Bank Accused of Flipping Scam

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7 · 16 · 07

A Florida bank, which has already been sued by shareholders and ordered by regulators to abandon an unsafe construction loan program, is now facing a lawsuit from 175 borrowers who claim the bank was operating a flipping scam. Denying that it engaged in fraud, a bank spokesman said the borrowers will be expected to repay the loans.

Coast Bank was hit with the lawsuit over allegations a former vice president of the beleaguered bank persuaded them to participate in a scam to flip newly constructed homes for substantial profit.

The borrowers say the former head of the bank’s residential loan department “concocted a scheme by which individual investors would be solicited to purchase residential lot/home packages in Florida with the promise of no money down … with the intent that the completed packages would be sold at a substantial profit before the issuance of the certificate of occupancy for the home.”

Instead, the borrowers say they have been left with unimproved lots and unfinished homes in Sarasota County that have been tied up in the builder’s bankruptcy. According to the lawsuit, the builder stopped work on the homes in November 2006 and filed for bankruptcy in April 2007.

The plaintiffs also claim the bank and American Mortgage Link, the only mortgage company named in the lawsuit, extracted excessive fees, some of which were not disclosed. American Mortgage could not be reached for comment.

Bank spokesman Tramm Hudson said that, while the bank has been attempting to work with the borrowers, its efforts have been hampered by the builder’s bankruptcy filing. He also pointed out that the bank did not solicit the investors’ business; rather, it was offered loan packages that already included a mortgage broker, investor and builder.

“We will enforce our contract remedies under the notes and the mortgages,” Hudson said.

Plaintiffs’ attorney Alan Tannenbaum said Coast was “hijacked” by the loan officer it made head of its residential lending department. Tannenbaum said the originator wrote about 500 of the deals in his two-and-a-half year tenure with the Florida-based bank. Tannenbaum also said the originator’s wife formerly headed up the bank’s processing department.

The borrowers have asked the court to rescind the mortgages and have accused Coast of fraud, breach of fiduciary duty by failing to protect the borrowers and racketeering.

The disgruntled borrowers aren’t the only ones going after Coast.

Regulators issued a “cease-and-desist” order against the bank earlier this year, criticizing its directors and management for “unsafe or unsound banking practices” in regard to its residential construction loan program. In agreeing to the order, the bank neither denied nor admitted any unsafe or unsound banking practice or any legal or regulatory violations.

In addition, Coast Bank shareholders have also filed suit against the company.

Mortgage Expert

Mortgage Daily Staff



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