Fraud alleged in Rabuffo development in North Carolina

CASHIERS, N.C. — Banks are foreclosing on lot after lot. A federal magistrate suggests mortgage fraud has been committed. And some of those who bought lots in a controversial western North Carolina subdivision have been accused of fraud.

It's the latest action swirling around a mysterious residential development on Big Ridge, a remote mountaintop about 12 miles north of Cashiers, a village that has become a summer mecca for thousands of Floridians.

Work in the development started by Domenic Rabuffo is at a standstill. Partially constructed houses stand empty and open to the rain. Instead of construction crews, the most frequent visitors are sheriff's deputies posting mortgage foreclosure notices on vacant lots and unfinished houses.

Rabuffo is a native of New York and part-time resident of Miami. In the late 1980s, he and a business partner were accused of masterminding a $49 million mortgage fraud in New York.

The partner was killed in a 1987 mob hit as he dined at an Italian restaurant in Manhattan. Rabuffo briefly went into the witness protection program, served a short prison sentence and was released in 1994.

He started the North Carolina development in 2007, buying land and obtaining permits in the name of his ex-wife, Mae. He built huge houses on small lots that supposedly sold for $650,000 an acre — in an area where land rarely sells for as much as $50,000 an acre.

Several buyers say they paid no money for the lots and were supposed to collect payments from Rabuffo for participating in the development.

Rabuffo's lawyers in North Carolina and New York did not respond to requests for comment last week, but Rabuffo has previously blamed the situation on a decline in the economy and real estate sales.

His grand plans for the development and a five star hotel appear to have evaporated, leaving hulking, partially finished houses on some lots and nothing more than the concrete foundations on others. Several under-construction houses have not been touched for more than a year. Jackson County building officials have inspected no work since May.

The name of the development has changed repeatedly, from Mae Rabuffo Subdivision to Hampton Springs Resort to Blue Ridge Mountain Properties of Florida to Spring Ridge Estates. No signs identifying the project have ever been posted.

Foreclosure suits have been filed against the owners of 65 lots. In separate lawsuits filed in Florida and North Carolina, banks also are foreclosing on $4 million in loans secured by the North Carolina house where Rabuffo vacations and his Ritz Carlton penthouse in Coconut Grove.

Subcontractors and suppliers have filed liens and lawsuits seeking more than $425,000 from Rabuffo and the various corporations and individuals involved in the development. The property taxes on much of the land have not been paid for two years.

The banks that loaned the money to those who bought the lots likely will wind up owning most of the development.

In a court order in June, U.S. Magistrate Dennis L. Howell said he was alerting acting U.S. Attorney Edward Ryan because evidence filed in civil suits indicates that mortgage fraud may have been committed.

"The court makes no finding as to who may be complicit or responsible for any criminal conduct as that issue is not before the court," Howell added.

A spokeswoman for Ryan refused to say what action, if any, the prosecutor has taken, but some property owners say they have talked to Miami prosecutors and FBI agents investigating mortgages obtained by lot owners.

SunTrust is the biggest lender, with more than $35 million in mortgages in the development. The bank has taken possession of 28 lots and has foreclosure suits to take eight more. Bank officials have refused to discuss the development, the loans or the actions of their employees.

Other banks, including Regions, Bank of America and Wachovia, have foreclosure actions pending against 34 additional lots mortgaged at more than $10 million.

In an unusual move, SunTrust not only foreclosed on lots, it also filed civil suits against 13 people who each got $1.5 million in mortgages. The suits, filed in federal court, accuse the lot owners of fraud and breach of contract and seek the return of the mortgage money. SunTrust says the owners falsified their incomes to get mortgages totaling more than $19.5 million.

The buyers say that inflated income figures and other details included in mortgage applications were supplied — without their knowledge — by Victor Vidal, a loan officer at a SunTrust branch in Miami. Vidal, no longer employed at the bank branch, could not be reached for comment.

"Suffice it to say that all of my clients are vigorously defending SunTrust's claims and believe the claims are without merit," said Mike Wimer, an Asheville lawyer representing the owners.

Late last month, U.S. District Judge Lacy Thornburg dismissed counterclaims the 13 lot owners had filed against the bank. Several of the owners are from the Tampa Bay area: Michael and Kelly Baker, Land O' Lakes; Deanna Davis, Tampa; Jeffrey Sykes, Safety Harbor; Natalie Boutros, Lutz; and Donald D. Busby, Tampa. Others are from South Florida and Pennsylvania.

Most of the property owners — residents of Florida, Pennsylvania, California and other states — have never seen the subdivision and never consulted the builders hired by Rabuffo. Deeds and mortgages were prepared by Jay Pavey, an attorney in Sylva, N.C., and notarized in Miami by Diane Hayduk, Rabuffo's administrative assistant.

Pavey said Friday that he was not aware of anything improper. "I would have exercised my responsibility and informed the appropriate authorities," he said. "As the attorney handling the matters, I am not involved in the loan application or approval process."

Several lot owners who agreed to be interviewed said they paid no money for title to the lots despite the $650,000 an acre price tag recorded on deeds. They said they were supposed to get $25,000 a year from Rabuffo for letting their names and credit be used, but never collected the money.

Zisimos Markopulos, a Brandon resident among those facing foreclosure on lots he owns in the development, said he isn't out any money. But with the foreclosures, his credit rating has dropped from 745 to 515.

Markopulos acquired four lots and obtained mortgages totaling almost $2.5 million from SunTrust, Bank of America and Regions. He now faces foreclosure on two of the three loans.

He attributes the problem to the nationwide economic decline. He said the house being built on one of his lots was about 80 percent finished before the banks stopped releasing construction money.

"These things happen,'' he said. "If the economy hadn't gone in the toilet, I'd have been in good shape."

Times researcher Caryn Baird contributed to this report. Lucy Morgan can be reached at lmorgan@sptimes.com.