Fraud case: Excelsior homebuilders stiffed clients, firms for years

At least $1.2 million in fees that five homeowners and a worship center forked over to luxury homebuilders Keith Waters and Carter Siverson never made it to the subcontractors it was intended for.

According to charges filed this week against the two, their company, Keith Waters & Associates of Excelsior, defrauded customers over a four-year period after taking its $300,000 line of credit to its limit. Waters, 71, who owned the business, and Siverson, 50, a business partner, are each charged with six counts of felony nonpayment for real estate improvements from 2009 to 2012. Siverson is also charged with felony theft by swindle after admitting to forging about 20 lien waivers to obtain construction and personal funds. Neither man has been arrested.

"[The firm], in effect, began robbing Peter to pay Paul," a former business partner of Waters was quoted as saying in the criminal complaint.

The luxury homebuilders had been under investigation since August. They designed the multimillion-dollar home of local musician Lorie Line and remodeled the home of former U.S. Rep. Jim Ramstad's wife on Lake Harriet, according to real estate listings. In 2009, the company made an annual list of the top 25 homebuilders in the Twin Cities.

Before the charges Tuesday, the Minnesota Department of Labor and Industry had revoked the men's contractor licenses in 2012 after multiple complaints of forged liens and unpaid contracts. They and the company were also fined $100,000.

And while $1.3 million was still owed to subcontractors for labor and materials for past projects before the alleged criminal activity even began, Waters still made a $741 monthly payment for his BMW.

In 2012, when Waters and Siverson filed for bankruptcy and closed the firm, they had 73 claims against them for $12.8 million.

Under state law, Waters' company was required to hold construction loan funds received from clients or escrow agents to pay subcontractors. If a contractor fails to use these funds, a theft has been committed and a lien can be placed on the property. This forces the homeowner to pay again for labor and materials to remove the lien.

According to the criminal complaint, Waters and Siverson failed to pay for the construction of two new homes in Minnetonka, to remodel three homes in Wayzata, Eden Prairie and Minnetonka and to build a worship center at the Blessing House Ministries in Victoria.

The victims told similar stories. Soon after the start of construction, work slowed down and subcontractors either walked off the job sites or only occasionally showed up. After confronting Waters' company and receiving excuses, the victims directly contacted subcontractors and learned that the company hadn't paid them, the complaint said.

Siverson forged lien waivers, falsely representing that subcontractors had been paid, the charges say. The homeowners relied on these fraudulent documents to disperse loan funds or to make payments to Waters & Associates.

In some cases, subcontractors received partial payments. A customer who signed a $1.1 million contract for construction of a new home in Minnetonka was potentially on the hook for more than $300,000 in unpaid bills to flooring, electrical, plumbing and stone companies.

In the complaint, Waters claimed he didn't know his company wasn't paying subcontractors until August 2012. But several subcontractors told authorities that Waters and Siverson knew they weren't paying some expenses before that date.

Several of the homeowners and contractors have filed lawsuits against Waters and Siverson. Jessica Epp and her husband claimed $95,200 against the men, whom they hired to remodel their home in Eden Prairie.

"Looking back, there were plenty of warning signs," she said in an interview in August. She said she doesn't expect to get her money back, but she hopes the men serve time for their actions.

Staff writer Alejandra Matos contributed to this report.