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Loan deals on shaky ground

By JAMES THORNER
Published January 23, 2007

Construction Compliance Inc. promised surefire investment homes with no money down.

St. Petersburg's CCI would build houses on scattered lots from Hernando to Lee counties. Customers could resell them for a profit without spending a dime.

But the housing downturn has a way of spoiling best-laid plans. Not only has CCI ceased construction on scores of homes, but customers also have been left with half-built shells on which subcontractors are demanding payment.

The banking world is also feeling the shock. Bradenton's Coast Financial Holdings Inc., parent of Coast Bank, announced Friday that 482 mortgage loans made through a single builder were at risk. The bank didn't specify CCI in its filings; however, buyers and their attorneys have since confirmed its identity.

The bank fretted whether the builder's customers, to which Coast committed $110-million, would "satisfy their obligations."

Within hours of the announcement, Coast's stock had plunged, closing down 28 percent Monday.

Neither CCI owner Jesse Battle nor Coast chief executive Brian Grimes returned calls from the Times.

Marilyn Schwegman of St. Petersburg is a CCI customer left on the hook for her builder's unfinished work.

A Realtor acquaintance put her in touch with CCI in 2005. The company would build her a 2,000-square-foot house in Sarasota County's North Port community.

The beauty of the deal was that CCI would make all payments to Coast Bank on the construction loan until closing. Then CCI's real estate affiliate would sell the $237,000 house before Schwegman had to take possession. All profit, no worry.

"Real estate was good. It was going to be a nice little investment turnaround," Schwegman said.

To Schwegman's alarm, certified letters arrived at her house late last year. They were from the company that laid her foundation and a concrete block vendor.

She owes them close to $30,000. Turns out CCI wasn't paying the bills, and the subcontractors came after her.

"I don't know what my options are," said Schwegman, who turned her home contract over to a lawyer. "I'm hoping for a loophole. I'm hoping to pull something from the sky on that one."

Coast Bank is facing the same problem, on a larger scale. Its loans to CCI's customers represent almost a quarter of its portfolio. Until things are sorted out, Coast is forced to stop making residential construction loans.

According to a report that Coast filed Friday with the U.S. Securities and Exchange Commission, CCI told the bank that it lacks money to complete the houses.

In some cases, Coast disbursed money to CCI for construction, but no work was ever done, said Sarasota lawyer Alan Tannenbaum, who represents several disgruntled buyers. Tannenbaum has gotten no answers from the bank or the builder about the money's disappearance.

"So far, there's smoke. I haven't seen the fire yet," he said.

If CCI collapses, individual borrowers have an obligation to meet their mortgage payments, though Coast suggested that some might default in light of the no-money-down deals they were promised.

Buyers like Schwegman are kicking themselves. It all seemed so simple when Coast fast-tracked her loan with scarcely a question.

"The qualifications were almost a joke. I was surprised at the time it was so easy," she said.

Fast Facts:

Coast Bank

Headquarters: Bradenton.

Stock symbol: CFHI, Coast Financial Holdings Inc.

Offices: 20 in Pinellas, Pasco, Hillsborough and Manatee counties.

Assets: $676-million.

CEO: Brian Grimes.

[Last modified January 22, 2007, 23:52:44]