125 Pine St. in Lewiston is seen last fall, when it was owned by Milk Street Capital. It has since been turned over to one of the company's creditors. Credit: Josh Keefe / BDN

A lawsuit filed in federal court last week alleges that two of Maine’s largest private real estate lenders and their allies, as well as some of Maine’s largest banks, have been working together to defraud homeowners of the value of their properties.

Three men from southern Maine — Joel Douglas of Gorham, Steven Fowler of Portland and James Lewis of Casco — filed the lawsuit alleging racketeering and fraud against a long list of defendants, including real estate developer and lender Scott Lalumiere and several of his private lending companies.

The lawsuit follows a federal whistleblower lawsuit filed in January by one of his former employees that alleges Lalumiere’s company Milk Street Capital fraudulently handled funds and then fired the employee after she refused to do the same.

It also comes after a Bangor Daily News investigation, published in May, examined the collapse of Lalumiere’s network of companies. The network owned at least 84 Maine properties worth about $16 million in November 2019, which is when Lalumiere stopped paying his lenders, turned over power of attorney to his daughter and left the state.

After the collapse, investors in Lalumiere’s companies lost thousands, contractors went unpaid for work they did on properties owned by Lalumiere’s companies, and his tenants were left with lease-to-own agreements that no longer held weight as creditors divided up Lalumiere’s properties for themselves.

Now, the lawsuit filed in U.S. District Court in Portland on June 24 claims that Lalumiere and other private lenders and banks engaged in a “scheme to defraud” the three plaintiffs out of money and property worth approximately $1.75 million. It alleges the “pattern of fraud” stretches back as far as 2010 and seeks at least $2.75 million in damages.

Richard Olson, the attorney for Lalumiere, said his initial impression of the lawsuit was that it was “preposterous on its face.”

Olson said the plaintiffs think that more than 20 different parties, “including three of Maine’s most respected banks and some of its most respected real estate professionals, invested a lot of time, money and effort to defraud them by, among other things, loaning them money.”

The lawsuit names 21 defendants, including Lalumiere, three corporations registered to him and another where he was a partner until recently. It also names three Maine banks, Camden National Bank, Bangor Savings Bank and Androscoggin Bank, as well as several individuals and corporations who lent to Lalumiere’s operation.

Another defendant is the Falmouth-based real estate firm F.O. Bailey Real Estate and its owner, David Jones, whom the lawsuit alleges helped facilitate the real estate deals at the center of the alleged scheme. Jones did not respond to a request for comment.

Also among the defendants are three former employees of Milk Street Capital who now work at or run another private real estate lending firm, Maine Capital Group, according to the lawsuit. Shawn Lyden, Maine Capital Group’s chief operating officer, was also a partner with Lalumiere at the now defunct Pioneer Capital, according to his biography on the Maine Capital Group website. Neither Lyden nor Maine Capital Group responded to a request for comment.

The defendants are part of an “organization,” according to the lawsuit, that lent money to the plaintiffs under fraudulent terms to acquire their property and then used that property to borrow more money to fund the organization. By using several different corporate entities, the organization shielded “the actual lenders from liability for the fraudulent transactions,” according to the lawsuit.

“We think there’s quite clearly a structured organization,” said Robert Andrews, attorney for the plaintiffs. The goal of that organization is “to get the equity from people’s homes and leave them with nothing. Then they’ll launder the money to make the transactions appear legitimate.”

The lawsuit alleges that Lalumiere, his allies and their companies targeted the plaintiffs, who couldn’t get financing from traditional lenders. In exchange for loans, Lalumiere’s network would take ownership of their property. As part of the deal, it would allow the borrowers to stay in their home as tenants while paying off the loans.

Lalumiere’s company would agree to a purchase-and-sale agreement that would let the tenant buy back the house at a future date. The agreement would establish a price and “a closing date deadline in the distant future,” according to the lawsuit. The tenants would then continue paying the mortgage and in some cases even pay a substantial down payment toward the eventual purchase.

But once the company “had control of the Plaintiff’s money and property” it would sell or transfer the property to another corporate entity in the alleged scheme, the lawsuit said. It would do this without telling the tenants, who still believed they could buy the property under the terms of the purchase agreement.

The companies would then take out loans on the property, usually one from a traditional bank followed by another from a private lender, that would empty the home of its value, effectively turning a real estate asset into a liability. The tenants would either lose the property in foreclosure or be forced to pay off the new loans on the property to keep it. Either way, the money they had put into the property would be lost.

In December 2018, members of the alleged scheme began foreclosing on properties they controlled, according to the lawsuit. This caused Lewis “to lose the home that had been in his family for generations,” Fowler to “lose the home he had built,” and threatened Douglas’ home, “where he was raising his children with their mother,” the lawsuit said.

Their attorney, Andrews, said he believes there are more alleged victims. “I am particularly concerned about anyone who thought they had a rent to own agreement with any of the people associated with Milk Street Capital,” Andrews said.

One of the plaintiffs, Fowler, was going through a divorce in 2017 and needed to borrow a “substantial amount of money,” he wrote in an affidavit. Lalumiere offered to loan him the money but with a condition: Fowler would need to transfer ownership of his Portland home to one of Lalumiere’s corporations. In return, Fowler could still live in the house as long as he made mortgage payments on it.

They also agreed in writing that Fowler could buy the house back for $200,000 at any time, according to the affidavit.

However, Lalumiere, through his company, then took out a $400,000 mortgage on the house from Androscoggin Bank without telling Fowler, according to the affidavit. He also took out a second mortgage from a corporation called TTJR LLC — which the lawsuit alleges is controlled by several of the defendants — for another $151,000.

Fowler said the property has a value of near $600,000 and that Lalumiere “has extracted all of the equity out of my property.”

Olson, the attorney for Lalumiere, noted that “it is difficult for some people to understand that breaches of a promise or bad decisions are not the same as fraud.”

The lawsuit alleges that Camden National Bank and Bangor Savings Bank — Maine’s two largest banks — as well as Androscoggin Bank “all had special relationships” with Lalumiere and lent money to his companies and their allies “without personal guarantees and without regard to debt to income ratios” of the specific companies receiving the loans.

Lalumiere and his companies had at least $3.4 million in outstanding loans with Androscoggin Bank at the time of the network’s collapse in late 2019, according to a Bangor Daily News analysis of registry of deeds data.

A spokesperson for Camden National Bank said the bank did not comment on pending litigation. Through a spokesperson, Bangor Savings Bank declined to comment. Androscoggin Bank did not respond to a request for comment.