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Twin Cities luxury homebuilder investigated for fraud

Posted by: Alejandra Matos Updated: August 19, 2013 - 1:12 PM

From Sunday's Whistleblower Column:

A major luxury homebuilder is under criminal investigation for allegedly cheating homeowners and subcontractors out of millions of dollars.

Keith Waters and Associates of Excelsior, which designed multimillion-dollar homes including musician Lorie Line’s Lake Minnetonka house, has been accused by several homeowners and subcontractors of taking customers’ money intended to pay subcontractors, but never paying them and forging documentation to cover it up.

 

The Minnesota Department of Labor and Industry revoked the license of owner Keith Waters and his business partner Carter Siverson in November after multiple complaints of forged liens and unpaid contracts. Waters and Siverson were both fined $20,000 and the company was fined $80,000.

 

They both filed for bankruptcy in late November, and their victims say they will never recoup what they lost. One homeowner claims to have lost $3 million. Contractors have put in claims for as much as $135,000 apiece.

The Hennepin County attorney’s office says it’s waiting for the Minnetonka Police Department to complete its investigation and is prepared to file charges if warranted.

Keith Waters and Associates made an annual list of the top 25 homebuilders in the Twin Cities in 2009, with gross revenue totaling $9 million despite building just three units.

Waters built mostly luxury homes and commercial space. He designed Line’s home, which was on the market for nearly $4 million last year. Waters also remodeled the home of former U.S. Rep. Jim Ramstad’s wife on Lake Harriet, according to real estate listings.

Ryan Berger and his family chose Keith Waters to build a home and ministry center in Victoria because of his reputation and a low bid.

“He carried such a good name, and you always took his word,” Berger said. “But we had issues from the start.”

Siverson was the project manager for the $1.2 million project. Each month, Siverson gave Berger an invoice with itemized costs from each subcontractor, Berger said. Berger would pay Siverson, who was supposed to pay the subcontractors, who were supposed to send a lien waiver to Berger acknowledging they’d been paid.

The lien waivers came each month, but the subcontractors stopped showing up.

“[Siverson] would say things like, ‘they got busy, but they’ll be here Wednesday,’ but then they wouldn’t show up,” Berger said. “We went through one stretch last summer without a single thing getting done, but we were still making payments.”

When one subcontractor went to pick up their equipment, they informed Berger’s mother that they had not been paid. Berger started calling other subcontractors.

“Almost across the board, [Waters] was significantly behind on paying the subcontractors,” Berger said. “We realized we had over a hundred thousand dollars that he had not paid.”

Berger hired an attorney and filed a complaint with the Department of Labor.

Waters, Siverson and their attorneys would not comment.

Other cases

The enforcement action issued by the department lists several subcontractors and homeowners with claims similar to Berger’s, with one subcontractor reporting that Keith Waters and Associates created a lien waiver and affixed a false signature.

“The lien waiver dated September 13, 2011, falsely claimed that the [subcontractor] had been paid $5,800 for its contribution to [the owner’s] construction project,” the document states.

Another property owner in Wayzata, identified as “owner 6,” said a subcontractor filed a $113,131 mechanic’s lien statement because the company failed to pay for services. Waters and Siverson “advised owner 6 that approximately 26 subcontractors and suppliers are owed a combined total of at least $479,348.”

Waters acknowledged the misappropriation of customers’ payments to the board, the document says.

Several of the homeowners and contractors filed civil lawsuits against Waters and Siverson, according to court records.

In November, Waters and Siverson filed for bankruptcy. Waters has 50 claims totaling $7.4 million against him. Siverson has 23 claims totaling $5.4 million.

Jessica Epp and her husband claimed $95,200 against Waters and Siverson. They hired Keith Waters and Associates to remodel their home in Eden Prairie. Like Berger, Epp said subcontractors were not getting paid.

“Looking back, there were plenty of warning signs. Subcontractors weren’t coming out and we were told they were too busy, or we asked about our front door and they said it kept coming in as the wrong color,” Epp said.

Epp said she does not expect to get back all the money that she lost, but she said she hopes Waters and Siverson will serve time for their actions.

Sgt. Allen Ringate with the Minnetonka Police Department said the department is investigating Keith Waters and Associates “for allegations of contractor fraud involving multiple victims.”

Hennepin County Attorney Mike Freeman said his office is aware of the case and “when it is presented, if the elements of a provable crime are there, we will charge.”

Berger said it’s hard to feel sorry for the men when they “made a decision that cost a lot of people money.”

“I consider them thieves and crooks,” Berger said. “They should get punished for what they did.”

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