David and Jerri Bauman, a mentally challenged couple who have scraped through life, wanted a home. It was supposed to be 22 Fairview Ave. in West View -- a place sold to them amid a flurry of confusing paperwork they couldn't read, a pair of unexplained bank transactions and at least three sales documents that contradict reality.

Dennis Roddy, Post-Gazette

David Bauman and his daughters, Tina and April, outside 22 Fairview Ave. in West View. David and his wife, Jerri, are both mentally challenged and now find they were sold a $96,000 house they cannot afford, based in part on a loan application that they couldn't read and which lists income they don't have. Click photo for larger image. Listen In: Dennis Roddy reports on the Baumans' experience of trying to buy a home. More about subprime mortgages and home ownership U.S. Department of Housing and Urban Development information about subprime lending Remarks by Federal Reserve Board Chairman Ben S. Bernanke on the Housing Market and Subprime Lending, June 5, 2007 The U.S. Financial Literacy and Education Commission's My Money Web site section on home ownership, home equity and mortgages

Twenty months after they put shaky signatures on a mortgage they couldn't afford and a settlement statement they didn't understand, the Baumans are preparing to leave. David Bauman can't read. His wife reads slightly, but with minimal comprehension. The lawyer who handled the transaction, according to Mrs. Bauman, told her it would take too long if they read everything.

"We didn't understand them. We just signed," Mrs. Bauman said.

The man who put the deal together is James C. Platts. His North Hills business, Easy Realty Solutions, has been the target of law enforcement. At the time Mr. Platts arranged the sale of 22 Fairview, he was on probation for theft and under investigation by the IRS, which would indict him in January of this year for tax evasion. As Mr. Platts was putting together the sale of 22 Fairview, the state Real Estate Commission was in the process of revoking his license.

Had the Baumans been able to read they would have learned that their mortgage application shows them earning $2,750 a month -- impossible on Mr. Bauman's wage as a bagger at the local supermarket and the roughly $400 a month Mrs. Bauman received in disability income.

They would have found two jarringly different settlement statements with wildly conflicting sales prices and different borrowers, apparently designed to throw off the seller's mortgage holder which had agreed to take a loss on a bad loan provided the seller took no money from the deal.

The Baumans ended up with a 9.8 percent mortgage rate -- called "sub-prime" because it is well above the prime rate. Such mortgages are bundled into packages and then used as collateral against bonds that pay investors a high interest rate in return for their risk.

The sale of 22 Fairview Ave. and the financial twists and turns are felt in ways large and small.

Small: A learning-challenged couple find themselves signing documents they can't read, accumulating debt they can't pay and, finally, being ejected from a house they shouldn't have been sold.

Large: The stock market falls by more than 500 points in three days after massive sell-offs fueled in part by fears over souring investments in the very kind of high-risk loan the Baumans took.

"They were told to sign here, sign here and sign here, and they did what they were told," said Daniel Sautel, a lawyer representing the Baumans. "They work hard and they just do what they can to see it through the day."

Arnold Kogan, a veteran real estate attorney in Harrisburg, finds the deal a symptom of a reckless market.

"It goes beyond that these people couldn't pay. If this is systemic, it could be a much more problematic situation for the economy," Mr. Kogan said.

Mr. Kogan's assessment rang true last week. The Bauman mortgage became one of thousands of high-interest, high-risk home loans that toppled two hedge funds worth billions and sent stocks tumbling between Tuesday and Friday. Their impossible loan became an identifiable droplet in a flood that last week washed away billions in wealth.

The deal
By the time Kenneth and Christine Legler sold 22 Fairview in 2005, they were being sued by U.S. Bank National Association in Salt Lake City, Utah, for falling hopelessly behind on their mortgage. Both the local school district and Allegheny County were suing as well for back taxes.

Another lawsuit was pending, but not yet filed, by Easy Realty Solutions -- a company run by James C. Platts.

Mr. Platts, once a successful home builder in the North Hills, was on probation for a guilty plea to 12 counts of theft at the time he met the Baumans and was 18 months away from a federal indictment for tax evasion.

Although Mr. Platts was engineering a deal to sell a house, he had no real estate license. He had allowed his to lapse several years earlier and at the time of the sale, the Pennsylvania Real Estate Commission was preparing an order to revoke it permanently.

Since his legal troubles, Mr. Platts has stayed in the real estate market through an innovative run around the licensing laws. His firm, Easy Real Estate Solutions, does rent-to-buy programs and he also brokers sales by agreeing, in theory, to buy homes from people seeking to unload real estate if he cannot find them a buyer.

In the case of the Leglers, Mr. Platts found them the Baumans.

The Baumans say they met with Mr. Platts at a coffee shop where he had them sign papers they didn't understand. At the time, they believed they were paying his fee for the transaction.

"He was like real fast, saying things we didn't understand," Mrs. Bauman said. She's not sure what she signed.

"We didn't understand them. We just signed. We told them we wanted to rent with an option to buy. We didn't want the house. That's what we thought we was signing," Mrs. Bauman said. "I told him we didn't want to be taken advantage of and stuff. He said, 'No, I wouldn't do stuff like that.' "

In the coming days, there would be other transactions equally confusing.

On Oct. 28, Mr. Bauman said Mr. Platts showed up at his workplace and told him they were going to the bank.

When they arrived at West View Savings Bank, Mr. Bauman said, Mr. Platts deposited $4,000 in the Baumans' checking account. Immediately, he had a cashier's check drawn up and made out to Easy Realty Solutions.

"He said, 'I have to put this money into your account,' and then he withdrawed it," Mr. Bauman said.

Three weeks later, on Nov. 20, Mr. Platts again took Mr. Bauman to the bank and deposited $5,000. This time, the cashier's check that was immediately drawn up to take the money back out was written out to Flugher Law Offices. The offices, located in Cranberry, are run by Bernard Flugher, a Butler County lawyer who has in the past sought the posts of both Common Pleas judge and district justice.

Handwriting on the back of that check shows Bernard Flugher endorsing the check over to Easy Realty Solutions.

Mr. Platts did not respond to repeated telephone calls, e-mails and fax messages seeking comment.

Mr. Bauman said he never asked why the money was being moved through his account.

"I figured he knew what he was doing," Mr. Bauman said.

Did it strike him as odd that someone would move $9,000 through his checking account that way?

"I don't know," Mr. Bauman said. "It's the first time I ever did it. So I don't know."

The mortgage application
The Baumans needed to qualify for a mortgage and were referred to a mortgage broker -- an agent who assesses their ability to pay and then locates a lender willing to front the money for the home purchase. S&P Mortgage Services, a suburban Pittsburgh company, charged the Baumans $2,592 to find a lender, and an additional $450 to process the loan.

On Aug. 31, 2005, Deean Haggerty, of S&P, signed a Uniform Residential Loan Application that said the Baumans received $2,750 in income. The form put Mr. Bauman's monthly income from the local grocery at $2,570.

A wage statement from the grocer for the pay period ending December of that same year showed Mr. Bauman receiving $7.25 an hour. Over a 40-hour work week, he was paid $292.72 a week or $1,168 monthly -- less than half the figure placed on the mortgage application.

The estimated loan payments, along with required insurance and real estate taxes, was put at $1,040.27.

After taxes, Mr. Bauman's wage alone would not have covered the mortgage.

If Mrs. Bauman's Social Security disability income, which rises and falls depending on her husband's weekly earnings, had been counted, the Bauman household income would have, at most, reached $1,569 per month.

Encore Credit Corp., a California firm, later provided a mortgage to the Baumans.

What is remarkable about the loan application is how Mr. Haggerty obtained the numbers.

"I never met those people," he said when reached at his office in Franklin Park. "Everything I got was sent by Platts."

Mr. Haggerty said the income information was "stated income" -- meaning essentially that he took on faith the assertion that there were three different incomes coming into the Bauman household. The practice is ordinarily used for self-employed individuals. Mr. Haggerty said the form likely counted Social Security disability income for one of the Bauman daughters.

But Mrs. Bauman, whose Social Security benefits were counted in the tally, was rejected for inclusion on the mortgage, Mr. Haggerty said, because she had no credit history.

"We've stopped doing any business with Easy Realty," Mr. Haggerty said.

Two settlement statements
When the day came to close, the Baumans traveled to Cranberry, to the Flugher law offices, where paperwork moved past them. In their meetings with Mr. Platts, whose Easy Realty operates out of a Wexford post office box, they had met at the local Starbucks.

The deal they left with gave them a mortgage with Encore for $86,000, and a second mortgage from the Leglers for $9,600.

That mortgage was quickly signed over by the Leglers to Easy Realty. An altered version of the document -- with changes initialed by the Baumans -- raised the mortgage amount beyond $10,000 and also changed the due date. Instead of coming due in 10 years, it would come due in two.

David Bauman wonders now if the second mortgage, which was signed over to Mr. Platts' company, might have been the $10,000 in fees he said Mr. Platts said he wanted for putting the deal together.

"Mostly he wanted us to pay him $10,000 because that was his fee for doing that," Mr. Bauman said. "We paid him a couple of payments of $150 that I just stopped paying."

Jerri Bauman said at one point she tried to read the various documents but was dissuaded from trying by Mr. Flugher.

"He said, 'That would take two hours to read this whole booklet. He said to take it home and read it, but he made me sign it right there,' " Mrs. Bauman said.

Mr. Bauman didn't try to read the papers.

"He can't read at all and I can read a little bit. But I'm not stupid. I understand some things and I noticed when he was trying to push them papers for us to sign he didn't want us to read them, and I knew there was something wrong right there," Mrs. Bauman said.

Mr. Flugher, reached at his Cranberry office, insisted he explained the documents to the Baumans, didn't respond to a reporter's question about whether he knew they were illiterate, and said he couldn't discuss the matter because the mortgage is now in litigation and that he represents Mr. Platts in that court case.

Who was he representing when he closed the sale for 22 Fairview -- a transaction in which he charged legal fees to both the sellers and buyers?

"I was closing officer in relation to the transaction," he said.

After the deal closed, someone faxed a copy of a HUD 1 Settlement Statement to Select Portfolio Servicing in Salt Lake City with a payoff on the delinquent mortgage for $58,200 with no money going to the sellers.

Oddly, the name and address of the borrower was listed not as the Baumans, but as Easy Realty Solutions. Files at the Recorder of Deeds office don't show Easy Realty taking title to 22 Fairview.

A deed to the property instead went to the Baumans, the purchasers of the house. And the HUD 1 Settlement Statement they got -- made out the same day as the one sent to Salt Lake City -- shows a sale price of $96,000, with $10,009.06 in cash going to the sellers, as well as a $2,500 deposit, and a second mortgage, ostensibly assigned to the Leglers, for $9,600.

Mr. Flugher, the attorney who acted as settlement agent on both of those statement forms, declined to explain the existence of the two HUD forms, saying it would violate his confidential relationship with Mr. Platts.

"I would assure you that anything we did in our office is adequate and correct," he said.

Where the loan went
Less than three months after the Baumans took out a mortgage they had no way of paying, Bear Stearns, the investment firm that had accumulated a fortune by bundling thousands of mortgages to underwrite Wall Street bonds, bought the value of the Bauman mortgage.

The deal was complex, and the Bauman mortgage with Encore was almost invisible in the multimillion dollar deal. It worked this way: Bear Stearns used bundled mortgages, their value bought en masse from mortgage lenders such as Encore, and created a fund in which investors could draw interest from the subsequent payoff of the loans.

Bear Stearns became the major player in this kind of investment, with more than $16 billion of the market in the riskiest kind of mortgages.

These were sub-prime loans -- meaning loans that drew a higher interest payment because the borrowers were considered risky. The bet was that the majority of borrowers would meet their payments or that any subsequent foreclosures would get back the value of the debt when the house was sold.

It didn't work.

Last week, over a two-day period, the stock market tumbled by hundreds of points after Bear Stearns acknowledged that two of its funds were essentially worthless as families such as the Baumans defaulted on mortgages they couldn't pay.

On Tuesday, the market, shaken by the collapse of the Bear Stearns funds, fell 226 points. On Thursday it dropped another 311.

"I really don't know too much about that," David Bauman said of the market's fall on the failure of loans such as his. "It's terrible."