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Investors left with partially completed homes or empty lots are accusing a home builder of charging inflated prices for homes and property and accusing blaming Bradenton-based Coast Bank of failing to keep track of the builder's progress.
The investors owe money for loans arranged through a packaged deal with Construction Compliance Inc. of St. Petersburg and Coast Bank. Last week Coast notified investors a developer said it could not complete work on 482 homes for which the bank had loaned lent $110 million to build.
CCI appears to have closed its Beach Drive office in St. Petersburg and Coast Bank officials say they are investigating the status of each of the loans for homes concentrated in the North Port area in southern Sarasota County and in northern Charlotte County.
Coast Bank officials didn't return calls for comments Tuesday. Rick Denmon with Carlton Fields in Tampa, who is representing Coast Bank, declined to comment on the case. New Jersey investor George Tannous admits he should have known better than to put money into a real estate deal without fully researching the details. But it appeared so lucrative and simple that he overrode years of business experience and tossed in $5,000.
The deal was this: With Tannous' deposit, a home builder pledged to buy a lot in booming North Port, build a home, sell it, and send Tannous 10 percent of the gross proceeds, which he figured might amount to $25,000.
Tannous did not scrutinize the realty company Seashore Resorts LLC of Bluffton, S.C., or the builder, Construction Compliance Inc., or the bank that would handle his mortgage, Coast, said Tannous, 38, of Morris County, N.J.
Now, he owns an empty North Port lot worth at most $30,000 and a $243,000 mortgage.
When Tannous realized something was amiss, he came to Florida to investigate. He looked up comparable sales in the area and concluded that his North Port lot was worth only $15,000 to $25,000, although CCI had charged him $45,000.
He also concluded that the home CCI was supposed to build on the lot would have been worth only $199,000 and not the $243,000 CCI set as its sale price.
"They inflated the price of the homes and lots," Tannous claimed. The bank also failed to ensure the construction company was really building a home with his money, he said.
Port Charlotte attorney Thomas Carrero is representing Tannous and 12 other people who were building homes with CCI. At least another seven are ready to join the group, he said.
"The clients at this point are beside themselves," Carrero said. "There's no way an accident happens 482 times."
Over the course of two years, while Coast Bank continued granting loans for homes to CCI, Carrero doesn't understand why no internal auditing caught the problem. So far every client Carrero has agreed to represent has told him the same story. CCI instructed them to deal with Coast Bank, and only Coast Bank.
Another investor, Joanne Inglese of Sussex County, N.J., said she also paid $5,000 into the investment operation.
"I contacted Seashore (Resorts LLC in Bluffton, S.C.)," Inglese said, "and they planned out a thing for me: 'You pay $5,000 and we'll use your credit, we'll construct a house, and we'll give you a percentage of the profit."
Inglese said she was promised a 10 percent profit from the proceeds of the home's sale. In August she received a letter from Seashore Resorts saying the company would not be able to deliver on the sale of her home and suggesting some Realtors for her to call.
At this point, Inglese thinks she might be on the hook for as much as $75,000.
"I don't know if they were all in cahoots together. It's really hard to say. But CCI is the one who had the money and took the draw and did nothing with the money so I pretty much blame them," she said. "I also blame the bank because why would they release money and not make sure what was being done with the money. That's the purpose of a construction loan. Coast and CCI are both on my black list."
Coast Bank issued a follow-up statement Monday night clarifying the loan situation.
The bank said it had total capital to risk-weighted assets of 15.9 percent as of Sept. 30, which was in excess of the 10 percent minimum benchmark for a well-capitalized institution.
"The bank does not believe that the amount disbursed on the loans, nor the amount committed on the loans is indicative of potential losses, if any, that should occur," the statement read. "The undisbursed $44 million of the $110 million loan commitment will be disbursed as construction progresses in accordance with the loan agreements."
The bank said it is willing to work with individual borrowers to see their homes to completion and repay their debt.
Coast Financial Holdings (NASDAQ: CFHI) stock has lost about 40 percent of its value since Coast Bank announced the status of the loans, but it did close up 62 cents Tuesday at $9.30.
Dozens of liens have been filed in Sarasota and Charlotte counties against CCI. In Charlotte, the company has 90 active building permits amounting to $1 million in work.
According to records available with the Florida Secretary of State's office, CCI has had two officer/directors resign in the past two months, one on Dec. 11 and the other just a week ago.
The Better Business Bureau said only one complaint about CCI has been filed in the last 36 months and the company maintains a satisfactory record with the organization.
In order to have a satisfactory record, the company has to be at least a year old and have no unusual volume or pattern of complaints or law enforcement action. The claim alleges CCI either delayed completing a service, failed to provide promised service or delivered damaged merchandise. The records state that the company resolved the complaint.
Coast Bank has two complaints on file with the bureau in the last 36 months but also maintains a satisfactory record. One complaint alleged failure to honor company policy or a verbal commitment to provide refunds, exchanges or credit for products or services. The other claim was an alleged customer service issue. Both have been resolved.
By BRIAN NEILL, SARA KENNEDY and MELISSA FOLLOWELL
Herald Staff Writers
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