Lofty Hopes, Suspended

It was a simple pitch: Investors would put little to no money down and take out construction loans that a developer would use to build modest homes in a fast-growing stretch of Southwest Florida. When finished, the homes would be flipped for tidy profits of ,000 to ,000 apiece.

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Enlarge This Image Kirk Condyles for The New York Times

Alan and Linda Ellman, who live in Plainview, N.Y., put a ,000 deposit on a 0,000 home and expected to make a profit of ,000.

Too simple, perhaps.

Nearly two years since the developer started marketing the investment plan nationwide, work on the homes has come to a halt, leaving 482 investors with half-built houses and thousands of dollars in construction liens. Coast Financial Holdings, which owns the bank that made the loans, has disclosed that 0 million, or a fifth of its total loan portfolio, could be troubled. Its shares have fallen 46.5 percent so far this year, and banking regulators are investigating.

"It was strictly a passive investment," said Paul Matera, a retired contractor from West Islip, N.Y., who signed up for two houses and introduced dozens of others to the plan.

"You didn't pick out the model of the house. You didn't pick out the exact location. Everybody signed papers without reading what they were signing."

During the housing boom that ended in 2005, money poured into real estate from investors ranging from the ultrarich to middle-class professionals like doctors, teachers and midlevel managers. Places like Florida, the Southwest and the West Coast were the biggest recipients of the investment wave because housing there was often deemed a sure bet.

The case of a relatively small development in Southwest Florida illustrates the important role that real estate investors played. Like the day traders who drove up Internet stocks in the late 1990s, these investors, aided by cheap mortgages, helped drive a housing boom over the edge.

"It was a groundswell," said Jerry Manning, who runs J. J. Manning Auctioneers, which sells homes in the Northeast and in South Florida. "Everybody thought that they were going to be a real estate mogul."

Last year, however, a number of such plans started failing, causing pain to a large food-chain of investors, builders and lenders. Beyond their inherently speculative nature, many of the investments were never fully investigated and were poorly monitored. And now some lenders and investors are starting to wake up to a harsh day-after reality.

"You will have a correction, and the correction will make regional homeowners unhappy" as property prices fall, said John Lonski, chief economist at Moody's Investors Service. "Regional mortgage bankers will find their livelihoods threatened."

So far, the slumping housing market has not claimed a major casualty, though lenders to people with weak credit have started shutting down and regional builders in formerly hot markets are hurting.

Transeastern Homes, which builds homes in Florida, is in settlement talks with lenders who contend it is in default on debt totaling hundreds of millions of dollars. WCI Communities, which builds condominiums in Florida and in other areas, recently hired Goldman Sachs to advise it on strategic options, including a possible sale of the company.

"We're going to see much bigger builders and much bigger lenders facing bankruptcy because so much of the building has been on a speculative basis," said Jack McCabe, a real estate consultant in Deerfield Beach, Fla.

Mr. Matera, the retired contractor, learned about the chance to invest after a limousine driver, taking him to the airport for a Caribbean vacation, mentioned that his boss owned a part of a real estate company, Seashore Resorts in South Carolina, that helped people buy investment properties.

Mr. Matera did not blindly jump in. He said he visited Seashore and even hired a private investigator to look into the company. Later, he visited lots where the homes were to be built in the Florida towns of North Port and Rotonda.

The paved roads and empty lots reminded him of the affordable homes of Levittown that decades ago transformed Long Island into the suburban expanse it is today. Mr. Matera invested ,000 in two homes. And his pitch to others persuaded 40 members of the Long Island Real Estate Investors Association and a half-dozen relatives and neighbors to invest similar amounts.

Mr. Matera acknowledges receiving a 0 fee for each client he referred to Seashore, but insists he did not pressure anyone. "I solicited no one," he said. "People came to me. I'm not a salesman."

Now, Mr. Matera is paying ,800 a month on four properties near Sarasota that he cannot sell and that do not collect enough in rent to cover their costs. Two properties, which are complete, are under his name and have tenants. His mother-in-law and his sister each own one of the two incomplete homes that cannot be finished because they have liens.

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