Investments water over the dam at Beaver Pond

Steven Notinger, the bankruptcy trustee, calls the project to develop Beaver Pond Condominiums on Roller Coaster Road in Laconia "a good example of the pervasive fraudulent practices" of Financial Resources Mortgage, Inc. (FRM) and CL& M, Inc.

According to Notinger's filing with the United States Bankruptcy Court, the project began in November 2006 when Good Earth Revocable Trust of 2006 purchased two lots on Roller Coaster Road from Steve Grant of Gilford for $1,325,000. The trustee of Good Earth is attorney Michael Gould, who with his partner Michael Burke represented FRM and CL&M in virtually all of their real estate deals. The beneficiaries of the trust are Susan Farah, the wife of Scott David Farah, the principal of FRM, and T. Gary Coyne, of Meredith, who planned to build the condominiums.

After the purchase, mortgages were recorded in the amounts of $375,000 to Richard Frucci and $175,000 to Raymond Kloepper, both investors with CL&M, as well as a third mortgage for $700,000 to Grant.

Although Notinger wrote that documentation is lacking, both Frucci and Kloepper received substantial interest payments and perhaps some return of principal.

In December, Good Earth assigned a fourth mortgage on the Beaver Pond project to Greatland Project Development, Inc., an affiliate of FRM and CL&M, for $2,210,000 and a fifth mortgage, also to Greatland, for $510,000. Greatland had no source of income to fund the loans other from CL&M, which solicited investors, and Good Earth had no means to repay them, apart from selling the condominiums.

In July 2007, the third, fourth and fifth mortgages — the first to Grant and the others to Greatland — were discharged and two new mortgages to Greatland were recorded, one for $4,029,000 and another for $930,000, both secured by promissory notes.

Several months earlier, Good Earth, FRM or CL&M — or some combination of the three — sold mortgage interests in 31 condominium units to a number of CL&M's investors, each of whom invested about $130,000 per unit. However, Notinger notes, since the project never received the require approval of its condominiums from the New Hampshire Attorney General, the units "do not exist, legally at all, or in most cases, actually, as only a few units are built." Nor were mortgages on the condominium units ever recorded, which leaves the investors with more than $4-million in unsecured claims.

The 31 mortgages on individual units were "net funded" at closing, so that only the closing costs of $7,800 for each loan, of which $6,500 went to FRM in fees, were disbursed while the balance remained with CL&M. CL&M disbursed small amounts of the investors' for property taxes and permitting fees on the project while applying most of the investors' funds to monthly interest payments. Investors received monthly interest payments totaling $1,222,433 from July 2007 until October 2009, nearly a year after the promissory notes secured by the mortgages matured.

Meanwhile, Notinger noted records indicate that the funds CL&M applied to the condominium project itself were drawn on the "Good Earth Blanket loan," or the mortgages to Greatland Project Development, Inc., which only had what money CL&M could entice and assign to it. As a result, while it appears CL&M invested millions in Beaver Pond Condominiums, the current fair market value of the project is less than $1-million.