Developer claims ‘in-house’ EBS broker inflated site’s value

A DEVELOPER being pursued by the Educational Building Society over loans of €8.4 million has claimed the society got its own “in-house” broker to hugely inflate the value of a development site to e10m to ensure his loan application was successful.

The valuer was “fully dependent” on the EBS and had said he was told “from Dublin” to make the valuation, David Dempsey told the Commercial Court yesterday.

Mr Dempsey said the valuation “got me into this mess” and he “stupidly” relied on advice from EBS to “flip on” the site in Co Tipperary, which had an asking price of €6.6m, rather than build on it.

When he took on the loan, he only had €900,000 in unsecured assets but did have a solid track record in small scale building, Mr Dempsey said.

EBS wanted “to aggressively grow their development finance department, it appeared very little would stop that growth,” and “David was about to do business with Goliath”.

Mr Dempsey, of Clonough, Gorey, Co Wexford, representing himself, was resisting an EBS application for orders requiring him to repay €8.4m advanced to him in 2006 on grounds of alleged culpable conduct by the society. He claims the loans were corruptly processed and advanced without the EBS seeing the site.

The society has denied the claims as untrue, “far-fetched” and not credible. A senior EBS manager also said she never advised Mr Dempsey to sell on the site or what he should do and was “shocked” he had falsified figures in his statement of affairs which the society relied on.

Mr Justice Peter Kelly yesterday ruled Mr Dempsey had made an arguable case to counter-claim against the EBS for damages over alleged negligence and breach of duty in relation to loans of e7.91m, now totalling some e8.4m, advanced to him in 2006 to buy the lands in Co Tipperary. It was not possible at this stage to establish where the truth lay, he added.

The judge said Mr Dempsey had agreed he was given and had used the monies and the EBS was entitled to judgment against him in a sum of e8.4m. However, the judge placed a stay on registration and execution of that judgment order pending the outcome of the hearing later this year of Mr Dempsey’s counter-claim.

While praising the manner in which Mr Dempsey presented his case, the judge suggested he try and get legal advice. Mr Dempsey, whom the court was told has borrowings of e30m, said he could not afford lawyers.

Mr Dempsey agreed with the judge, if the “mad property bubble” had continued, neither he nor the EBS would be in court. He was in court “to expose the truth” about how loans were processed and believed he spoke for many people.

In his counter-claim, Mr Dempsey alleges he told the society he had no money but EBS was committed to approving the loan and told him he would be “crazy” not to do the deal.

He claims he was advised to substantially increase valuations on some of }his properties, including a site in his mother’s back garden which he valued at e70,000 but the EBS advised him to have it increased to e400,000. Those increased valuations gave EBS its additional security, he said.

Mr Dempsey said he also exaggerated a statement of affairs which he sent to an accountancy firm to have copied onto their headed notepaper. The firm said it would not sign the statement until it checked it but the EBS accepted the draft unsigned statement.

It was convenient for the EBS “to establish I was worth e27m when I never knew this and my accountant never knew this,” he said. He did not believe he was ever worth that sum.

In its action, EBS claims it agreed in May 2006 to advance some e7.91m to Mr Dempsey to facilitate his purchase of 20 acres of lands at Tyone, Nenagh, being sold with planning permission for 199 residential units and a creche.

The society claims the loan was secured by charges over the Nenagh site and other properties and was due for full repayment in May 2008.

The society claims Mr Dempsey altered his account of events in affidavits, that he had put the e10m value on the Nenagh site and had told a society official he had offers of e8.6m and e10m for it. It rejects claims by Mr Dempsey he was told by EBS to fabricate those offers.

Counsel for the society said Mr Dempsey had admitted he had inflated the site value to at least e8.6m in his statement of affairs and also admitted falsifying documents.