Late last year, one of the largest private real estate lenders in Maine collapsed, leaving millions of dollars of Maine real estate in limbo, investments lost, contractors unpaid and tenants unsure of their living situations. The man behind the collapse seemed to disappear as his empire crumbled, leaving the Maine real estate world to wonder: What happened to Scott Lalumiere?

Lalumiere was the president of Portland-based Milk Street Capital, which billed itself as “Maine’s premiere private lender.” Milk Street Capital, also known as MECAP, was a loan brokerage that connected private lenders to borrowers who didn’t qualify for bank loans but were looking for funds to quickly buy and flip properties. Lalumiere also used Milk Street Capital and other corporations to borrow money and purchase and flip real estate himself, much of it distressed and in need of investment to be sold.

Lalumiere and his companies owned at least 84 Maine properties worth about $16 million as of November 2019, according to a Bangor Daily News investigation that reviewed property records from more than three dozen municipalities and every Maine county. That month was when Lalumiere went on what his attorney described as a “medical leave” and gave power of attorney to his daughter. It’s also the time many creditors who had lent to Lalumiere’s network didn’t get their monthly payments — and were told by Lalumiere’s attorney that no more would be coming.

Because Lalumiere’s companies couldn’t pay their creditors, at least 45 properties were turned over to investors and banks, or sold in foreclosure auctions, the BDN found. Others were sold on the market, while still others remain in limbo as lawyers try to divvy up what’s left, which Lalumiere’s attorney said was unlikely to cover the network’s liabilities.

The BDN also found Lalumiere’s network had taken out at least $20 million in active loans when he stepped away from Milk Street Capital in November 2019, according to registry of deeds filings. Without access to creditors’ private business records, it is unknown what portion of those loans had been repaid. But the numbers show that Lalumiere had more loans on his properties than they were worth, meaning the stakes were high to renovate and resell at a higher price quickly.

The disintegration of Lalumiere’s real estate network has meant money lost for lenders, contractors and tenants, mostly in southern Maine. The properties are located from Saco to Bangor, but the majority are in Cumberland, Androscoggin and York counties. It also shows the risks inherent in the world of private or “hard money” lending, an almost totally unregulated yet, some argue, vital part of the real estate industry.

Dale Williams Sr. sits at his dining room table in Gorham on May 7, 2020, amid moving boxes and the crutches he just got off, following hip surgery. Williams and his wife are being forced to leave the house they thought they were leasing to own. “We made this place a home,” Williams said. “These guys have ruined us.” [Troy R. Bennett | BDN]

Lalumiere did not respond to multiple requests for an interview. He has proven equally elusive to former colleagues looking for information about their livelihoods, investors seeking details about their losses, tenants wondering about their homes and lawyers trying to serve him with lawsuits.

Richard Olson, Lalumiere’s attorney, declined to make his client available for an interview, citing pending litigation. Olson confirmed that his client was “living temporarily in Maryland,” where his brother Todd Lalumiere owns several Dunkin’ franchises. Todd Lalumiere did not respond to requests for comment.

Olson was not aware of any precipitating event that caused Lalumiere and his companies to go under. “At some point, you can’t make that monthly payment, and things spin out of control pretty quickly,” Olson said.

There are also no current plans for Milk Street Capital to file for bankruptcy, as it would not provide any benefit to the creditors who are trying to recover the money they loaned to Lalumiere and his companies, Olson added.

Scott Lalumiere meets with the Wiscasset Planning Board in this 2018 photo by wiscassetnewspaper.com.

“The majority of creditors understand that MECAP’s collapse was not caused by malice and most creditors have had long and generally profitable relationships with MECAP and Scott,” Olson said, adding that many of the people who lent to Lalumiere “knew the deal they were being offered was a deal they couldn’t get anywhere else. Not too good to be true, but almost too good to be true.”

People who worked with Lalumiere said his operation collapsed because it became too big to handle, that he had too many properties to keep track of, and that he couldn’t find enough quality contractors to flip the properties quickly enough to avoid mounting expenses, such as taxes, insurance and interest payments on his loans, which can include late fees and penalties. They also said that Lalumiere told them he was bleeding money because of contractors who failed to deliver on the work they promised to complete for him.

As Lalumiere was trying to stay on top of his many business interests, he was also struggling to keep his properties up to code. In October, the BDN highlighted the city of Lewiston’s legal actions against Lalumiere and his companies for failing to fix code violations across nine different properties. At the time, Lalumiere blamed some of his failure to keep his properties up to code on some of the people he hired.

“The [property] management people haven’t done a great job, and I’ve fired some of them,” Lalumiere said.

125 Pine St. in Lewiston last fall, when it was owned by Milk Street Capital. It has since been turned over to one of the company’s creditors. [Josh Keefe | BDN]

But others raised questions about Lalumiere’s handling of his companies’ money. One former employee, Erin Papkee, filed a whistleblower lawsuit against Lalumiere and Milk Street Capital in January, alleging she was fired because she uncovered Lalumiere’s “fraudulent handling of funds.” She also alleged that Milk Street Capital “underfunded projects” and “did not pay contractors on time or in full.” Papkee is seeking at least $179,000 in back pay and damages.

Olson denied the allegations, noting that he did not recall any lawsuits filed against Lalumiere or his businesses that specifically sought damages suffered from wrongful use of funds. (Lawsuits have been filed against Lalumiere and his companies seeking to recover loans or promised payments.)

Former colleagues and business partners said the collapse wasn’t due to a lack of effort. Lalumiere regularly worked long hours, seven days a week, they said. But he had become more somber in the weeks leading up to the day he stepped away from Milk Street Capital, said Gene Villaci, who worked for Lalumiere for three years.

“He got very quiet,” Villaci said. “Then he just didn’t come in one day and nobody got paid.”

One of those lenders who didn’t get paid was David Hirshon, a Portland lawyer who is a partner in LOSU LLC, which had nearly $1.8 million in outstanding loans to Lalumiere and his companies at the time Lalumiere stopped making payments, according to a BDN analysis of deed records. Hirshon said the figure “sounds in the ballpark.”

The loans were for Lalumiere’s enterprise to purchase and renovate properties. The idea was that, after the properties were improved and sold, the loan would be paid back with interest, and Lalumiere and his companies would retain the profit.

But as Lalumiere and his companies began forfeiting properties to Hirshon and LOSU after defaulting on the loans, Hirshon realized that, in many instances, the money earmarked for renovations had never been spent. In total, Lalumiere’s companies turned over at least 22 properties to LOSU since December.

“He never repaired the property,” Hirshon said of one Lewiston property. He decided to tear down another house in Brunswick that he had loaned one of Lalumiere’s companies money to flip because the house was not salvageable.

“[Lalumiere] didn’t put a penny into it,” he said, adding that roughly half of the properties he had taken over had not had any work done on them.

When he began taking over the properties, Hirshon said he also realized many had been accumulating liens for unpaid taxes and sewer and water bills.

Hirshon blames himself in part for not performing the kind of due diligence he would have advised clients to undertake when lending money. He said he would have asked clients investing with Lalumiere if they had looked at the property, if it was worth the money they were loaning on it and if they thought it was a good idea to let Lalumiere hold escrow funds. That’s the money typically held by a third party and then released to the borrower after construction is completed.

“I trusted him,” Hirshon said. “And to the detriment of my partners, we didn’t do the due diligence that we should have done.”

By the end of 2019, many lenders and contractors who had worked with Lalumiere and his companies realized they weren’t going to be paid. In January, Fowler-Greaves Construction put liens on properties owned by Lalumiere companies in Portland and Limerick for unpaid work worth a total of $725,000.

“How can he get away with doing this stuff?” Steven Fowler, the company’s owner, asked, adding that many people had been “burned” by Lalumiere. “When you take money from people and don’t pay it back, that’s stealing.”

Others, even those who lost money with Lalumiere, sympathize with him.

“I kind of feel bad for Scott,” said Wendy Harmon, a realtor who was one of Lalumiere’s many lenders. Harmon said she had done enough business with Lalumiere over the years that she came out even despite the collapse. “I think he’s really burned a bridge in Portland.”

The only way the full truth will come out about what happened to Lalumiere’s companies and the money they borrowed is through the courts, said Villaci. In February, one group of lenders filed a lawsuit against Lalumiere and Milk Street Capital, seeking to get back the $105,000 they lent the company in 2019.

“If people get subpoenaed, the truth will come out,” Villaci said.

‘The only rule … is that there are no rules’

Private lenders take risks on borrowers and properties that banks and traditional lenders would find too risky to finance — and can eliminate blight by turning rundown homes into valuable properties.

“These lenders exist because there is a big hole in the banking system when it comes to the nature of real estate deals,” said Alan Mallach, senior fellow at the Center for Community Progress, a nonprofit dedicated to revitalizing distressed and abandoned properties.

But private lenders are not regulated like banks. In fact, they aren’t regulated much at all because they are lending to businesses, not consumers. The law provides protections for consumers — a couple looking to buy a home, for example — but it assumes businesses and commercial parties have access to lawyers and financial experts, said Will Lund, superintendent of the Maine Bureau of Consumer Credit Protection.

“When I speak to business groups, I explain that the only rule about commercial transactions is that there are no rules,” Lund said. “This is only a slight exaggeration.”

Because of this lack of regulation, private lenders can move quickly. Banks, in comparison, move slowly. They require credit checks, down payments and proof of cash flow. Private lenders often just require property as collateral.

But that flexibility comes at a cost. Private lenders typically provide short-term loans with high interest rates. For example, Milk Street Capital brokered between three-month and three-year loans worth between $100,000 and $3 million, according to the company’s defunct website. The interest on those loans was between 10 to 12.9 percent, with another 2 to 5 percent charged in fees. In comparison, interest rates for 30-year fixed mortgages, the kind consumers typically use to purchase houses, have averaged between 3 and 5 percent in the last five years.

Lalumiere was brokering these kinds of loans — by connecting borrowers and lenders for a fee — and borrowing them himself through his various companies.

The door at 84 Middle Street in Portland, the former home of Milk Street Capital, is pictured May 10, 2020. [Josh Keefe | BDN]

Sometimes the loans were used to improve properties to the point where banks would take a chance on them. In some instances, Lalumiere’s companies would refinance groups of properties with traditional banks. For example, Lalumiere and his companies had at least $3.4 million in outstanding loans with Androscoggin Bank by the end of 2019, according to registry of deeds records.

But by both brokering loans between lenders and borrowers, and borrowing money to flip properties, Lalumiere was engaging in practices that other members of the private lending world avoid.

“I really think you have to do one or the other,” said Lincoln Capital President Todd Miranda, referring to both lending and purchasing property. Portland-based Lincoln Capital, one of the largest private lenders in Maine, lends its own money, Miranda said. It doesn’t look to purchase and flip real estate itself.

If a lender is providing loans to people looking to flip properties, while also flipping properties itself, Miranda said, it is essentially funding its own competition.

“We’re not going to compete against our own borrowers,” Miranda said. “Why would we? We don’t really want to deal with babysitting our own projects.”

It’s not possible to know from the outside how much money in loans Milk Street Capital was brokering, since those transactions are private and only the borrower and the lender are recorded in the registry of deeds. But observers say Milk Street Capital was one of the top private lenders in Maine real estate, along with Maine Capital Group and Lincoln Capital.

“I think historically [Milk Street Capital] has been one of the more prominent private capital lenders. There’s not that many around. But they’ve been among that small group,” said Portland lawyer Thomas Jewell, who represents one of Lalumiere’s borrowers.

Lalumiere’s attorney agreed. “[Milk Street Capital] was certainly one of the better-known sources for non-traditional lending, financing, creative financing and creative lending in the state,” Olson said.

Dale Williams Sr. and his wife are being forced to leave the house in Gorham they thought they were leasing to own. “We made this place a home,” Williams said. “These guys have ruined us.” [Troy R. Bennett | BDN]

While he was making deals and coming up with creative ways to finance flips and projects, Lalumiere was also a landlord for many tenants, some of whom are now unsure about their housing situations.

Some tenants had rent-to-own agreements with Lalumiere’s companies that allowed them to slowly build equity in their homes through monthly rental payments, with the goal of eventually purchasing the house.

But because Lalumiere and his companies borrowed money against those homes, including second mortgages, the properties were handed over to creditors when Lalumiere went under.

One tenant was Christina Davis, who worked as a bookkeeper for Lalumiere. Her lease, which was filed in the Cumberland County Registry of Deeds, gave her the option to buy the South Portland house she rented from one of Lalumiere’s companies at any time for $140,000, with all of her $1,500-per-month rent payments going toward the purchase price.

If she started paying rent in the month after signing the lease agreement in April 2012, she would have been just $2,000 short of paying off the house by January 2020, which is when Lalumiere’s holdings were being distributed to creditors. But she didn’t get it. Even though she swore in an affidavit that she had a claim on the property, Lalumiere transferred the property in February to LOSU, which was the holder of a second mortgage on the property.

It’s unclear how the matter was resolved. Hirshon, of LOSU, said an agreement with Davis had been reached, but not yet finalized, that would allow Davis to stay in the home. Davis declined to comment.

Dale Williams Sr. looks out on the back yard of the house he has lived in since 2012. Williams and his wife thought they were building equity in the property and would eventually purchase it. But after their former landlord’s financial collapse, they are being forced to move out.  [Troy R. Bennett | BDN]

Another tenant, Dale Williams Sr., 55, and his wife signed a lease agreement with Milk Street Capital in August 2012 on a house in Gorham they found on Craigslist. The agreement, which the BDN reviewed, showed the couple had to pay a $4,000 down payment that would come off the purchase price of the home.

But despite that language, the exact terms of the rent-to-own agreement are not spelled out in the lease. Williams said he had a handshake agreement with Lalumiere that $400 of his monthly rent would be taken off the eventual purchase price. Williams estimated that between the down payment, the monthly rent payments, and landscaping and property improvements he paid for, he put $50,000 into the home.

“I know that money is gone,” Williams said. “I blame it all on Scott Lalumiere.”

‘Him disappearing like that, I was completely shocked’

The collapse of Lalumiere’s network was not due to a lack of effort on the part of Lalumiere, who got into the office before the sun came up, said Villaci. He was the only former employee at the Milk Street Capital office who agreed to speak on the record.

Villaci didn’t have an official title at Milk Street Capital, but Lalumiere brought him on board to serve as a sort of unofficial project manager who “tried to get contractors to do what they were supposed to do,” Villaci said. He and his wife also provided loans to Lalumiere’s companies, loans that eventually went into default.

“[Lalumiere] was a magician at getting people together,” Villaci said. “He created all these partnerships with people, made sure they had financing, made sure they had opportunity.”

But his network grew “out of control,” Villaci said. “The system grew too large to handle well.”

Clouds hover over a farmhouse on Route 202 in Greene. Milk Street Capital bought the property in 2018. [Troy R. Bennett | BDN]

As the system grew, Lalumiere became the go-to person for people looking to unload distressed property, Villaci said. Bankers called Lalumiere when houses went into foreclosure and they wanted someone to buy them. Real estate agents called Lalumiere when they found distressed properties that no one else would buy, Villaci said.

“He got all the attention,” Villaci said. “But he also got all the vultures that came along with that.”

It also meant hiring and managing many contractors at a time when there was more work than good help, thanks to the southern Maine housing boom and a tight labor market, Villaci said. Lalumiere paid contractors who didn’t do the work, he said.

But that didn’t stop him from seeking more deals. Lalumiere bought properties that Villaci told him not to, he said. Lalumiere also often bought properties without seeing them first, which meant he did not know the extent of the work they would need, Villaci said.

Eventually, Villaci began refusing to help Lalumiere on some projects. “I wouldn’t do it anymore,” Villaci said. “I thought he was foolish not finding a way to stop the bleeding.”

As he lost money and his network grew, Lalumiere began borrowing more, Villaci said. In 2019, Lalumiere and his companies borrowed at least $5 million, according to an analysis of property records, with more than $1 million of that going toward second mortgages.

One of Lalumiere’s lenders also blamed his financial problems on labor shortages.

“I think he had a great model,” said David Jones, owner of F.O. Bailey Real Estate in Falmouth. “But due to the lack of labor that’s here in Maine, he was not able to get the work done to fix the homes up. And the interest clock ate him up, and it was over.”

Jones said he has known Lalumiere for 20 years and last talked to him in November.

“He confided to me that he could not get people to do the work and that he wanted to sell the homes. But he didn’t tell me he was in trouble,” Jones said. “I could tell he was majorly stressed out. I told him, ‘You need to relax, and find some good people, and get rid of the ones who aren’t helping you.’”

Shortly thereafter Jones heard that Lalumiere was gone. He called, but Lalumiere never responded.

“Him disappearing like that, I was completely shocked,” Jones said.

‘I’m the Donald Trump of Portland’

While Villaci and Jones said Lalumiere failed to hire good help, filings in two lawsuits allege that Lalumiere wasn’t paying the help he had.

In January, Papkee, a former employee for Milk Street Capital, filed suit against Lalumiere and Milk Street Capital for whistleblower retaliation.

Papkee served as a project manager for Lalumiere from October 2016 to January 2019, according to the complaint. The lawsuit alleges that Milk Street Capital “underfunded projects that Ms. Papkee was responsible for, and did not pay contractors on time or in full.” The lawsuit alleges that projects were delayed because “contractors refused to work without pay.”

The suit also alleges that Papkee caught Lalumiere taking funds from his partners for himself and that Lalumiere tried to get her to fabricate business receipts. Papkee declined to comment.

In response to questions about the lawsuit, Lalumiere’s attorney Olson said “we dispute the legal and factual claims and expect to be vindicated at the conclusion of the litigation.”

While Lalumiere had many of his own companies, he was also a partner in a company called LH Housing that bought, sold and managed properties. Lalumiere’s partners included Steve Matthews, a vice president at Milk Street Capital, who has since started a new venture. Matthews did not respond to requests for comment.

In December 2018, Papkee alleged she discovered that funds from the sale of an LH Housing property in Lewiston were deposited into a Milk Street Capital bank account. A coworker at Milk Street Capital then “confessed to Papkee that Lalumiere had told her to wire the money” to Milk Street Capital, the lawsuit states.

Papkee also discovered that Lalumiere was renting out a house in Bridgton owned by LH Housing, according to the lawsuit. But instead of the rent going to LH Housing, the owner of the property, it was being deposited in a Milk Street Capital account.

Papkee went to another partner at LH Housing, Wayne Lewis, and informed him about both instances, the lawsuit states. Lewis declined to comment. Lalumiere and his partners eventually reached an agreement for Lalumiere to return the money.

But after that Lalumiere became “increasingly aggressive and degrading” to Papkee, who believed it was clear that Lalumiere knew she had “uncovered and spoken out regarding his fraudulent handling of funds,” according to the complaint.

Papkee also alleged that Lalumiere asked her to create false documents to use during a lawsuit against a contractor for failing to perform work.

A judge asked Lalumiere to submit detailed invoices matching payments he said he made to a second contractor hired to replace the first. Lalumiere, in turn, asked Papkee “repeatedly” to make up bills, contracts and receipts to match the amounts he told the judge he had paid, according to Papkee. But she refused, “not willing to participate in what she, in good faith, believed to be fraud,” the lawsuit states.

Shortly thereafter, Lalumiere and Papkee had a heated dispute about her refusal to “submit knowingly false information to the court,” according to Papkee. She never returned to work, according to the suit. Lalumiere has not responded to Papkee’s complaint and Papkee’s lawyer said he is trying to find Lalumiere to serve him.

Another lawsuit, this one filed by Lalumiere, produced claims that Lalumiere and his companies underpaid contractors.

In 2017, a contractor named Ryan Palladino put liens against property owned by Lalumiere for failing to pay him for completed work. In response, Lalumiere sued Palladino, saying he broke Maine law by not providing written contracts, in addition to other allegations. (Palladino was convicted in 2012 of stealing $50,000 from the York American Legion Post.)

It was Lalumiere who refused to sign any contracts, Palladino responded in court documents, adding that he could call on many people who had done work for Lalumiere who could attest to the fact that Lalumiere “does not do contracts” in order “to take advantage of smaller contractors for his own financial gain.” Palladino said in court documents that it was “normal behavior” for Lalumiere to not pay the agreed-upon amount in full.

The last filing in the case shows the “parties have agreed to a payment schedule to be completed by June 30, 2019, at which point the case will be dismissed.” Palladino, who represented himself in the case, declined to comment.

Olson, Lalumiere’s attorney, was unfamiliar with the specifics of the case, but he said that “Scott has run an historically successful business with a large number of loyal investors, customers, and contractors.”

Another contractor who worked for Lalumiere said Lalumiere didn’t sign contracts for work. The contractor showed the BDN email exchanges with Lalumiere in which the two sides disagreed over how much money was owed for work done and how much had already been paid.

The contractor asked to remain anonymous because he worried that speaking out against Lalumiere could result in retribution.

The contractor said Lalumiere didn’t worry about contractors going after him for money he owed them. “He told me, ‘I’m the Donald Trump of Portland. Nobody can mess with me,’” the contractor said.

Do you have information about the world of private lending in Maine? Email mainefocus@bangordailynews.com.