Parish collapse leaves contractors stuck with unpaid expenses

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.

Four people have pleaded guilty in the case since September -- an appraiser, a bank loan officer, a real estate closing agent and a straw buyer. The Commerce Department recently revoked the license of one of them, appraiser Donald Todd Yeager, who admitted to inflating appraisals by $50,000 to $100,000 on homes built by Parish.

The department expects to file "multiple enforcement actions" against licensed professionals within the several months in connection with the alleged scheme, spokesman Bill Walsh said.

Years to recover

Alness said it will take years to recover the $298,000 in unpaid bills from Parish. "That represents more than all of our profits for the entire year," he said. "It's huge."

Twice this past year, builders have failed to pay Pamela Jewison, co-owner of Allied Excavating, for work on area homes. Her unpaid bills: $155,000. Her complaints to the Minnesota attorney general's office have been unanswered, she said.

"We're talking about people's lives here," she said. "There are people out there who won't be able to survive this."

Several contractors said they were lured by promises of steady work as other builders were scaling back. In just four years, Parish built 125 homes at "Prague Estates," a project in New Prague. Most of those homes are in foreclosure, according to Le Sueur County officials.

Brian Jones, the trimming contractor, recalls a meeting last year with Troup. "He said, 'I'll have 100 houses a year for you guys to do,'" Jones said. "In this market, that was salvation."

At least four contractors said Parish owes them six-figure sums. Minnesota Concrete Structures said in a recent lawsuit that Parish failed to pay it $692,484.65.

Contractors' losses are exacerbated by the severe slowdown in new housing construction. The U.S. Commerce Department reported Thursday that September new home sales were down 23.3 percent from a year ago, with the most severe decline occurring in the Midwest.

Richard Gabriel, an attorney representing Minnesota Concrete, said the search for unpaid funds is complicated because Parish built in three counties -- Scott, Rice and Le Sueur. Just doing title searches on homes can cost thousands of dollars, and enforcing dozens of individual liens can cost much more.

"A lot of builders will just walk away from this, because it's cost-prohibitive to pursue," he said.

And even those who win judgments may discover there's not much money left. Parish lawyers said money was used to pay subcontractors and other bills.

"This wasn't a situation where the Parishes would take a lot of money and spend it on vacation destinations and a Mercedes," said Ryan Pacyga, Parish's attorney. "It's my belief that it went right back into the development."

But those developments now are suffering. In New Prague, where Parish was most active, local police have responded to several cases of people trying to steal appliances from vacant Parish houses. Earlier this month, the city sent letters to more than 40 mortgage companies that have title to the homes, urging them to cut the grass and do a better job of monitoring the properties.

"We're doing everything we can legally do to make sure the neighborhood is maintained," City Administrator Jerry Bohnsack said.

Chris Serres • 612-673-4308

Chris Serres • cserres@startribune.com