From the Herald Tribune:
It sounded like easy money, a no-brainer.
Hundreds turned out to a Long Island Marriott Hotel to hear one of several presentations that led many northeastern investors into perhaps the biggest financial catastrophe of their lives.
So many people showed up for the monthly meeting of the Long Island Real Estate Investors Association that staff at the Melville, N.Y., hotel had to remove two partition panels to convert the banquet room into a ballroom.
As the historic 2003-05 Florida real estate boom peaked, Seashore Resorts LLC, a South Carolina-based real estate investment firm, and its agents regaled investors with stories about Southwest Florida’s magical climate, its low unemployment, its booming demographics and most of all, the potential for 30 percent annual returns on residential real estate.
Seashore pitched “100 percent spec investor pre-construction loans” requiring little or no money down so long as the investor had good credit: a score of 680 or higher.
At that point in the market cycle, the tales of easy money were likely true, but fleeting. By the time most investors were brought aboard, the music had all but stopped, along with the work on their homes. By 2006, the days of easy pickings of low-hanging fruit were over.
The Herald-Tribune interviewed dozens of people who sank their money into the deal. They are mostly working-class people, including retirees on fixed incomes, who, because they were putting little or no cash down, thought they were exposed to limited risk. They were wrong.
About $70 million in pre-construction loans were taken in their names by Construction Compliance Inc., the St. Petersburg company that was building the homes in Florida.
When the builder stopped paying contractors, the investors got hit by liens. When the builder collapsed, the institution financing the loans, Bradenton’s Coast Bank, turned to investors for repayment, despite promises from CCI and Seashore that the home builder would carry all interest payments until the nearly 500 homes were completed.
Scores of investors are now preparing to go to court, saying they were swindled and sucked into a deal where they lost control of their credit lines.