Posted on Tue, Mar. 27, 2007

A developer who took $940,000 from the Miami-Dade Housing Agency but delivered only two houses for the poor is slated to be arrested on fraud charges today -- the third arrest in a widening criminal probe that now includes prominent business and government leaders.

Investigators say Reynaldo Diaz presented a phony land contract to qualify for a loan from one of the housing agency's most troubled building programs, then produced just two of 28 promised houses while diverting hundreds of thousands in expenses unrelated to the project.

Diaz is expected to turn himself in today at the Miami-Dade State Attorney's Office, where he'll be charged with a first-degree felony.

His attorney, James Cusack, declined to comment Monday night.

State Attorney Katherine Fernández Rundle said the housing agency failed to provide basic oversight while Diaz and others misspent money meant for the poor.

Last summer, developer Oscar Rivero was charged with using affordable housing money to buy himself a South Miami house. This month, developer Raul Masvidal was charged with spending housing money on a $150,000 sculpture of a watermelon.

''It was like the public trough and open season, so everybody tried different ways to scam the public,'' Fernández Rundle said. ``The guard -- in this case the public Housing Agency -- was asleep at the wheel.''

Diaz's arrest comes as investigators look into questionable, multimillion-dollar housing deals involving a slate of developers, consultants and government administrators. The probe now spans several county agencies, though officials would not elaborate.

''We are looking at the interaction of some of these people in the housing scandal with other departments, and we will pursue these cases -- including arrests,'' said Miami-Dade Inspector General Christopher Mazzella, helping to lead the probe.

Diaz's dealings with the housing agency were detailed last July in The Miami Herald's House of Lies investigative series, which exposed massive mismanagement, insider deals and millions of dollars wasted.

Diaz received housing agency money through a $5 million program that was supposed to ''open the doors of homeownership'' for working-poor families.

He was one of six local developers who received loans from the housing agency through quasi-private lender Fannie Mae, which had offered the loan to the housing agency with an 18-month repayment period.

To get the money, the housing agency required developers to prove they had land and private financing.

Diaz submitted land contracts, including one that showed his company was paying $73,590 for six lots owned by employee Mario Mayorga.

But the contract was fake -- Mayorga never owned the properties and signed the bogus contract at Diaz's request, investigators say.

Mayorga is cooperating with investigators and will not be charged.

''Our government . . . never checked to see whether or not [Diaz] owned those lots or whether there was fraud,'' Fernández Rundle said.

There were other questionable documents, too.

Diaz, who operates a mortgage lending firm, submitted a required letter promising private financing for the project from Southeast Financial Corp. -- his own company, The Miami Herald reported. The letter pledging a $150,000 loan, in fact, was addressed to ''Mr. Diaz'' and signed by ``Reynaldo Diaz.''

Diaz also provided a letter pledging $600,000 in financing to Rivero, which allowed Rivero to receive a $500,000 loan from the same housing agency program. Rivero did not build a single house.

Investigators say they are reviewing those documents.

Despite the discrepancies, former Housing Agency Director Rene Rodriguez ordered the agency to advance the $5 million to developers even though agency policy bans payments until construction starts.

Diaz walked into the housing agency, presented his driver's license and left with $940,000.

When Diaz and other developers fell behind on payments, the housing agency dipped into the county's surtax fund -- local tax dollars set aside to build affordable housing -- to repay Fannie Mae on behalf of the builders.

All told, the housing agency paid off the $5 million, plus $250,000 in interest.

The county sued Diaz and last year worked out a settlement. Diaz has so far repaid $60,000 in interest.

Officials said he is one of a number of developers who manipulated the Housing Agency at the poor's expense.

Said Mazzella: ``Diaz exploited a weakness in the system and took full advantage of it.''

The case against Diaz is being prosecuted by Richard Scruggs, special assistant to the state attorney for public corruption.