IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Asheville Division ROBERT W.

NAGLE, Plaintiff, v. ) ) ) ) ) ) ) ) ) )

Civil Action No.

BANK OF AMERICA, N.A., Defendant.

COMPLAINT Plaintiff, by counsel, state as follows for their Complaint against Defendant Bank of America, N.A. (the "Bank"). NATURE OF THE CASE 1. This case involves a real estate development marketed and sold to the Plaintiff

and others by LR Buffalo Creek, LLC ("LR Buffalo Creek"), its parent company Land Resource, LLC ("Land Resource") (together, the "Developers"), and the Bank, through an elaborate scheme designed to artificially inflate the value of lots in a subdivision located in Lake Lure, North Carolina known as Grey Rock ("Grey Rock"). 2. The Developers accomplished this scheme, with the assistance of the Bank,

through various negligent and/or intentional misrepresentations made directly and through instrumentalities of interstate commerce, including direct mailings, telephone calls, electronic mail, facsimile, and interstate commercial carriers. 3. The Developers and the Bank, through their agents, represented to Plaintiff that

Grey Rock would be a luxury resort with numerous amenities, as well as roads and utilities, to serve the lots in the subdivision.

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4.

At the same time the Developers and the Bank were making representations

concerning the numerous amenities that would be built in the community, as well as the timing of the construction of those amenities, the Developers knew that developing the community was impossible because, among other reasons, they were negligently or intentionally permitting or causing the distribution of funds needed to construct the required infrastructure to themselves and to other entities, without consideration, thus rendering the Developers insolvent and unable to meet their financial obligations. 5. The Developers ultimately collected approximately ninety million dollars

($90,000,000) in revenues from the sale of approximately 435 lots in Grey Rock. 6. In 2008, LR Buffalo Creek, affiliated single purpose entities pursuing similar

developments, and their parent company Land Resource, voluntarily filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Middle District of Florida. The various bankruptcy actions have been consolidated and converted into a Chapter 7 liquidation proceeding. 7. LR Buffalo Creek's business model, and that of its affiliated entities, was to sell

lots first and build infrastructure later, or not at all. This led to what Land Resource founder and President J. Robert Ward has euphemistically called "trailing development obligations." Despite generating approximately $90,000,000 in revenue from the sale of lots and despite its "trailing development obligations," when LR Buffalo Creek filed for bankruptcy protection, it had only $905.00 in cash to its name. 8. The Bank was enriched by this scheme to sell lots at inflated prices to the Plaintiff

because, among other reasons, it received loan origination fees that were a percentage of the total amount of each loan that the Bank made to individuals who purchased lots in Grey Rock; it

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received a stream of interest payments on the loans; its employees were compensated based on loan volume; and its executives were compensated in part based on stock performance, which was tied to the Bank's financial statements which, in turn, were enhanced by these loans, at least in the short term. 9. The Bank also aided and abetted the commission of the various acts described

herein as it acted in concert with the Developers or pursuant to a common design, or the Bank knew that the Developers' conduct constituted a breach of duty to the Plaintiff and they gave substantial assistance or encouragement to the Developers. 10. During the time period from 2005-2009, Bank of America promoted "The Bank

of America Net 5 Lot Loan" program and stated in its advertising materials as follows: "Found a lot & plan to build? We'll help you make it happen!" 11. The Bank of America Net 5 Lot Loan program offered lot purchasers interest only

payments for the first five years of the loan, with principal and interest payments thereafter at an adjustable mortgage rate. The Bank of America Net 5 Lot Loan program offered a loan-to-value ratio up to 95% for purchases and 90% for refinances. 12. The Bank utilized the Bank of America Net 5 Lot Loan program to induce

individuals to enter into loan agreements and purchase lots in Grey Rock as part of its aggressive strategy to rapidly increase the volume of its lending business. 13. The Bank, through employees Mindy Johnson, Trey Ford, Stacee Peterson,

Andrea Dickens, Rhonda Brooks, and Marie Sladky made numerous false statements within the scope of their employment designed to induce consumers into entering into loan agreements with the Bank and purchasing lots in Grey Rock and other similar developments.

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14.

During the time period from 2005 through 2008, the Bank and its employees

knew that the Developers were not constructing the roads, utilities, infrastructure, and amenities that it promised at Grey Rock. Nonetheless, the Bank's employees personally participated, directly and indirectly, in inducing, soliciting, or attempting to encourage others to acquire lots in Grey Rock. These individuals, by making the representations described herein, undertook a duty to insure that such representations were accurate, yet they were not. 15. Further, the Bank, as a mortgage lender, had a duty under the North Carolina

Mortgage Lending Act (since repealed) to disclose the true facts, not to misrepresent or conceal material facts or make false promises likely to influence, persuade, or induce an applicant for a mortgage loan or a mortgagor to take a mortgage loan, and not to pursue a course of misrepresentation through agents or otherwise. 16. The Bank is liable for the actions of its agents because each of its employees

committed acts within the scope and course of their duties at the Bank and while exercising the functions of their employment at the Bank that caused injury to the Plaintiff. Each of the actions of these agents was a means or method of doing that which the agent was employed by the Bank to do, which was to engage in the business of selling loans to consumers. 17. Among other claims, the facts herein state a claim against the Bank for violations

of the Interstate Land Sales Full Disclosure Act. Specifically, 15 U.S.C. section 1701(5) defines "developer" as "any person who, directly or indirectly, sells or leases, or offers to sell or lease, or advertises for sale or lease any lots in a subdivision." 15 U.S.C. § 1701(5) (emphasis added). In turn, 15 U.S.C. section 1701(11) defines an "offer" as including "any inducement, solicitation, or attempt to encourage a person to acquire a lot in a subdivision." 15 U.S.C. § 1701(11)

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(emphasis added). Under the plain meaning of these definitions and the facts herein, the Bank is liable for a violation of the statute. 18. The Bank provided consumers with loans to purchase lots in the Grey Rock

subdivision even though it knew these loans posed a high level of credit risk to the Bank because it was participating in a highly competitive lending market, it was attempting to maximize its short-term financial growth, and it was attempting to grow rapidly by making loans that were of low quality but that offered the Bank a premium yield. 19. The Bank instituted a compensation system that was designed to incentivize its

loan officers to make such high-volume, high-yield loans in order to increase the bank's shortterm revenue and thus increase the appearance of profitability on its financial statements. 20. The Bank's executives were motivated to increase the volume of the Bank's loans

receivable and interest income on its financial statements because their compensation was significantly tied to increases in the Bank's stock price, which was, in turn, significantly tied to the Bank's reported earnings. 21. The Bank made short-term, high-yield loans that posed substantial long-term

credit risk to the Bank because its exit strategy was based on the premise that rapid real estate price appreciation would continue to occur in the short term and thus provide a market that would yield a third party purchaser to buy the lots from their customers (with funds from a third party lender) or that market conditions would allow the refinance of those lots with funds from a third party lender. 22. Rock. 23. The Bank was aware that the developers of Grey Rock were using very aggressive From 2004 through 2008, the Bank provided approximately 207 loans in Grey

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sales tactics with elaborate launch events that included helicopter rides, boat rides, formal dinners and sale boars that were used to create demand for lots and resulted in sales of between 50-100 lots in a day. The Bank participated in these launch events by setting up booths in tents alongside the Developers to meet with prospective purchasers of lots in Grey Rock. 24. The Bank and its loan officers were competing with other Banks who were

loaning money to the purchasers of lots in Grey Rock and other similar developments, including the National Bank of South Carolina, Wachovia Bank, BB&T, Carolina First Bank, and SunTrust Bank and thus designed lending programs to compete with these banks for loans in Grey Rock. 25. Land Resource and the Bank agreed that at the closing of each lot purchase

financed by the Bank in Grey Rock, Land Resource would transfer the down payment made by each lot purchaser into an account at the Bank to be used for the payment of the interest payments on the bank's loan. 26. The Bank's loans to consumers had loan-to-value ratios of between 90% and 95%

of the value of each lot, even assuming the appraisals used were actually accurate (they were not). In addition to the financial motivations described herein, the specific actions of the Bank detailed herein must also be understood in the context of underwriting guidelines promulgated by various federal government financial institution supervisory agencies. Certain "Inter-agency Guidelines for Real Estate Lending Policies" were promulgated for banks and other financial institutions by the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. Among the guidelines are the following: Institutions should establish their own internal loan-to-value limits for real estate loans. These internal limits should not exceed the following supervisory limits:

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Loan category Raw land Land development

Loan-to-value limit (percent) 65 75

Construction: Commercial, multifamily,1 and other 80 non residential 1- to 4-family residential 85 Improved property Owner-occupied 1- to 4-family and home equity2 85

27.

Based on these requirements, the Bank decided to engage in a pattern and practice

of mischaracterizing loans on raw land as some other type of loan. By doing so, it was able to maximize its short-term profit and boost its share price, all while evading the scrutiny of its federal regulators. 28. The Bank selected appraisers from the Bank's affiliated entity Homefocus and

other selected appraisers because it knew those appraisers would provide the inflated values necessary to close the Bank's loan transactions with those customers, irrespective of the actual value of each of the lots being appraised. 29. As a result of the actions of the Defendant and others, the sale prices of raw lots in

Grey Rock were artificially inflated, thereby harming the Plaintiff and others.
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Multifamily construction includes condominiums and cooperatives.

A loan-to-value limit has not been established for permanent mortgage or home equity loans on owner-occupied, 1- to 4-family residential property. However, for any such loan with a loan-tovalue ratio that equals or exceeds 90 percent at origination, an institution should require appropriate credit enhancement in the form of either mortgage insurance or readily marketable collateral.

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30.

The Bank's use of inflated appraisals caused higher sales prices for lots in the

Grey Rock subdivision which generated higher interest payments to the Bank on loans that it made in the Grey Rock subdivision, higher fees to the Bank than if the lots had been appraised at their true values, and higher commissions for its loan officers than if the lots had been appraised at their true values. The Bank's use of inflated appraisals also artificially created the impression that lot prices were continuing to increase in Grey Rock and thus caused consumers to continue to purchase lots in Grey Rock. 31. In the aftermath of the taxpayer bailout of the Bank, the Bank named Brian T.

Moynihan its Chief Executive Officer and began to embark on a series of policy changes within the Bank designed to address the Bank's flawed compensation policies, risk management problems, and lack of transparency in the home loan process. 32. In the Bank's 2009 Annual Report, the Bank stated that, "[w]hile we have always

had a 'pay for performance' culture, we have made important changes to our compensation practices to more closely align pay with long-term financial performance and enable the company to recover funds when risks go bad." 33. The Bank's "pay for performance" culture that existed during the Real Estate

Boom caused the Bank's executives to institute compensation systems that compensated loan officers to make as many loans as possible without regard to the credit risk of those loans. 34. The Bank's "pay for performance" culture caused the Bank to incentivize its loan

officers to make as many loans as possible by any means necessary, including by making false statements and concealing material facts from consumers in order to convince them to enter into loan agreements to purchase lots in Grey Rock. 35. The Bank and the Developers aided and abetted the commission of the various

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acts described herein as they acted in concert with each other, they acted pursuant to a common design, or they each knew that the other's conduct constituted a breach of duty to the Plaintiff and they gave substantial assistance or encouragement to the others. PARTIES 36. 37. Plaintiff Robert W. Nagle is an adult individual. Bank of America, N.A. has its corporate headquarters at 100 N. Tryon Street,

Charlotte, North Carolina and is a Developer, as that term is defined by the Interstate Land Sales Full Disclosure Act ("ILSA"), 15 U.S.C. § 1701, et, seq., of real property located in North Carolina. Bank of America, N.A. may be served at its registered agent CT Corporation System, 150 Fayetteville Street, Box 101, Raleigh, North Carolina 27601. MISREPRESENTATIONS TO PLAINTIFF BY SLADKY AND THE BANK 38. The Bank implemented a plan to wrongfully induce Robert Nagle to enter into a

loan agreement to purchase Lot 460 in Grey Rock. 39. Land Resource sales agent Mark Ebert provided Robert Nagle with a list of loan

officers to provide financing for the purchase of Lot 460 and stated that the Bank was the best option to finance the purchase of a lot at that time. 40. The Bank's loan officer Marie Sladky took information from Robert Nagle, during

an interstate telephone communication, which she used to complete the loan application for Robert Nagle to obtain a loan to finance the purchase of Lot 460. 41. Mr. Nagle told Sladky that he had reservations about purchasing Lot 460 because

he knew that banks did not loan money on raw land without at least 50% down; that he had never heard of 5% down on raw land; and that he knew that interest-only loans and land loans were considered the highest risk loans that a bank financed.

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42.

Mr. Nagle asked Sladky if monies were being held back by the bank until the

community progressed. Sladky told Mr. Nagle that the developer was highly reputable and well funded so the bank was releasing all funds at closing. 43. Sladky told Mr. Nagle that he was overly concerned and that since he had been

out of banking for over ten years, he was out of touch. 44. Further, Sladky stated that the Bank was the major lender in Grey Rock, the Bank

did their homework, and that because management felt secure enough to make these loans, he should feel secure as well. Sladky told Mr. Nagle there was more than sufficient collateral in his lot. 45. Mr. Nagle told Sladky that he thought that lots with a price tag of a quarter of a

million dollars seemed high for a new community. Sladky stated that North Carolina high-end communities were expensive and land prices had been going up steadily. She stated that Lot 460 was worth more than Mr. Nagle was paying and he already had built-in equity; therefore he had already made a profit. 46. Sladky told Mr. Nagle that lots similar to his would be priced higher within a

couple months. 47. Sladky told Mr. Nagle that the Grey Rock buyers would be making a nice profit

as the development progressed. 48. Mr. Nagle received his first set of closing documents less than two weeks after

negotiating the purchase of Lot 460 in Grey Rock. Many of the closing documents were incorrect and referred to Lot 461, which he was not purchasing. 49. Mr. Nagle called Sladky and told her the closing documents were inaccurate and

that he was losing confidence in the Bank and wanted to back out of the purchase.

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50.

At this time, Sladky reiterated what she said in the past, i.e., that this was a great

purchase, that demand was high in Grey Rock, and that other buyers were lining up to buy. She said how could Mr. Nagle go wrong buying in an HGTV community? She told me that Mr. Nagle that he would regret it if he let the lot go. 51. Sladky asked Mr. Nagle to go ahead and sign everything and cross out Lot 461,

put in the correct (Lot 460), and initial. Sladky said this way Mr. Nagle would be assured of the incentives the developer was providing for closing. Mr. Nagle was sent corrected documentation a few weeks later. 52. Mr. Nagle did not receive his appraisal for approximately sixty days after closing.

When he did receive it, he discovered that the Bank appraised the wrong lot (Lot 461). 53. Mr. Nagle entered into a loan agreement to purchase Lot 460 in Grey Rock with

the Bank whereby he borrowed $233,410.50 at an annual percentage rate of 6.959% with total finance charges over the 30 year term of the loan being estimated in the Federal Truth in Lending Disclosure Statement to be $354,543.30. This loan was to be interest only for the first five years of the loan and then became an adjustable rate loan at LIBOR plus 2.25% with principal and interest payments due for the remaining 25 years of the loan term. 54. The Bank is legally responsible for the acts and omissions of its employees

committed during the course and scope of their employment. COUNT 1: VIOLATION OF 15 U.S.C § 1703(a)(2) 55. 56. The previous allegations are incorporated. The Bank is a "Developer" as defined in 15 U.S.C. § 1701(5) because, as

described above, it directly and indirectly induced, solicited, or attempted to encourage the sale

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of lots in a subdivision and participated in the advertising of lots for sale in the subdivision known as Grey Rock. 57. Grey Rock is a "Subdivision" as that term is defined by the Interstate Land Sales

Full Disclosure Act ("ILSA"). 58. 59. The sale of the lots to the Plaintiff was not exempt from ILSA. As set forth more fully above, the Bank, as co-developers of the subdivision with

the Developers, with respect to the sale or offer to sell a lot or lots not exempt under ILSA, employed a device, scheme, or artifice to defraud; obtained money or property by means of an untrue statement of a material fact, or an omission to state a material fact necessary in order to make the statements made (in light of the circumstances in which they were made and within the context of the overall offer and sale) not misleading, with respect to any information pertinent to the lot or subdivision; engaged in a transaction, practice, or course of business which operated or would operate as a fraud or deceit upon a purchaser; and represented that roads, sewers, water, gas, or electric service, or recreational amenities would be provided or completed by the developer without stipulating in the contract of sale that such services or amenities would be provided or completed. 60. As set forth more fully above, the Bank, as co-developers of the subdivision with

the Developers, made use of instrumentalities of interstate commerce including telephone and fax communications, mailing, electronic mail, and internet communications to the Plaintiff and others in furtherance of the scheme to defraud. 61. Defendant's violations of ILSA caused damages to Plaintiff. COUNT 2: VIOLATION OF THE NORTH CAROLINA DECEPTIVE TRADE PRACTICES ACT 62. The previous allegations are incorporated herein.

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63.

The Bank participated in unfair or deceptive acts or practices in a scheme to sell

lots at Grey Rock as set forth more fully above. 64. 65. The sale of the lots at the subdivision was in or affecting commerce. As a direct and proximate result of the Bank's actions, the Plaintiff was damaged

in an amount to be determined at trial, with their damages to be trebled pursuant to N.C. General Statute 75-16.

COUNT 3: NEGLIGENT MISREPRESENTATION 66. 67. The previous allegations are incorporated herein. The Bank, through its employees, supplied false information to the Plaintiff and

omitted material facts from statements to the Plaintiff during the course of its business in the process of a loan transaction in which the Bank had a pecuniary interest. 68. The Bank, through its employees, supplied this false information and omitted

material facts for the guidance of purchasers of lots in the Grey Rock subdivision. 69. The Plaintiff justifiably relied to their detriment upon the false information

provided by the Bank's employees, in deciding to enter into a loan agreement with the Bank and purchase a lot in the Grey Rock subdivision. 70. The Bank and its employees failed to exercise reasonable care or competence in

communicating information concerning the present and future value of the Plaintiff's lot and the Grey Rock subdivision to the Plaintiff and the construction of infrastructure and amenities, in an area which involved subject matter which required expertise and investigation beyond the scope of the Plaintiff's knowledge, opportunity and capacity in the exercise of reasonable diligence and involving subject matter within particular areas of expertise by the Bank, which was obligated to

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disclose and in the business of disclosing such information to persons in the position of the Plaintiff. 71. The Bank undertook a duty to the Plaintiff when the Bank, in the course of its

business, supplied false information to the Plaintiff for his guidance. 72. The Bank owed a duty to the Plaintiff and breached that duty by as alleged in

more detail above. 73. The Bank is liable for the actions of its employees, because the Bank expressly or

impliedly authorized their actions. 74. The Bank is liable for the misrepresentations and omissions of their employees

because each of these misrepresentations and omissions were committed within the course and scope of their employment and in furtherance of the Bank's business. 75. The Bank is liable for the misrepresentations and omissions of their employees

because the Bank ratified the actions of these employees. 76. The Bank's negligent misrepresentations proximately and legally caused and

continue to cause the Plaintiff damages in an amount to be determined at trial. COUNT 4: FRAUD 77. 78. The previous allegations are incorporated herein. The Bank, through its employees, intentionally and falsely represented and

concealed material facts relative to the purchase of the Plaintiff's lot, as set forth more fully above. 79. The Bank, through its employees, reasonably calculated that the

misrepresentations and/or omissions listed in this Complaint, and other misrepresentations and/or

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omissions, would deceive the Plaintiff. Had the Plaintiff been aware of these misrepresentations and/or omissions, the Plaintiff would not have purchased their lot in the Grey Rock subdivision. 80. The Bank, through its employees, made the aforementioned misrepresentations

and/or omissions of material fact with the intent of deceiving the Plaintiff. 81. The Plaintiff was deceived by the misrepresentations and omissions set forth in

this Complaint. 82. The Plaintiff could not discover the truth about the misrepresentations and

omissions through the exercise of reasonable diligence. 83. The Plaintiff was induced to forego additional investigation of his lot purchase by

the Bank's misrepresentations. 84. The Bank is liable for the actions of its employees because the Bank expressly or

impliedly authorized their actions. 85. The Bank is liable for the misrepresentations of their employees because their

misrepresentations were committed within the scope and course of their employment and in furtherance of the Bank's business. 86. The Bank is liable for the misrepresentations of their employees because their

misrepresentations were ratified by the Bank. 87. The Bank proximately caused the Plaintiff harm and damages in an amount to be

determined at trial. PRAYER FOR RELIEF WHEREFORE, Plaintiff requests the following relief: (a) at trial; That Plaintiff be awarded compensatory damages in an amount to be determined

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(b) (c)

That Plaintiff be awarded treble damages under N.C. Gen. Stat. 75-16; That this Court award Plaintiff pre-judgment and post-judgment interest as

provided by law; (d) That this Court award Plaintiff his attorneys' fees and costs of this action. JURY DEMAND Trial by jury is demanded as to all issues so triable. This the 10th day of August, 2012. ROBERT W. NAGLE By Counsel /s/Edward L. Bleynat, Jr. Edward L. Bleynat, Jr.[SB#16558] FERIKES & BLEYNAT, PLLC 21 Broad Street Asheville, NC 28801 Steven T. Webster (upon admission pro hac vice) Webster Book, LLP 300 N. Washington Street, Suite 404 Alexandria, VA 22314 Attorneys for Plaintiff

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