WHEN CHRIS AND Meghan Driggers of Athens, Ga., were shopping for their first house in the fall of 2004, they spent hours with their real estate agent looking at neighborhoods. One day, the agent mentioned a new community, Milford Hills, where one of the other agents from his firm was selling houses.

It was Athens-Clarke County's first “conservation subdivision,” with 125 single-family homes and townhouses on 56 acres, half of which would be preserved as green space. Plus, it was in a great location, right next to an elementary school, and the developer, Brian Dupree, promised that the community would soon have a clubhouse and a pool.

The couple was sold. They signed a contract and moved into their four-bedroom, two-and-a-half-bath home. The sales price was $159,900.

PARADISE NOT FOUND It wasn't long before the Driggers family noticed that even though their neighborhood was built out, a lot of the houses were vacant.

DEVALUED: Because of fraudulent appraisals, these townhouses sold for $210,000, about $60,000 above market value. Now they've been foreclosed on and  are listed for $119,900.
DEVALUED: Because of fraudulent appraisals, these townhouses sold for $210,000, about $60,000 above market value. Now they've been foreclosed on and are listed for $119,900.

“That was fine with us,” Chris Driggers says, “until houses started foreclosing and questionable people started moving in.”

And there were other odd things, such as the fact that the neighborhood had no street signs. (The couple would later learn that the developer had never turned the streets over to the county for maintenance.) “A couple of times, ambulances came in and they couldn't find things,” Chris Driggers says. The HOA ended up buying and installing street signs on its own.

The neighborhood quickly began to deteriorate. Driggers, a computer engineer, blamed the officers of the HOA for not staying on top of lawn maintenance, which was supposed to be provided as part of residents' monthly fees. What he didn't know at the time was that there were fewer than three dozen legitimate homeowners in the subdivision.

Then, on April 27, 2006, while working on a job in California, Driggers went online to check the newspaper back home and saw a front-page story announcing that seven people had been arrested in connection with fraudulent sales at Milford Hills. Included in the arrests were the developer, the sales agent, and two appraisers.

A total of 23 named and unnamed co-conspirators were charged under the state's racketeering laws. The arrest warrants claimed that those involved had colluded to commit mortgage fraud on a massive scale, allegedly stealing an estimated $7 million from lenders by dramatically inflating the appraisals on the houses, pocketing the difference, and walking away from the loans.

“I called my wife, and she freaked out,” Driggers says. “I was enraged, but it answered a bunch of [our] questions, like, ‘Why are all the houses empty?' We knew something was up, but we didn't realize it was that big.”

Learn more about markets featured in this article: Atlanta, GA.