The lawsuit describes more than a dozen loans made to six developers that involved what regulators described as unsafe and unsound underwriting practices. In an interesting twist, one of the developers was Maricopa County Supervisor Don Stapley.
The $5.5 million Stapley loan described in the FDIC lawsuit was relatively small compared to borrowers such as Las Vegas developer Thomas Jurbala, who told ProPublica he received about $100 million in loans from Silver State over a decade. Stapley and entities he owned also received other loans from Silver State, but only one $5.5 million loan is cited in the FDIC lawsuit against the four Silver State bankers for unsafe and unsound banking practices.
Stapley has not been accused of any wrongdoing, but the FDIC said it lost more than $5.2 million on the $5.5 million loan he received in September 2006.
This loan is interesting because in 2009, the Maricopa County Attorney's Office indicted Stapley on 27 separate felony counts—and one of those counts is linked to Stapley's $5.5 million Silver State Bank loan.
Investigators from the Maricopa County Sheriff’s Office accused Stapley of initiating a complex scheme to defraud banks into lending him millions of dollars so he could develop high-end residential properties.
The loan matter is just a chapter in the highly charged dispute between Stapley and Maricopa County Sheriff Joe Arpaio that included the East Valley supervisor being arrested in a county parking garage and ended with two rounds of indictments and charges against him being dropped. It shows some of the complicated, convoluted and sometimes questionable lending and real estate business practices that permeated the Arizona marketplace during the last land boom and bust. Indictments brought against Stapley by Arpaio and former Maricopa County Attorney Andrew Thomas were dismissed or dropped.
In the second round of indictments, Stapley was accused of inflating his assets and lying about his real income by Maricopa County Sheriff's Office investigators to obtain loans from Silver State and Mortgages Ltd. , including the $5.5 loan detailed in the FDIC lawsuit against the Silver State bankers.
Stapley is an East Valley Republican who was briefly in the race for Arizona's new 9th Congressional District but dropped out earlier this month.
Back in 2006, Stapley and entities he owned were involved in developing two separate projects: 19 custom homes in Gilbert, known as the Sonterra development, and 17 custom homes in Queen Creek, known as the Paseo de Pecans development. To finance the projects, Stapley and companies in which he had an ownership stake, borrowed from Mortgages Ltd. to buy undeveloped land for the projects. Most of the Mortgages Ltd. loans were meant to be a short-term bridge until more conventional financing, with lower interest rates could be found.
In September 2006, Stapley’s company, Arroyo Pacific Partners LLC, along another entity, Tangelo Avenue Investments LLC, took out the $5.5 million Silver State loan to pay off a previous Mortgages Ltd. loan.
According to court documents, the Silver State loan officer who gave Stapley the loan, Tim Kirby, based the value of the loan on the estimated value of the finished development project, rather than the raw, undeveloped land.
In the boom years, bankers weren’t concerned about basing the loan values on undeveloped land because appraisals were steadily rising. The problem was that Stapley’s Sonterra project was never finished — and he ultimately walked away from the project shortly before the bank failed in July 2008.
Regulators said the lack of improvements on the Sonterra development site should have been a major red flag for the Kirby. That’s because almost all of the $5.5 million Silver State loan was being used to pay off the previous Mortgages Ltd. loan on property that already was worth much less than the appraisal value.
Maricopa County Sheriff’s Office investigators raised questions about how Stapley was able to borrow millions from Silver State and Mortgages Ltd.
On Stapley’s taxes filed for 2005, the year prior to when he received the $5.5 million loan, he reported a loss of $73,000 on his $60,000 salary.
That’s where this saga takes another bizarre twist.
Maricopa County Sheriff’s Office investigators interviewed Kirby to find out why he had approved multiple loans to Stapley, despite knowing about Stapley’s 2005 tax statement. Kirby told investigators Stapley’s attorney had given him documents describing options agreements between Stapley and companies owned by Arizona land baron Conley Wolfswinkel and Wolfswinkel's family.
Stapley agreed to plege his options income as a personal guarantee on at least one Silver State loan.
Lawrence Rollin, an attorney at Udall Law Firm LLP in Tucson, who has worked with the Wolfswinkel family, said companies owned by Wolfswinkel and Stapley brokered three deals for land options on undeveloped parcels in Pinal County.
In August 2003, Stapley’s company, Arroyo Pacific, purchased a 200-acre parcel in Pinal County from an entity owned by the Wolfswinkel family. Stapley granted the Wolfswinkel company the option to repurchase the property for the same price within the next two years. According to bank records obtained through a Maricopa County Sheriff’s Office search warrant, Arroyo Pacific Investments was paid about $180,000 in options payments from Wolfswinkel between August 2003 and May 2004.
In June 2004, Stapley’s Arroyo Pacific sold 160 acres back to Wolfswinkel for $1.5 million. Stapley earned an additional $113,387 commission on the sale. Wolfswinkel then resold the same 160-acre plot for $4.4 million. The next month, Wolfswinkel purchased the remaining 40 acres from Stapley for $1.9 million. Stapley pocketed another $5,616 in commission.
Stapley then used his profit to broker two additional options deals with Wolfswinkel on two 70 and 80 acre parcels of land in Pinal County. Stapley earned thousands of dollars on the options payments from Wolfswinkel, which he then pledged as a personal guarantee for his Silver State loans.