hands fly through signatures, directed by sticky arrows.

At some point the answers to questions Miller's clients never asked -- or new answers to questions they did ask -- would be presented in black and white: Here is the final sale price. This is the amount of the first mortgage. This is the amount of the second mortgage. Here are your total monthly payments and the five-year balloon payment.

For the Smiths, each revelation was a surprise.

The sale price was $191,000 -- $6,500 more than what Owens had told them it would be. The new price was the result of an appraisal that relied partly on the sale price of another Miller-built home across the street. (The buyers of that home say their price was similarly ratcheted up at closing.)

The bad news kept coming. The Smiths' first loan, of $143,250, was an 11.7 percent adjustable-rate mortgage, with payments starting at $1,440.49 a month. That was within the $1,500 Owens had told them they would be paying. What Owens had not told them about, what he saved for last, was the second mortgage, of $38,152.25. It was to be loaned by Miller at 15 percent interest; monthly payments would be $483.02 until May 1, 2005, when the Smiths would have to pay the remaining balance of $38,194.08.

The Smiths were looking at nearly $2,000 a month in house payments.

They signed.

They already had given Miller $9,500. They already had moved into the house. And at Owens' insistence, they already had rented out the townhome where they'd been living. Owens told them a contract to lease the townhome was crucial for the couple to qualify for financing.

"It was sign or be homeless," Sheila Smith says. "We ended up signing, praying something good would come out of it, and we're still waiting on something good."

The something good should have been a big, beautiful new home on a wide, new cul-de-sac. Five-year-old Clinton Smith deems the new house "perfect" because of the friends he has made on the block.

But his parents know it to be otherwise. Sheila Smith's revelation came while she was watching television with her husband late one rainy night. Curled up in her bed, beneath the vaulted ceiling, she thought she noticed movement on the wall near the light switch. Maybe a shadow, she figured. But there it was again. It was growing, a bubble the size of a large potato, sprouting from her wall. Popped by her husband, the bubble splashed water to the floor, soaking the cream-colored carpet near the baseboard.

The home has myriad other problems, from peeling drywall tape to the second vanity that can't be used because it drips water inside the wall.

Smith says she's called Miller Enterprises many times but no one has ever responded.

A detailed picture of Miller Enterprises emerges through interviews with several former Miller employees, a document written by a Kansas City attorney who earned settlements for fifteen buyers of Miller homes and filings by the Missouri attorney general, the Kansas Bank Commissioner and the United States Department of Housing and Urban Development.

"Alex," one of several former Miller Enterprises employees who described Miller's operations to the Pitch under the condition of anonymity, says the atmosphere changed at the end of 1998. Until then, Gwen Stuart, Miller's mother-in-law, had run the office, keeping tabs on finances and making sure subcontractors got paid. Stuart had a low tolerance for funny business -- but she became ill and, toward the end of 1998, had to leave Miller to his own devices. She died on October 29, 1999.

"There was nothing bad about the company until Gwen died," Alex says.

Stuart's death took away the company conscience.

Public documents support Alex's assertion. In the ten years prior to 1999, Miller Enterprises' contractors and subcontractors filed only seven breach-of-contract, mechanics liens or other lawsuits against the company in Jackson County Circuit Court. In the past two years, 27 lawsuits have been filed.

The funny numbers and freewheeling sales were part of an office environment that celebrated a sort of lawlessness. Miller and his coworkers actually took on nicknames based on characters from the HBO drama "The Sopranos." Alex says Miller was family head Tony Soprano.

Thursday morning sales meetings were mirrored by Thursday night parties at the Peanut on 127. Attendance was nearly mandatory for those in Miller's inner circle.

Control was a key part of Miller's business plan. He was generous with his employees, buying cars for some and helping many buy Miller homes of their own. But as with his clients who were allowed to borrow more than they could afford, Miller's generosity toward his employees had a sinister side. They were unable to quit.

Alex quotes Miller's philosophy: "'Get people into as much debt to you as possible. They'll do whatever you say.' I didn't realize he was talking about me.... He could have asked me to do anything. I would have done it."

Alex managed to get out. But some employees aren't as fortunate. "He owns them. He owns them for life," Alex says.

Outside the office, Miller found his clientele by targeting people with credit problems. His agents ran classified ads designed to hook the right customers: "Buy a new home, creative financing available, 5-10% down, all qualify." Or "BUY NEW FROM BLDR Special financing, low dn, slow pay, bankruptcy ok." Or "non-qualifying owner finances, 1-5% dwn. Trade up for new! Work for dwn pymt."

His buyers had histories of credit card debt or messy divorces, or they lacked cash for down payments to secure conventional home loans. They didn't feel those problems should keep them from having giant, beautiful homes with three-car garages.

Focused on that goal, Miller's buyers weren't distracted by incidental numbers -- purchase prices, interest rates or phone numbers of past Miller buyers who could provide references. The only numbers that meant anything were square footage and how many bedrooms and bathrooms. The only word they wanted to hear was "yes." Yes, I can get you qualified for this house. Yes, you can afford it. Yes, we can paint the master bedroom Starlight white.

Each Thursday at 9 a.m., Miller's staff crowded into the small conference room in the office off Metcalf Avenue for bagels and doughnuts. Miller sat quietly while managers passed out the latest list of complete or nearly complete homes. The employees signed up to monitor the various subdivisions the next Sunday, passing out information sheets and answering questions. The houses remained unlocked and open.

"That way he didn't need real estate agents per se," says Alex. "[The buyers] would really let themselves in. They would show themselves around.... He started pushing that everyone should sell houses. There was no reason all of us couldn't sell."

No reason, except a little matter of a real-estate license. To get around the technicality, Miller's staff members -- everyone from receptionists to building project superintendents -- were labeled "sales support" or "marketing assistants."

The "sales support" people would swoop in when they were needed to set up sales and were paid 2 percent commission for their troubles, though they never signed anything. Miller signed all the contracts, but he rarely met the buyers.

"Pretty soon I was selling houses left and right," Alex says.

By "selling," Alex means steering buyers to brokers at Associated Capital, a company Miller partly owned. He had created the financial side of his operation in partnership with loan officer Jeff Broughton in June 1998. They named their brokerage company Associated Capital, while a second company, Associated Finance, serviced Miller's growing number of loans.

Miller directed the employees of Associated Capital to help would-be buyers borrow as much money as possible through mortgage companies mainly in California. When the buyers couldn't qualify for a home's entire purchase price and didn't have the cash for a down payment, Miller would extend credit for the difference in the form of a second mortgage. Miller says he now has about $4 million in promissory notes outstanding.

Too often, the buyers couldn't make the payments on their second mortgages, forcing Miller to pursue them in court. Jackson County court records show Miller sued about twenty people in both 1999 and 2000 because they had stopped making payments on their leases or promissory notes. In one case, Miller succeeded in getting his loan payment deducted from the buyer's wages.

Miller's first objective always was to get a home appraised for more than its purchase price, Alex says.

The allegation is echoed in a "settlement demand" written by Kansas City attorney Rick Holtsclaw. The document has never been used in court, and Holtsclaw will not discuss it. But it has helped Holtsclaw land settlements against Miller for fifteen of his sixteen clients, one of whom is a former Miller employee.

Holtsclaw writes in the settlement demand that Miller was in collusion with appraisers who would value homes at Miller's whim. Holtsclaw claims that Miller also arranged to have the first few houses in a subdivision sold to his own associates at elevated prices; those became the comparable sales that set the prices for the rest of the properties in the subdivision.

In Holtsclaw's example, a home valued at $150,000 is appraised at $180,000. With that appraisal, the buyer is able to borrow $150,000 (about 85 percent of the appraised value) to give to Miller. He then issues the buyer a second mortage to cover the rest of the $180,000. The trick allows Miller to get his money up front but strands the buyer with a second mortgage that is not backed by the property's value. Holtsclaw's document alleges other examples in which Miller fronted buyers their down payments in cash so they could show their banks that they had 15 percent down payments. The money later was returned to Miller.

Though he won't provide details, Kevin Glendening, Kansas' deputy commissioner of consumer and mortgage lending, acknowledges that Miller is suspected of falsifying values.

"At least in some of the transactions these inflated purchase prices ... were used to secure financing for those borrowers," Glendening says, adding that the practice hurts borrowers, who are unable to refinance or sell their homes for enough to pay off what they owe.

To make his buyers look better to lenders, Miller usually required a 5 percent down payment. But when the prospective buyers did not have even that, someone within Miller's operation would front them the money. Alex went to the bank a couple of times with the buyers, who deposited cash from Miller in their accounts, then purchased a cashier's check in that amount made out to Miller Enterprises. In those cases, the buyers could not claim ignorance of the fraud.

"Those people were aware of what was happening," Alex says.

And according to the Missouri attorney general's office:

· Miller built poor-quality homes, using inferior construction methods and bad building materials.

· He told buyers their new homes had been inspected and approved by city officials when they hadn't.

· He withheld loan documents and lied about the total amount of monthly payments until closing.

Miller played free and easy with other regulations as well, according to Holtsclaw's document and Alex's recollections. Miller regularly fudged loan applications to make prospective buyers look more financially healthy than they were. He created fraudulent twelve-month rental histories and forged certificates of occupancy.

Jim and Sandra Green say the reality of what was happening to them came at closing. (The husband and wife requested pseudonyms for this story because they were worried that speaking publicly would complicate their credit situation.) They didn't know the final sale price until then. Before that moment, they didn't know there would be a second mortgage, let alone a third.

"My heart's pounding. I'm thinking, 'Oh, my God,'" Jim remembers. "We asked [the agent] to leave so we could talk about what to do."

Like most of Miller's clients, the Greens had been drawn in by an advertisement, this one in the classified section of the June 6, 1999, Star right under "Homes -- Lee's Summit." It read: "1.5 to 2 stories. Builder finances guaranteed, 3 to 5 percent down. 1,200 a month and up."

A round of consumer credit counseling was in the Greens' recent past, and a brand-new baby made them a family of five, so the ad struck the right chord. They called Maplewood Real Estate, which gave them addresses in Lee's Summit and Independence. The garages would be open, someone in "sales support" told them -- just go on in.

A few days later, the couple sat down with agent Todd Earnshaw in the Maplewood Real Estate offices near 119th and Metcalf. He told them their credit card debts would be no problem. Earnshaw did not return the Pitch's phone calls to his office, which is now called Classic Realty.

"He was just talking nonstop. He had to go through his spiel a few times before we finally said okay," Sandra Green says. "He made it sound like, 'Yes, we can afford this.'"

The Greens say Earnshaw scribbled the number "$220,000" on a piece of paper, telling them that would be the appraised value of the home -- even though he told them the purchase price would be $187,000. Maplewood's promotional material put the value of the home at $191,900.

"In the back of our minds we were thinking, 'Something's fishy,'" Sandra says. Still, the Greens felt good enough about the situation to sell their old home and move into their new one before closing.

But the appraisal came in at $181,000, much lower than $220,000. The change was recorded in a contract amendment faxed to Jim, who took it as a good thing -- he would be paying $6,000 less for the house. Instead, Miller had an appraiser take another look, giving extra consideration to the walk-out basement and windows. At least that's what the Greens were told at closing when they saw the new price of the house: $193,000.

Earnshaw had with him a copy of a contract amendment he said the Greens had signed. And the Greens had signed it -- when it included only a change of closing dates. They had faxed it back to Earnshaw, keeping the page they had signed.

At closing, Earnshaw produced a copy of the page. Along with the change of closing date and signatures was a paragraph with an updated sale price of $193,000.

Jim says he called Earnshaw on the discrepancy but Earnshaw told him: "You can't have the house for $181,000. There's no way."

The Greens signed with the stipulation that the closing agent would wait a day before filing the sale. But an extra day did not change the Greens' predicament. "We're in the house," Sandra says. "We don't have anywhere else to go." They called to go through with the sale.

The Greens had signed three mortgages. Their payments total $2,149 a month.

"We knew we had been suckered. But what are we going to do now?" Jim says. "We had already grabbed our ankles."

The Greens' story is a variation on a theme.

Many of Miller's buyers moved into their new homes before closing. In some cases, they leased their houses from Miller until the closing date. In others, they simply moved in early and signed paperwork promising to close later. The chance to move in early seemed like a kind gesture on Miller's part -- an opportunity to get into a brand-new home before the paperwork was signed. But Miller's generosity had a downside. When closing day came around and they saw that they would be paying thousands of dollars more for their homes, the buyers already had paid the expense of moving. They had given up their rental houses or sold their old homes. They were stuck.

Like the Greens, Elaina Miller (no relation to Jeff) moved her family into a Miller home before closing. She says she and Myron Miller were newly married and ready for a home of their own, and they found one in Lee's Summit. When their landlord learned they were moving out, he was eager for them to leave. Jeff Miller offered to allow them to lease until closing. But at closing, the Millers were confronted with a $10,000 price increase. Elaina Miller says she was told it would be refunded. It hasn't been.

The Millers signed. The Smiths signed. So did the Greens.

That fact is used as defense by Miller's attorney, Kristie Orme, who says there was no company policy to change sales prices at the last minute.

"At closing, after full disclosure of the numbers, the homeowners sign the documents and close on the house," Orme tells the Pitch. "I think that speaks for itself."

It is easy to see why Miller's customers were so eager to move. The homes aren't prefab starter homes -- they're big and bright and contain the amenities modern families crave, such as open floor plans and giant master bathrooms. But it is a flawed beauty.

By supporting them financially, Miller allegedly was helping his buyers into substandard homes. Here too, the owners sing in chorus: Their walls aren't straight, their plumbing isn't plumb. A myriad of visible problems only hints at what might be lurking behind the wall or beneath the carpet.

Retta and Bob Miscannon ordered their Raymore home and watched it being built, visiting the job site each day. But their diligence earned them no quality assurance and few right angles. They have what the drywaller called "the bathroom from hell" because of its obtuse angles. The window in the master bedroom has a half-inch gap on one side. "The first sign of cold, I filled it up with cotton balls and left them there until spring," Retta Miscannon says. The living room wall bows out. "Once or twice a month I have to readjust my pictures. Everything kind of looks crooked and is crooked."

The physical problems can't be blamed directly on Miller -- it's been years since he wielded a hammer. No, the framing problems have to be blamed on Miller's subcontractors. They weren't the best, Alex says.

Miller was not the most dependable employer. Sometimes the subcontractors didn't get paid on time, Alex says. And in the tight labor market, quality subcontractors could be picky about their employers. More and more reputable contractors refused to do business with Miller's company. "Pretty soon they got to the bottom of the barrel," Alex says. "Miller is just glad to have somebody showing up."

Miller began buying poor-quality building materials as well. For example, normally a home builder will order more lumber than he needs for a job. As the home goes up, workers make an extra pile out of the boards that aren't quite straight or have too many knots. The lumber companies then come to pick up the rejects -- and that's the lumber Miller bought to build his homes, Alex says.

Even if buyers didn't notice problems right away, the flaws in Miller's homes eventually became apparent. So clients called his office. And called his office. And called his office. The response was slow. Or misdirected. Or nonexistent.

Karen Henry was frustrated and alone in her Lee's Summit home in January 1999, watching the drywall tape separate from the wall and seething over her treatment by Miller's minions. Then there was a knock at her door. It was a neighbor in her Princeton Heights subdivision. Was she having problems with her house? Was she frustrated with the response to her complaints? Was she interested in joining some of her neighbors in filing a complaint?

The neighbors called the Missouri attorney general's office and filed complaints en masse. They called the Department of Housing and Urban Development. And they waited for something to happen.

"We had put in our complaints with the state and with whatever other agencies," Henry says. "We just weren't getting the response we thought we should....We were living in the houses. Time drags on really slow under those circumstances."

The Missouri attorney general's office was first to investigate Miller, filing an injunction request in August. The suit demanded, in essence, that Miller quit breaking the law, that he pay $1,000 for each violation of the law and that he pay court costs.

The Kansas state bank commissioner followed suit the next month, alleging that Miller was making loans illegally in Kansas and asking the court to order Miller to get out of the mortgage business in Kansas.

The Department of Housing and Urban Development took its own action in December. HUD got involved because of suspicions that Miller was targeting blacks (but from all appearances Miller did not discriminate; he met few buyers face to face).

Despite the attention, Miller managed to keep himself out of the courtroom. He reached settlements with all three agencies and the buyers they represented.

In separate settlements with HUD and the attorney general, Miller agreed to correct the physical problems with the homes. The agreement requires Miller to hire independent inspectors to list the property deficiencies that can be blamed on construction flaws and to hire independent contractors to correct them. HUD, the attorney general and the homeowners will review Miller's choice of inspectors and contractors.

Having been burned once, however, Miller's buyers are a cautious lot. Henry is afraid to let anyone into her house or to sign anything. "We're not signing any more papers," she says. "I'm sorry."

Miller also agreed to restructure many of the second mortgages (he even forgave one for $29,445) and lower interest rates to 12 percent.

The Kansas state bank commissioner's settlement with Miller includes the interest-rate reduction and a $5,000 investigative fee. "We obtained a whole lot more than simply an order from the court telling him to stop," Glendening says. "For us that was good."

The settlement agreement with Miller does raise the specter of fraud: "Although not admitting or denying any violation of law, Defendants will not participate, directly or indirectly, in the acts of submitting to any potential or actual lender ... any documents reflecting an incorrect and/or inflated purchase price ... or an incorrect and/or inflated amount of a seller carryback mortgage."

The clause should not imply guilt, says Orme, Miller's attorney. "We essentially agreed with regard to finance issues. We won't submit documents with false purchase prices," Orme says. "I don't think you should read anything into that as far as an admission.... It's simply an assurance on Miller's part ... that we will abide by [the state's] regulations."

Investigations continue. The Missouri attorney general is looking at Associated Capital and Jeff Broughton regarding the financial aspects of the organization. Johnson County District Attorney Paul Morrison's office also is looking into possible criminal charges. Morrison says his office is investigating problems involving quality of work and "other complaints." Morrison would not say whether the other complaints included loan fraud.

Through his attorney, Miller argues that he wasn't making loans but that he was selling homes and accepting payment over time, charging interest for the delay. "He was simply extending credit on the sale of his own product," Orme says.

The practice fell into a gray area of Kansas law, one that Glendening's office was able to get Kansas lawmakers to clarify. Under the Kansas Mortgage Business Act, beginning November 1, 2001, anyone who regularly accepts second mortgages must be licensed with the state. The change in the law gives the state more oversight of builders. "Going forward, we will have a much stronger position to attack," Glendening says.

Though he declined requests for interviews, Miller did speak with the Pitch in a brief telephone discussion. Miller has been building houses for seventeen years, he said, and the recent troubles are the work of an overzealous group of troublemakers. "They've got, like, 36 people out of hundreds. I think that ratio is pretty good," Miller says.

But Karen Henry has no doubt there are more who simply won't come forward. She says the problems have resulted in a sort of code of silence among homeowners who now fear for their property values. "The neighbors don't talk to me. A lot of people are just under the impression that they could keep quiet about whatever is wrong with their houses and try to sell them."

Miller's buyers took financial beatings, but Miller got off easy. The Missouri attorney general fined him only $14,224 for investigative and legal costs. The Kansas bank commissioner will collect $5,000.

"Miller could write a check for $5,000 and go to lunch," Alex scoffs.

Others perceive the settlements as the proverbial "slap on the wrist." Henry calls them "hogwash."

Miller has scaled back his frenetic building pace. Though he continues to work on homes in Grandview and Lee's Summit, it has been months since he drew a new building permit. He has turned over a home development he started in Gardner, Kansas, to another builder.

But Miller still owns plenty of buildable lots. And nothing in the legal settlements would keep him from taking out a classified ad in Sunday's paper.

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