Editor's note: This story, written by Dee Lane and Steve Mayes of The Oregonian, was first published Sunday, Sept. 9, 1990, as part of the "Blueprint for a Slum" series. The original headline: "Consumers and state misled."

In the fight to save North and inner Northeast Portland neighborhoods, declining home ownership is as much a factor as crime, drugs and gangs.

A three-month study by The Oregonian found that major lenders discourage home ownership. That meant would-be buyers must move, keep renting, or turn to risky lenders.

That's a blueprint for a slum.

One of the most active home mortgage lenders in North and inner Northeast Portland has systematically deceived home buyers and lied to authorities while promoting itself as a friend to troubled neighborhoods.

Now, scores of unsuspecting first-time home buyers who financed their homes through the company, Dominion Capital Inc., are in danger of losing them.

An investigation by The Oregonian found that Dominion often has inflated the value of homes it sells, provided risky financing to buyers without fully disclosing the terms, loaned more money on homes than they are worth, and failed to live up to some provisions of its own contracts.

Dominion's owners have been involved in scams that bilked investors in Alaska as well as Oregon and have defaulted on real estate deals in Washington.

Three years ago, Oregon officials forced the company to sign an agreement promising to change its practices and pay sellers who lost money in some questionable real estate deals.

But investigators with Attorney General Dave Frohnmayer's office ignored more than 90 similar deals and were unaware that Dominion had violated its agreement.

The way Dominion does business is risky for both home buyers and the private investors who supply the money that Dominion uses to make its loans.

Buyers purchase houses not knowing that Dominion has loaned more money on the properties than they're worth.

Investors are not given crucial information on borrowers' credit and financial histories.

Those actions violate an agreement the company made with the state three years ago. Frohnmayer's office says that it is investigating Dominion, but it has done nothing to stop the company or the violations.

The practices are one more blow to neighborhoods that already are plagued by declining home ownership and unstable property values. But Dominion is there because no other major lender is.

The Oregonian's three-month study shows that conventional banks and savings and loan associations write few mortgages in these low-income neighborhoods, creating conditions in which businesses such as Dominion may thrive.

Desperate borrowers become victims twice -- first because conventional financing isn't available, then because Dominion's loans are deceptive and risky.

And home buyers aren't the only ones at risk. Dominion's volume of sales and high-risk loans is so great that its deals can change the character of whole neighborhoods. Some activists believe the practices of Dominion and other speculators are a bigger threat to community stability than gangs.

Several buyers told The Oregonian that they sensed something was wrong with Dominion when they bought their houses. But they wanted homes so badly that they took a chance.

''I really didn't want to look at it too hard,'' said Matthew Pavelich, a law student who bought a home in North Portland. ''It was the only way we could buy a house.''

Dominion's owners acknowledge that property they control has been involved in scams, but they deny any direct involvement. They say they were forced to take possession of about 200 houses because the company made bad loans to some unscrupulous or incompetent characters.

Now, the company's owners insist that they are providing a service for a needy market in North and inner Northeast Portland. They supply mortgages where conventional lenders refuse to meet the demand.

''There were no loans five years ago,'' said Geoffrey A. Edmonds, president and part-owner of Dominion. ''There are no loans now. Show me the Ben Franklin loans. Show me the Far West loans . . . . Where were they? Nobody's been there. But we've been there.''

But The Oregonian found that Dominion is exploiting the mortgage demand rather than satisfying it. The investigation involved hundreds of documents -- property sales records, contracts, tax returns and lawsuits. Reporters also interviewed home buyers, investors, attorneys and former associates of Dominion, as well as the company's owners. The investigation showed:

Dominion's principals have been sued repeatedly and successfully over real estate transactions in Oregon, Washington and Alaska since the early 1980s.

The company acquired more than 140 homes in Portland after it was involved in a scheme that overburdened the properties with debts and left innocent sellers holding the bag.

Dominion promised it would halt the practice after Frohnmayer's office tried to intervene three years ago. But it is continuing to lend the full purchase prices on houses without first paying off existing loans, in violation of a formal agreement with the state.

The company also acquired well over 100 houses in North and inner Northeast Portland using a ''straw'' buyer -- a practice that keeps Dominion at arm's length from transactions should the deals go sour.

Once it has a house, Dominion often churns up the value of the property by passing it around among associates of the company. By the time the unsuspecting home buyer gets it, the sales price is above the market -- so high that Multnomah County plans not to consider the sales in calculating neighborhood property values for tax purposes.

Dominion, co-owned by Edmonds and Cyril J. Worm Jr., was formed in July 1985. Originally named The Frankenfield Co. when it incorporated in Washington state, the company changed its name to Dominion in early 1986, shortly after moving to Oregon.

Edmonds, 51, lives in a $322,320 Street of Dreams home in West Linn. He owns six cars and has a garage as large as some of the houses Dominion sells in inner Northeast. Worm, 49, lives in a $524,500 mansion on a private street in one of Seattle's most exclusive country club neighborhoods, accessible only after checking in with a security guard.

Edmonds and Worm say they haven't made any money in Oregon. Yet Dominion's internal financial records show it performed well enough to supply nearly $700,000 in loans to Worm and Edmonds and to generate $111,000 in profits during the three-month period ending Sept. 30, 1989. That doesn't include salaries for Worm and Edmonds.

Dominion has grown rapidly in Oregon. The company's unaudited September 1989 financial statement claimed assets of $6.75 million, including rental properties, mainly in eastside Portland, worth $5.56 million.

Dominion's business offices are far less imposing than its owners' homes. The storefront building at 2755 N.E. Broadway is a sparsely furnished maze of rooms.

The walls are machine-sprayed white, with few decorations. In the reception area, directly across from the front door, a sign in foot-high letters promises, ''HOME OWNERSHIP MADE EASY.''

And how easy it is.

Dominion can approve credit the day a buyer walks through the door. It doesn't mind credit records with a few blemishes. And it doesn't require much money up front. Some buyers have moved into houses for as little as $1,500.

Dominion's inventory of homes comes from a series of buyers associated with the company.

One recent buyer is Mary C. Matriotti, a former Portlander who now lives in Mountlake Terrace, a Seattle suburb.

When Matriotti started buying houses in Portland in late 1988, she was general manager of a string of Seattle delis owned by Worm. Earlier this year, she quit the delis to go back to school.

''She's not wealthy,'' Worm explained. ''She didn't have a lot of capital. But she was a known entity.''