Herald News (Passaic County, NJ)
July 8, 2007 Sunday

Worked over;
Shoddy repairs, financing deals raise concern;
Naive, hard-pressed suffer the most

By Heather Haddon


For roughly a decade, three men running home improvement and financing companies allegedly defrauded dozens of North Jersey homeowners who could least afford the financial hardship.

Companies associated with the three men canvassed low-income neighborhoods for homes in need of work. They pitched "affordable" repairs but did shoddy work, and saddled homeowners with mortgages at unaffordable, double-digit interest rates.

In at least one instance, after some angry homeowners filed suit, one company stopped doing work and another started up.
The men kept doing business.

"I just paid off everything. I didn't want to deal with it anymore," said Arnett Fraser, a hospital worker from Paterson who got a high-interest loan and poorly renovated kitchen from one of the companies. He eventually refinanced with another bank.

At best, homeowners like Fraser absorbed the financial burden and moved on. At worst, some former clients had to sell their home or lose it to foreclosure.

And local authorities have yet to prosecute the men who operated out of two Belleville offices. Two of them still allegedly work in home improvement and financing today.

First D&M, then Monet
During a 12-year period, Demetris Michalaki, John Michael, and Lazaros Charalambous - alone or together - started at least three building companies, two lending firms, a titling agency, a real estate company and an appraisal firm, all connected to 383 and 544 Washington Ave. in Belleville, according to state incorporation records.

The chain of companies began in 1995, when Michalaki and his wife, Margherita, incorporated D&M Financial Corp. They bought 383 Washington Ave., a large, two-story building on Belleville's main commercial strip, to house the mortgage company, and a smaller office six blocks north at 544 Washington Ave.

A year later, Michael, who is listed as Yiannakis Michael on the state incorporation papers, established Monet Builders. The company was housed at 234 Franklin Ave. in Nutley, but Michael listed his personal address as 544 Washington Ave. - the same Belleville business office owned by Michalaki.

Monet Builders provided home-improvement services such as remodeling, driveway repair and boiler replacement. It found its clients - primarily low-income homeowners - by soliciting those with a visible need for repair. Their representatives promised affordable work and easy access to financing, through Michalakis' D&M Financial.

The homeowners they solicited often had limited income or poor credit. They would struggle to pay outright or qualify for a traditional loan.

Monet Builders found plenty of profitable work for their company and D&M Financial. From 1996 to 2000, its contractors worked on at least 33 homes, nearly all of them in Passaic County, federal mortgage records show. Monet Builders charged homeowners thousands of dollars, which was mostly financed through D&M. D&M's loans came with interest rates at 16 percent - nearly double the average loan rate at the time.

Today, few of the clients remain in their homes. At least three homeowners entered foreclosure, according to mortgage records.

In 1999, Dianne Thomas hired Monet Builders to fix and repaint her windows after a representative knocked on the door of her Paterson home and promised affordable work. She was told the job would cost about $10,000, payable in installments of $100 a month. She signed a contract, but the cost ended up being at least twice that amount, plus interest, she said.

Months later, Thomas fell behind on payments. Her house entered foreclosure and she sold it before the bank seized it.

"They put people out on the streets," said Thomas, 43, now a Paterson renter.

Five homeowners from Hightstown sued Monet Builders and D&M Financial in 1999 on charges that included fraud, forging contract signatures and failing to obtain permits or a final inspection, according to court documents. The homeowners settled through mediation and got back several thousand dollars of their loans, said Anne P. McHugh, their lawyer.

The homeowners decided not to press criminal charges.

And East Coast
Monet Builders scaled back work after the Hightstown lawsuit. But then East Coast Developers - another company connected to the Washington Avenue offices - started up.

In November 1998, East Coast Developers incorporated at 544 Washington Ave. The president, according to state papers, was Lazaros Charalambous, who lives at the same Belleville apartment once listed by Monet Builders as its business address, according to court documents.

In 2002, Damond Yearns needed help fixing up a dilapidated house he purchased in Newark. His credit had suffered after a job loss, but a friend who worked at D&M Financial said the firm could help with financing. D&M Financial representatives insisted Yearns use East Coast Developers.
"They were the people they deal with," said Yearns, 33, a case worker for the state Division of Youth and Family Services.

D&M Financial arranged a $119,000 loan for Yearns, allowing him to pay East Coast Developers to begin work on his Newark house in June 2002.

But Yearns quickly grew suspicious. East Coast failed to secure city construction permits, he said. Sewage leaked into his basement from a cracked pipe. After noticing heat emanating from the walls, Yearns said he found that the contractors hooked up the ventilation system in a way that carbon monoxide flowed into the house, not out through the chimney.

But Charalambous vouched for the quality of East Coast's work.

"Everything was done the proper way," said Charalambous, of Belleville, in a telephone interview. "They have the right to accuse anything they want."
East Coast Developers sued Yearns after he refused to release the last loan payment because of the quality of the craftsmanship. Yearns countersued, alleging that the contractors did "negligent, careless and reckless" work and committed fraud. Yearns says he has since spent about $30,000 to correct the contractor's errors.

Mark Connell, East Coast Developers' lawyer in the civil suit, refused to comment.

In an interview, Michalaki acknowledged that he did construction work and home improvement financing for several years. But he vouched for the ethics of his companies.

"I didn't steal from anybody," said Michalaki, standing outside 383 Washington Ave.

He also denied any connection to Monet Builders, East Coast Developers or other construction companies that received loans from D&M Financial and used the same Belleville addresses. Given the volume of business done by the company, Michalaki said, he couldn't possibly know all of his clients.

And others
Things went well for D&M Financial during the early 2000s. The company opened a branch office in New York and brokered nearly 200 loans between 1998 and 2003, federal mortgage records show.

It joined the surge of companies that wrote risky, sub-prime mortgages and then sold them to national banks, which conducted the billing and collected interest. Federal banking officials regulate national lenders, but not local mortgage brokers.

Michalaki's professional aspirations grew. In 2001, he incorporated Garden State Builders at 544 Washington Ave. Over at 383 Washington, he started National Title and Appraisal Services Ltd. and Real Estate Enterprise Ltd.

But then the sub-prime speculative boom started to fade for companies like D&M Financial. In 2005, EMC Mortgage Corp., one of the banks that purchased D&M's loans, sued D&M for $20 million in bad mortgages. The suit alleges D&M vastly inflated appraisals and falsified checks and borrower information. Margherita Michalaki sold the 544 Washington Ave. property that same year. In 2006, D&M declared bankruptcy.

Then, in February, a former D&M Financial branch manager in New York pleaded guilty to grand larceny charges brought against him by the New York attorney general. The employee was found to have arranged $1.7 million in fraudulent financing through fake and inflated appraisals.

A spokeswoman for the state attorney general would not comment on whether they are investigating D&M and other employees, but said the case is still open.

The EMC suit names D&M Financial and Michalaki as defendants. But D&M Financial's lawyer, Saul Berkman, contends that the case is moot because EMC has no reason to keep litigating against a bankrupt company. A spokeswoman for EMC in their case said it is still pending.

The New Jersey attorney general has never received complaints against D&M Financial or Michalaki, and therefore has not investigated them, a spokesman said. Monet Builders and East Coast Developers also haven't faced scrutiny for the same reason, according to state regulators and the Essex County prosecutor.

The lack of scrutiny, regulators say, is all too common. Kathleen Keest, Iowa's former assistant attorney general who investigated home improvement companies, said that homeowners typically don't know or want to complain to authorities.

"For any given complaint we got, there were dozens and dozens more out there," Keest said.

Still working
Two of the original three men involved in the Washington Avenue addresses and all the businesses started from there still allegedly work in the home improvement and financing fields.

Nicholas Mainiero, Monet Builders' former landlord in Nutley, thought that Michael had returned to Greece. Charalambous works as a general contractor in New York City, he said. But his name did not turn up in the listing of licensed contractors for New York, according to online city records.

As for Michalaki, one of the companies he started, Real Estate Enterprise Ltd., now runs DMAC Financial Corp. The company maintains five branch offices along with headquarters at a familiar address: 383 Washington Ave. in Belleville.

Michalaki was present at the office when a reporter visited in May, but said that he did not work there. He said he was eating lunch with an employee. Current state corporate status reports do not include Michalaki's name.

But a former D&M Financial mortgage broker who requested anonymity because the New York attorney general has subpoenaed him to testify about the company told a different story.

"He called me up a few months ago to solicit business for DMAC," said the broker. "He's still out there doing loans."


Homeowners need to do some homework and know the signs of a scam:

What to look for or do:

A detailed contract: The contract should stipulate the work to be done, the quality of materials used, the work's timeline, who will obtain the city construction permits and how payment will be rendered. Have a lawyer look over the document before you and the contractor both sign it. Make sure to get copies.

A payment plan: Paying in thirds - at the beginning, middle and end of the job - can ensure that the work continues to completion. The last payment should come after you sign off on the work and a city inspector verifies the integrity of big jobs.

Ensure they are licensed: New Jersey keeps an online database of licensed contractors, and those whose certifications were revoked. Search at www.njconsumeraffairs.gov/contractors.

Shop around: Get estimates from at least three contractors. Ask about their professional history, whether they use subcontractors and if they carry the required liability insurance.

What to avoid:
Contractors who come calling: Representatives who say they just happened to notice that your house needed repair are most likely targeting you for a scam.

Contractors who offer financing: This is often the ticket to a costly loan. A traditional bank can give homeowners a much better rate, and recourse if something doesn't work out with the deal.

A contract with blanks: A contractor could fill those in at a later date with stipulations that are not in your best interest.

Pressure to sign the contract: You should not feel rushed into signing something before understanding the terms and the words - especially if English is not your first language.

What to do if problems arise:

Contact the authorities: If you suspect fraud, don't just move on. First, call the Passaic County Prosecutor's White Collar Crime Unit at 973-881-4800. Also file a complaint with the state Division of Consumer Affairs either online at www.njconsumeraffairs.gov or by phone at 973-504-6200.
Source: AARP, New Jersey Division of Consumer Affairs

East Coast Developers is a home improvement company that came to the paper's attention after it solicited a Paterson homeowner for work and the homeowner ended up facing foreclosure. The resident sued East Coast Developers and D&M Financial Corp., which issued the second mortgage on the resident's home. The Herald News documented the homeowner's ongoing struggle to keep from losing her home.

The connection between Monet Builders, East Coast Developers and D&M Financial Corp. was first established by discovering the links between principals in the companies and their two Washington Avenue offices through mortgage records, state incorporation documents and lawsuits in which they were named. The ties were further corroborated by former employees of the repair and lending companies.

About 10 homeowners who hired the home repair contractors and legal representatives for five Hightstown residents who sued Monet Builders for fraud were interviewed. The New York Attorney General's Office confirmed its investigation of D&M Financial Corp.

Additionally, nine experts from across the country - including housing researchers, professors, legal representatives, advocacy groups, government officials and a former state assistant attorney general - discussed home improvement and financing scams in general. Federal mortgage data confirmed the use of risky mortgage companies for local home improvement loans. And a hearing convened by the federal Department of Housing and Urban Development and Department of the Treasury also documented problems with home improvement contractors.
- Heather Haddon

Reach Heather Haddon at 973-569-7121 or haddon@northjersey.com