A former bank examiner at Cornerstone Bank said the bank wrote off $2.6 million on 19 loans that had been approved for a failed development at Johnson's Crook in Dade County, Ga.
Anthony Ray said Tuesday at the trial of two of the officials of the Southern Group that discounting some additional lots transferred by the developers as well as the value of assets it took over, the loss is still some $1.8 million.
Joshua Dobson, 35, and Paul Gott, 40, are facing money laundering and wire fraud charges at Chattanooga Federal Court.
Mr. Ray said he began looking into the 19 loans after payments stopped on them in 2009. He said he was startled to learn that the developers themselves had paid the down payment and mortgages for 14 months before running out of cash.
He said the bank would not have made the loans had it been aware that the buyers "had no skin in the game." He stated, "If your money's at risk, you're more likely to repay the loan."
The witness said of the payments by the developers that "it didn't make sense. If you want to do something for the buyer, then lower the price." Lots at The Preserve were selling for as high as $250,000.
Mr. Ray said, in studying the loans, he found several "indications of fraud."
He said he checked with Sam Moody who had worked closely at the bank with the developers on the loans and he denied that the loans involved "options" in which the firm was eventually to take the lots back.
He said he asked Mr. Moody how loans were approved, for example, for a Florida Methodist pastor with little cash on hand. "He didn't give me a good answer," he said.
The minister, Patty Daniels, said she was told that she would not have to pay any money on the down payment and that the mortgage payments would be paid for her. She said she was advised that the developers would take her three lots back before three years were up and that she would make money "for the use of her good credit."
Rev. Daniels said two different banks were used on her two lot loans.
She said she planned to spend the money on retirement and for her daughter's schooling and wedding.
But she said she began to get calls from bankers saying the loans were not being paid. She and her disabled husband eventually had to declare bankruptcy.
She said when the first bank calls came she telephone Dobson and he assured her that "everything is going to be OK."
Dennis Sanchez of Tampa said he did not have enough money for a down payment, but was told that was no problem. He wound up with $175,000 loans on two lots and also got extra lots.
Mr. Sanchez said he also began to hear from the banks, saying he needed to pay up. "I couldn't afford it," he said.
He said he still has two lots at The Preserve and he has had no offers, even though he has lowered the price to $4,000 each.
He stated, "I have not been paying the taxes, hoping that the bank will take them."
Another Florida man who became involved in the development said he visited Dade County a couple of times to check on the progress of The Preserve. He said he planned to build a house on one of the lots and make money off the other.
He said the project at first "sounded too good to be true." Later, he said, "It sounded like fraud."
He also went into bankruptcy and finally sold his lots for $20,000 each.