ROBERT SIEGEL, host:
Now, a business proposal meant to make its investors a lot of money while also helping to solve the foreclosure crisis. If that feels a little unbelievable, thats because it is.
Mhari Saito, of WCPN in Cleveland, has the story.
MHARI SAITO: Nevada-based Mohawk Diversified's business motto was: Make lemons out of lemonade. In hindsight, it probably should have been the cautionary: If it sounds too good to be true, then it probably is. But we'll get to that later.
In the spring of 2008, Mohawk teamed up with another company, one out of Utah with the unlikely name Go Invest Wisely. The lemons they dealt with were foreclosed houses throughout the Midwest, and they bought them from banks by the hundreds.
The basic idea was to sell them twice: once to someone like Sidney Allen(ph) in Cleveland, who was willing to live in them on a rent-to-own basis.
Mr. SIDNEY ALLEN: Check it out - $500 down for a house is beautiful. And where are you going to get a two-story house for $470 a month?
SAITO: Allen's house, on Cleveland's west side, was a shell when he bought it from Go Invest Wisely and Mohawk. The pipes had been stripped, and he spent more than $10,000 to make it habitable. The agreement Allen signed said after 30 years of payments to the investor who owned his house, he'd get the deed.
Finding those investors was Mohawks and Go Invest Wisely's second order of business. To do that, they got some help.
Mr. MIKE LATHIGEE (Chairman/CEO, FIC Group of Companies): Welcome to Invest Fest 2008. How many people want to make a lot more money?
(Soundbite of cheering and applause)
SAITO: That's Mike Lathigee. He headed what he billed as North America's largest investment club, with more than 5,000 members. Lathigee hyped the foreclosure sales plan in five Canadian cities, at his seminars in the summer of 2008. People lined up to buy houses with tenants in them.
Mohawk and Go Invest Wisely's staff also made their sales pitch to attendees of other pricey investment conferences in California, Washington state and overseas.
Mr. T. HARV EKER (Millionaire Mind Intensive Program): Hi, this is T. Harv Eker. And I am so excited to be launching the world-famous Millionaire Mind Intensive Program in Asia.
SAITO: T. Harv Eker's trips to Singapore that summer drew hundreds of people, including IT manager Phillip Ang(ph). Mohawks representative told Ang and others that for $18,500 a house, an investor would actually get a house worth $45,000. Investors would then earn about $400 a month from the tenant, and in a couple of years when the housing market recovered, they could sell the house at a huge profit. Ang was among many to take the plunge.
Mr. PHILIP ANG: Right now, everybody's talking about the U.S. economy not being good. But to many of us, that's the best time to enter. And for myself, I took a unit. But I'm aware of people who signed up - as many as five units at one go.
SAITO: The companies sold more than 1,200 houses on those summer tours. But again, if it sounds too good to be true, it probably is. Ang and most investors never got title to their property. Go Invest Wisely and Mohawk discovered that many of the houses they bought were wrecks. Some were even condemned, and few people wanted to pay to live in them.
San Francisco attorney Perry Narancic represents investors suing the companies.
Mr. PERRY NARANCIC (Attorney): All these promises ended up being false, absolutely false. And to this day, my clients do not have clear and marketable title to any property - never mind actually any cash flow.
SAITO: All the companies that brought the deal to the public are now fighting over just who to blame. Presenter Mike Lathigee, who brought the companies on his Canadian seminars, says he's been inundated with complaints.
But he claims he's a victim, too. His company paid $1.4 million to Mohawk for 100 houses he says he never got.
Mr. MIKE LATHIGEE: I think these guys may feel that theyve been able to take the money, provide no goods or services that were promised. And our investors and our company - is left in a very bad position.
SAITO: Mohawk's attorney disputes Lathigee's claims, and says that two suits against his clients have already been dismissed. Mohawk's website has disappeared. Go Invest Wisely is selling off properties at a loss to anyone who'll take them.
This has left hundreds of tenants like Sidney Allen, who moved into the cheap houses, also realizing that the deal was too good to be true. Allen says the new company managing his contract told him theres no record of the payments hes already made. And now, he has to start over.
Mr. ALLEN: As it rode up, it's a great deal. But, you know, two years down the road, the guy takes your money and leaves - then, it's not doing you a bit of good.
SAITO: And then there are the empty houses that never had tenants - more than 300 in northeast Ohio, and hundreds more across the Midwest. Cleveland Law Director Robert Triozzi says most of these houses are crumbling, and the burden has shifted to taxpayers.
Triozzi says the problem is that there are other companies out there still pitching Midwestern foreclosures as a savvy investment.
Mr. ROBERT TRIOZZI (Director, Cleveland Law): Until such time as this flipping is slowed down and put to an end, this will just continue to be a challenge not only for Cleveland, but every municipality in the country where this kind of activity takes place.
SAITO: Cleveland has fined Go Invest Wisely and other foreclosure-investment companies millions of dollars, but concedes getting the money from them is highly unlikely. Attorneys in the Go Invest Wisely-Mohawk deal say the SEC has now launched an informal investigation.
For NPR News, I'm Mhari Saito in Cleveland.
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