business

Looking back, it all seemed too good to be true. Turns out, it was.

During the past two years, as home builders across the nation were slamming on the brakes because of declining housing prices, a little-known Eagan builder, Parish Marketing and Development, constructed more than 100 upscale houses in the southern Twin Cities suburbs.

That many of the new houses sat vacant for months after they were built didn't seem to bother the contractors hired to build them. "So long as we were getting checks, we were happy," said Brian Jones, owner of North Oak Enterprises Inc. of Wyoming, Minn., an interior trimming contractor.

But in July, checks stopped coming, and state and federal investigators came calling on Parish. The builder and its founders allegedly obtained fraudulent mortgages on homes that shouldn't have been built.

Investigators charge that the mortgage-fraud conspiracy led to an estimated $50 million in losses on nearly 200 homes, making it the largest case of mortgage fraud in state history.

The Parish case, one of a string of mortgage-fraud schemes surfacing across the Twin Cities area and the nation, highlights the extent of much damage a single builder can create. For example, Jones, who says he's owed $45,000, expects to lay off his three employees next month -- his first layoff in 17 years of business. And Kyle Elfering, the owner of a small framing business in Stacy, Minn., said he's already laid off half his workforce since Parish stopped building. He's seeking $230,000 in back pay from Parish.

Get in line

Although contractors are scrambling to place liens on Parish homes, their hope of recovering even modest sums is slim, real estate attorneys say. Lenders usually have first priority, and in cases of fraud, where the loans often exceed the home values, there's often nothing left after banks get paid, attorneys said.

The impact is magnified when the fraud involves local builders, such as Parish, that rely heavily on small, independent contractors. In some cases, those contractors become so dependent on retaining a relationship with that single builder that they overlook signs of trouble.

"If there's work, there's a natural human tendency to gloss over the risk and to assume this [builder] is in better shape than he really is," said Michael Stewart, a partner in the finance and restructuring group at law firm Faegre & Benson in Minneapolis.

Looking back, Jones said he should have noticed something was amiss. Parish often issued checks several months after a house was complete, suggesting it was using money from new mortgages to fund earlier construction work, he said. He also found it odd that Parish continued to build after other contractors had stopped.

Given the scale of the alleged conspiracy, some contractors said they were surprised that more has not been done by state and federal authorities.

Last week, Michael Parish and his wife, Ardith, were charged, along with their company and son-in-law, Christopher Troup, with mortgage fraud. Parish and Troup also face one count each of money laundering. While the scheme allegedly involved millions of dollars, charges amounted to just $114,465.60 -- the amount prosecutors say the defendants made in the conspiracy, although the investigation continues.

Transactions connected to the fraud include Parish's purchase two years ago of a $64,566 Cadillac CV XLR and Troup's February purchase of a new $22,973 Chevrolet Avalanche, according to the U.S. attorney's office.

Not included in the allegations: a $960,000 Prior Lake home Michael Parish bought in July.

Officials with the U.S. attorney's office, which brought the charges, aren't commenting on what happened to the rest of the estimated $50 million.

"I question how they arrived at that [$114,000] figure, given how much people are owed," said Brad Alness, owner of Phase Electric in Bloomington.

According to the Minnesota Commerce Department, Parish Marketing used inflated property appraisals to obtain loans for more than the houses were worth. The homes were purchased at those inflated prices by "straw buyers." The illicit sales enabled Parish to raise money and build new houses even after the market turned grim and the units stopped selling.