ATHENS, Ga. - When Amanda Senentz bought into the Milford Hills subdivision in December 2003, she envisioned living with nature trails nearby and a clubhouse with a pool across the street.
Instead, her investment bought her a house in a neighborhood without lighting or street signs, and with unfinished sidewalks.
"As a 23-year-old single woman, I sprung $155,000 for a house, and now I have a drug dealer living a couple doors down from me," said Ms. Senentz, a University of Georgia graduate who works as a chemist.
Ms. Senentz and other Milford Hills homeowners didn't get what they thought they were paying for, as they became unintended victims of an alleged mortgage fraud scheme.
Police arrested eight people last week after a yearlong investigation by state and local law enforcement officials, who are looking for at least 15 more alleged co-conspirators.
The alleged plot, which might have netted as much as $7 million in illegal profits, was orchestrated by developers, real estate agents, appraisers and possibly attorneys who used fraudulent mortgage applications, property appraisals and other means to inflate home values and defraud mortgage lenders, officials said.
Officials won't say how the alleged Milford Hills mortgage fraud scheme worked.
Some common frauds involve middlemen who pay "straw buyers" to purchase properties at above market price, and when the deals close, the seller kicks back the extra profits to the middleman.
The middleman promises that a management company will pay the mortgage payments, but the payments soon stop, the straw buyers default on their loans, and their houses are foreclosed.
It is common for straw buyers to buy several houses in the same subdivision, said Craig Weitzel, an Atlanta mortgage fraud investigator. He said it appears nearly 100 inflated loans were issued for properties in Milford Hills, where true-market house values averaged $145,000, with most of the alleged fraudulent loans going for about $215,000.
Ms. Senentz, the treasurer of the Milford Hills Homeowners Association, estimated that more than 30 houses in her subdivision have been foreclosed since the first phase of the neighborhood off Barnett Shoals Road in southeastern Clarke County was completed in 2003.
"It's just depressing how horrible things have gotten," she said.
Milford Hills residents estimate that fewer than 30 percent of the subdivision's 124 houses and town homes are occupied.
Foreclosed homes now have been rented out to low-income tenants, including some who receive federal subsidies.
Milford Hills residents say the streets and common areas are owned by 34-year-old developer Brian Dupree, who never installed street lights or signs, and left sidewalks unfinished, creating safety hazards.
Mr. Dupree, who officials said is a key player in the alleged mortgage fraud scheme, has been charged along with seven others under the state's Racketeering Influenced and Corrupt Organization Act.
If convicted of the RICO charges, each alleged co-conspirator would face a possible 20 years in prison.