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Coast borrowers must wait to learn their fate

By Alan E. Tannenbaum

Published Bradenton Herald: Tuesday, December 11, 2009
By: Grace Gagliano - ggagliano@bradenton.com

TAMPA — Coast Bank borrowers will have to wait until Dec. 21 to get their day in court in what has become a lengthy evidentiary hearing in the Philip Coon case.

It was expected that some of the six Coast Bank borrowers Sarasota attorney Alan Tannenbaum plans to call to the stand in the hearing would be heard Thursday.

However, Tannenbaum, who represents 152 Coast Bank borrowers, spent Day 4 in the hearing cross examining the government's witness Derek Houston, who took the stand as an expert witness in real estate and construction.

Tannenbaum used two hours of the two and a half hours scheduled Thursday to further argue his clients deserve restitution because the builder drew from their loan funds to pay the closing costs.

Former Coast Bank executive Coon will be sentenced Jan. 25-29 for wire fraud and money laundering. Coon added an extra point to borrowers' loan origination fees and kept 75 percent of the proceeds generated from that added percent. The evidentiary hearing will decide if Coast Bank borrowers suffered financial harm as a result of the crime and deserve restitution.

During cross examination of Houston, Tannenbaum pointed out that because the loan origination fee was inflated Construction Compliance Inc. had less money in the fixed-rate construction budget to complete the homes for borrowers. Construction Compliance Inc, which was owned by Jesse Battle III, defaulted on 482 home construction contracts for Coast Bank borrowers. Battle filed for Chapter 7 bankruptcy in January 2009.

As a result, Tannenbaum said the borrowers suffered because they had no completed homes yet Coast Bank still pursued them for payment.

'The (borrowers) are being negatively impacted because there was potentially too much spent at the beginning of the job leaving not enough at the end of the job,' said Tannenbaum, referring to the loan origination fee that was paid at closing.

Houston agreed the added point on the loan origination fee negatively impacted disbursements from Coast Bank loans to Construction Compliance, but added the terms were agreed on by both parties.

'Based upon agreed upon terms, the disbursements were made in accordance to the contract,' Houston said.

But in the government's recross examination of Houston, the witness agreed with assistant U.S. attorney Rachelle DesVaux Bedke's argument that it wasn't just the inflated loan origination fee that contributed to Construction Compliance's financial problems.

'There were a myriad of problems that contributed to CCI filing for bankruptcy,' DesVaux Bedke said.

Houston said he agreed the increasing cost of construction at the time, a shortage of qualified subcontractors available to CCI to build homes, delays in the permitting process and the collapse of the real estate industry all contributed to the builder's failure.

'So there was no single factor that led to CCI's demise,' DesVaux Bedke said.

Full post as published by Florida Community Association Construction Law Blog on December 12, 2009 (boomark / email).