First Guaranty Bank (FGB) has filed a civil lawsuit in Louisiana against Pat Graves, Hammond, Louisiana, who was formerly vice-president of mortgage lending for FGB and Jamy Kiger, Denham Springs, Louisiana, who was formerly a loan originator at FGB.

According to the complaint, from March 2004 through February 2005, Kiger and Graves engaged in different schemes including generating false banking documents and false loan applications. These documents were purportedly used to obtain short term construction loans for individuals to construct their personal residences but in fact, according to the complaint, the loans were intended to build a home for speculative investment purposes.

In all, FGB alleges that it made 179 construction loans.

According to the complaint, the scheme worked as follows:

Certain developers would solicit individuals to participate in a ‘no money out of pocket’ investment in which an individual could realize a substantial profit – typically estimate to be between $40,000 and $60,000. The investment simply required that the individual use his name to obtain credit and sign certain loan documents. Once the loan was secured, the developer would convey title to a residential lot for a contrived price. The individuals would select a pre-designed house plan which the developer would arrange for a builder to construct – purportedly at a discount – which in turn would reputedly allow the completed house and lot to be sold for a much higher value. The developers would make arrangements for a short term construction loan which would be paid off once the house was completed and sold. The developers assured the solicited individuals that the developers would make the interest payments on the construction loan until constructions was completed and the house was sold – notwithstanding the fact that the loan was in the name of the solicited investor.

The vast majority of the loan applications were prepared in such a way as to indicate the purpose of the loan was to finance or refinance the construction of a primary residence – even though the borrower did not intend to live in the property. The developer would also obtain an appraisal based, in part, on the inflated purchase price assigned by the developer to the lot on which the house would be constructed and purportedly on plans selected by the individual investor. The loan documents- including a mortgage loan commitment from another lender purporting to commit to permanent financing – would be sent to Kiger by the mortgage broker. These documents usually contained material misstatements including an overstatement of the borrower’s income and false statements concerning intent to occupy. Kiger would then prepare an undated loan application without speaking to or contacting the borrower, on which she would falsely increase the amount of the stated income shown on the loan application. She indicated it was for financing construction of a permanent residence although the document received from the mortgage broker showed that the loan was not for a primary residence. Kiger would then forward the unsigned and undated loan application she had prepared, the appraisal and the false loan commitment for approval by Graves, whose job it was to approve loans for funding.

When the loans were closed, a significant portion of the loan proceeds would be immediately drawn and paid to the developer for the purported purchase price of the lot – which was typically many times the actual purchase price paid.

As a result of the scheme, many of the home loans are in default; construction on many of the homes has not been completed or in other cases, not even begun. Where construction has been commenced, individuals have been informed more money is necessary to complete the homes. Where construction has been completed, individuals have been unable to sell the properties at a profit or in many cases even for sufficient funds to cover the loan and costs of construction.

Although not named as defendants, the complaint identifies other ‘players’ in the alleged scheme as:

Concept Development Group, LLC, Baton Rouge, Louisiana which is alleged to have printed flyers and had representatives which met with individuals in marketing their ‘investment’ opportunity to the public using a ‘no out of pocket’ presentation offering potential return of up to $64,000. According to the complaint, Concept Development solicited to individuals for the scheme in the Lamonte, Manchac Harbor, Pelican Point and Woodbridge developments and that sixty-eight interim construction loans made through FGB were related to Concept Development.

Frank (Trey) Asford III and Brett Bernard who are both alleged to have been members of Concept Development.

Development Concept Group LLC who is alleged to have employed the same scheme in soliciting individuals in the Castle Place, Chateau Jon, Manchac Harbor and Woodbridge Developments and to have been related to sixty interim construction loans.

JWM Financial Consultants, Inc. dba Arlington Mortgage, Baton Rouge Louisiana that allegedly acted as the purported funding source for the permanent loan commitments.

Ashley Landry, Courtney Schumacher, Jim Chrishom and Terrance Vessel, all alleged to have been employees of Arlington Mortgage.

David Montgomery who is alleged to have promoted the investment.

Premier Mortgage Funding, Inc., Baton Rouge, Louisiana, which is alleged to have participated in the same manner as Arlington Mortgage.

Ronald S. Courville who was allegedly and employee of Premier Mortgage Funding, Inc.

The complaint contains counts for fraud and civil conspiracy as well as violation of the Racketeer Influenced and Corrupt Organizations Act (RICO.)