Several local banks, including First National Bank of Durango, Mancos Valley Bank and Citizens Bank of Pagosa Springs, accuse developers and a bond underwriter of misrepresenting the merits and risks of investing in the project. The three banks are affiliated through common ownership.
According to the complaint, First National Bank of Durango received a phone call in early 2006 from a bond salesman soliciting a bond offering supporting a residential community called Lincoln Creek Village, to be located in Douglas County near the town of Parker, in the southeastern Denver metropolitan area.
The bond underwriter, Stifel, said the developers were affiliated with the largest multi-family building business in the Denver area, were widely respected and always met their financial obligations.
The bond underwriter and developers hosted a visit in early 2006 for First National Bank to a recently completed development that was to be similar to the planned development. They then visited the site of the planned Lincoln Creek Village, where First National Bank of Durango was assured construction was imminent.
Developers planned to build 144 homes in 2006 and another 292 in the next three years. At full build out, it would include a community center and other amenities, developers promised.
But in early 2008, the bond underwriter disclosed that the developers had built only eight or nine houses, and, apparently, none in 2006. In July 2008, the encumbered property belonging to the developer went into foreclosure.
The defendants have blamed the recession and the housing crisis, but plaintiffs argue the bond underwriter and developers formed a civil conspiracy to misrepresent key facts about the proposed development.
The defendants knew or should have known that the developers had no intent or genuine expectation to build the homes at the rate described, the complaint says. They also misrepresented a development loan, including the amount available for future borrowing, the complaint says.
Additionally, the bond underwriter omitted financial statements that would have revealed the developers were undergoing financial stress.
First National Bank of Durango would not have purchased the bonds had the omissions and misstatements not occurred, the complaint says.
The trial is before Chief District Judge Gregory Lyman.
shane@durangoherald.com