Cash crunch with bank derails King William housing project

The trouble started, longtime Hanover County builder Howard Ingalls reckons, when he mentioned to his banker that he was planning to build a beach house in Costa Rica.

That was back in late 2007, as the housing market started softening, and Ingalls discovered it was taking more time and more work than he'd thought to turn several hundred acres of central King William County woods into a subdivision.

He wanted to begin his project with 55 homes priced at about $170,000 each and eventually complete two other phases to build more than 200 homes.

By the end of last year, his plans were dead.

Union Bank and Trust, his banker, had foreclosed on the entire, not-yet-developed subdivision.

Now, there's just a one-lane gravel road curving down from state Route 605 toward Moncuin Creek, a waterline linking the would-be first phase of the project to the system at Central Garage and a few builders' advertising signs.

"I've been here five years and I've never heard of an entire subdivision being foreclosed," said David Reel, executive vice president of the Home Building Association of Richmond. "Maybe in California . . . but it's fair to say it's rare here."

Union Bank President John C. Neal said he couldn't comment on the foreclosure to protect customers' privacy and because the matter is in court.

Circuit court records in Hanover and King William counties show the bank demanded payment on $6.7 million of lines of credits and loans it extended to Ingalls' company, Saymar Custom Homes Inc., all secured by the several pieces of property Ingalls had assembled for the project.

Ingalls was a big customer for the bank: The loans he had with Union Bank and Trust amounted to about 7 percent of all the home construction loans it had outstanding when it foreclosed on the subdivision, according to the detailed financial report the bank filed with Federal Financial Institutions Examination Council.

Neal declined to comment when asked if the bank felt it was prudent to extend that much credit to a single borrower, or whether tightening credit markets last year led bank officials to change their minds on having that much money tied up with a single borrower.

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Early in 2008, Ingalls ex-wife Tracy -- they had divorced a few years earlier -- took some paperwork on the project into Union Bank's Bowling Green headquarters and remembers an odd conversation with Lynn Crossman, assistant vice president at the bank.

"She said to me out of the blue, 'Don't tell anyone that I told you this, but you need to get as far away from Saymar [Custom Homes] as you can,'" Tracy Ingalls remembers. Crossman didn't elaborate at the time. She didn't respond to a request for comment.

Water line contractor Gary V. Layne was nervous enough to ask the bank in the spring of 2008 if Ingalls had the money to cover $572,000 for the water line he was hired to build.

He said bank officials reassured him.

But Ingalls' lawyer, Page Allen with the law firm S. Page Allen and Associates in Chesterfield County, said Saymar Construction didn't actually have that much cash on hand at the time.

Allen made the comment in January in response to a question about Ingalls' company. Ingalls now lives in Costa Rica.

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Like a lot of developers, Ingalls borrowed to finance work on the King William project, which was to start with a 55 lot subdivision called Marle Hill Section IV before moving onto two other phases, called Liberty and West Liberty.

And, like a lot of developers, he expected that the sale of lots over time would generate the money needed to pay off his loans, and, at the end of the day, leave a profit for himself.

Even as the real estate market kept softening last summer, Ingalls managed to sell 28 lots to two builders for just under $1.7 million. The lots are still undeveloped.

With money from the lot sales, Ingalls repaid a $1.47 million loan, and planned to draw on the remaining money to make payments on his other loans, until he could sell still more lots.

But bank officials weren't thinking that way.

In an e-mail to Ingalls a few days before the lot sales closed in July, Crossman, the bank's assistant vice president, wrote that Layne "is looking for money next week" and that Ingalls needed to push to close the deal so Layne could be paid.

Once the sale closed and the loan was repaid, the bank did not turn the excess over to Ingalls, but put it into an escrow account.

"That meant there was no money," Allen said, meaning that Ingalls couldn't get access to it. It meant default because Ingalls had no other resources to keep up payments on his other loans.

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Ingalls also owed others, including contractors and suppliers.

Layne received about half of what he was owed when Ingalls sold the lots. But Layne is still owed $285,000, court records show.

Ingalls also owes $87,600 to the man building the main road in the first phase of the subdivision and $112,000 to other contractors and suppliers.

And there was still plenty of work to be done -- about $985,000 of work on roads and utilities, Ingalls' lawyer said. Ingalls still owed $900,000 for the land itself.

Ingalls needed $5,000 a month to keep the work going, Allen said.

Things were getting fraught.

In an e-mail to the bank, Allen said Ingalls didn't want to meet with the two bank officers who had been involved in his loans because "he's not sure he can remain calm" if he has to listen to what Ingalls characterized as misrepresentations by one of the bank officers.

"What I don't understand is they were working on a new line and renewing the lines of credit," Allen said. "They kept saying, 'We don't want to be the developer,' but they sure don't act like it."

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Default meant the bank could take possession of the partially improved property, but it also meant contractors who had worked on the project but were still owed money were out in the cold.

Layne went to talk to the bank about getting paid.

"They said . . . 'Those are Howard's bills. You don't expect us to pay his bills,'" Layne recalls.

He has since sued the bank in King William Circuit Court, seeking to enforce a series of mechanics liens on the foreclosed property.

Layne also has joined with Ingalls in a lawsuit in King William Circuit Court that sought to stop the foreclosure.

The bank, meanwhile, has sued Layne in Hanover Circuit Court, winning an order barring him from bank property or talking with bank officials.

Contact David Ress at (804) 649-6051 or dress@timesdispatch.com.

Staff writer Carol Hazard contributed to this report.