ASHEVILLE, N.C. (CN) - Fifteen frustrated customers claim Bank of America defrauded them by helping a now-bankrupt developer sell lots without mentioning that "roads, sewers, water, gas, or electric service" were not part of the deal.
In 15 separate federal complaints, homebuyers claim Bank of America aided and abetted the developer of Grey Rock, a subdivision of Lake Lure, N.C.
The bank was so aggressive it set up a booth next to the developer at the site to recruit customers, according to Robert Nagle's complaint, which resembles the other 14.
The plaintiffs claim BofA helped push the lots, but failed to tell buyers that the developer was insolvent and could not complete the promised "amenities," such as roads and utilities.
After selling 435 lots for $90 million, the developer filed for bankruptcy in 2008, without completing the subdivision, and with only $905 in its bank account, according to the complaint.
The developer(s) are not named as defendants. The only defendant is the bank.
"At the same time the developers and the bank were making representations concerning the numerous amenities that would be built in the community, as well as the timing of the construction of those amenities, the developers knew that developing the community was impossible because, among other reasons, they were negligently or intentionally permitting or causing the distribution of funds needed to construct the required infrastructure to themselves and to other entities, without consideration, thus rendering the developers insolvent and unable to meet their financial obligations," according to Nagle's complaint.
Nagle claims: "[Developer] LR Buffalo Creek's business model, and that of its affiliated entities, was to sell lots first and build infrastructure later, or not at all. This led to what Land Resource founder and President J. Robert Ward has euphemistically called 'trailing development obligations.' Despite generating approximately $90,000,000 in revenue from the sale of lots and despite its 'trailing development obligations,' when LR Buffalo Creek filed for bankruptcy protection, it had only $905.00 in cash to its name.
"The bank was enriched by this scheme to sell lots at inflated prices to the plaintiff because, among other reasons, it received loan origination fees that were a percentage of the total amount of each loan that the bank made to individuals who purchased lots in Grey Rock; it received a stream of interest payments on the loans; its employees were compensated based on loan volume; and its executives were compensated in part based on stock performance, which was tied to the bank's financial statements, which, in turn, were enhanced by these loans, at least in the short term."
The buyers say Bank of America financed about half of the lots in Grey Rock and profited from the sales.
They say the bank offered risky loans with a loan-to-value ratio of up to 95 percent, which violated the bank's own lending policy and federal regulations, and made false statements to induce consumers to buy lots in Grey Rock and similar developments.
Nagle claims he told a BofA officer that he was skeptical about financing a lot in Grey Rock with only 5 percent down, and the officer responded that he "was overly concerned and that since he had been out of banking for over ten years, he was out of touch."
The plaintiffs claim Bank of America told buyers that lot prices were going up fast, so they had built-in equity, that the developers were selling lots "at the deepest discount" to attract buyers, and that buyers didn't have to worry about whether they could afford the loans, since they would probably resell the lots before making any mortgage payments.
The buyers say Bank of America knew the high-volume, low-down-payment loans were risky, but encouraged loan officers to make them anyway, to increase the bank's reported earnings, its stock price, and its executives' compensation.
They claim the bank knew that the developers would not build the amenities, roads and utilities they had promised at Grey Rock.
And they say the bank used affiliated appraisers to inflate the prices of lots in Grey Rock and mischaracterized loans to generate higher interest payments, fees and commissions.
The buyers seek compensatory and treble damages for violations of the Interstate Land Sales Full Disclosure Act, deceptive trade, negligent misrepresentation and fraud.
They are represented by Edward Bleynat Jr., with Ferikes & Bleynat.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.