Five years ago, James McLagan seemed poised to cash in on the booming new-housing market for Saratoga Springs’ upper middle class.
His work had been featured on the cover of a national magazine. One of his houses was in the Saratoga Builders Association’s Showcase of Homes.
He had buyers lined up for new homes he planned to build them on prime real estate in Washington Crossings in Saratoga Springs and Nielson Landing in the town of Saratoga.
McLagan had no trouble securing credit accounts with national banks and local stores that deliver supplies to builders.
But in 2006, the business he spent years building started coming apart. Now, multiple creditors and customers claim that McLagan and his companies owe them more than $1 million for unpaid-for materials, work they did on his houses and deposits from would-be homeowners whose houses were never completed.
Those bad business deals caught up to him this year when state and city police charged McLagan with six felony grand larceny counts and a misdemeanor charge of scheming to fraud.
According to public civil records, McLagan owes $1.2 million to various creditors, which includes at least $17,000 in added interest and fees.
Although there is no bankruptcy application on file for McLagan in federal bankruptcy court in Albany, he appears to be in tough financial straits.
Scores of mechanic’s liens have been filed against him and his companies, J. McLagan Builders, J. McLagan Custom Homes and Elite Style Builders. He has been charged with six felonies, allegedly for taking deposits from customers and not building their homes and for failing to pay creditors.
Foreclosure proceedings have begun on the Malta home McLagan, 55, owns with his wife, Maryanne, at 11 Lake Ridge Drive. The lender, CitiMortgage, says in court papers that the couple still owes $317,298 of the original $333,700 principal.
McLagan allegedly defaulted on a vehicle loan for $10,000 and a $100,000 business line of credit. A $25,822 federal tax lien has been filed against him for alleged nonpayment.
McLagan declined to be interviewed for this story, so it’s unclear why he ran out of money.
Rich Martin, a builder who also investigates builders for the Saratoga County district attorney’s office, said a small builder can get behind on funds very quickly.
“It only takes one or two houses to go under,” said Martin, owner of Northern Dean Inc. and Construction Evaluation of Saratoga Springs.
Builders are most likely to fail when they get too optimistic, he said: “When times are good, when things are selling like crazy like they were two or three years ago, it looks easy.”
Local companies hurt
In 2006, when Wallace Allerdice checked out McLagan’s credit application, the builder seemed like a clean bet, and Allerdice approved his credit account.
“He was paying, and all of a sudden, he didn’t pay anymore,” said Allerdice, who owns Allerdice Building Supply of Saratoga Springs.
McLagan made his last payment to the local company in August 2006 for $10,000.
After that, he racked up $60,782 in charges for delivered supplies and never paid, Allerdice said. That total includes added interest and service charges.
That’s a lot of money for the small local business, but Allerdice admitted that he has pretty much given up on seeing any of it.
“I won’t go spending and taking someone to court if I know there’s nothing to get,” he said.
Allerdice isn’t the only local business that gave McLagan a credit account and then was left hanging with no payment.
Pallette Stone of Saratoga Springs claims in public records that McLagan owes them $165,677 for asphalt, stone and concrete the company delivered to his job sites.
Other local companies say McLagan failed to pay for trash hauling, installing bathroom fixtures and counter tops, painting and appliances.
Buyers out in the cold
One couple’s home was completed, but they can’t buy it from McLagan with clear title because contractors have filed more than $321,000 in liens against the property for money they say they are owed.
Ronald and Charlene DeLucia have sued McLagan to get their $134,600 down payment back for the property on Trask Lane in the town of Saratoga.
McLagan, the suit alleged, took out a $518,400 mortgage on the property in the Nielson Landing housing development in May 2006 while he was building the house, and he agreed to pay the mortgage back using proceeds from the sale.
And a Northville man filed a suit against McLagan alleging that the builder never returned his $26,260 down payment after the man couldn’t buy a house.
The state Supreme Court ordered McLagan to return the payment to Donald W. Hurley, who had signed a contract to buy a house in Nielson Landing in January 2006 and then couldn’t get a mortgage for it.
Can it be repaid?
For the businesses and individuals that are owed money, it’s still unknown whether they’ll get their payments.
“If McLagan has used the money for his own personal expenses, it’s unlikely he has money,” said Saratoga County District Attorney James Murphy III. “We always ask for restitution, but oftentimes there is no money to be gotten in restitution. The criminal system is really ill-equipped to provide money to victims.”
But McLagan’s criminal attorney, E. Stewart Jones, said his client intends to pay all the money back.
“I understand it’s a lot of money,” Jones said. “He made it once upon a time, and he can make it again.”
McLagan is trying to sell some of his properties to pay back the debts, Jones said.
Martin said two of McLagan’s finished homes sit empty.
Public records show that McLagan’s mortgage company and other creditors say he stopped paying his bills sometime last year, after he had already racked up hundreds of thousands of dollars in mechanic’s liens from contractors and creditors.
That may mean he used housing deposits from customers to pay other bills rather than for supplies and contractor labor costs for their houses, which is illegal, Murphy said.
“In these particular criminal charges, we’re alleging that he intentionally stole money and didn’t use the money he was given by the homeowner for materials or products that were to be used specifically in the home that was being built,” he said.
Martin noted that state law requires builders who take money up front to put it into an escrow account and only draw on it for expenses for that home.
Police continue to get calls from contractors asking them to look into more potential criminal conduct, Murphy said.
“We understand that both [state and city] police agencies are continuing to receive calls from those subcontractors and homeowners who are requesting investigations,” Murphy said.
Murphy is not prosecuting the case because of a potential conflict of interest. Assistant District Attorney David Harper once represented alleged victims Richard Jones and Deborah Otto-Jones in his private practice and could be called to the witness stand if the case goes to trial.
Special prosecutor Christopher Belling has been appointed to the McLagan case.
In the cases of Richard Jones and Deborah Otto-Jones and thoroughbred horse trainer H. James Bond and his wife, Tina, of Stillwater, McLagan was accused of accepting deposits from them and then not completing the buildings — $57,600 from the Joneses and $158,000 from the Bonds, court records say.
McLagan was charged in February with felony grand larceny for both of those alleged incidents.
He was arrested again this month and charged with four grand larceny counts after authorities said his failure to repay creditors Harbrook Associates and Highland & Co. Associates amounts to stealing.
Currently, McLagan is free on bail.
The first time he was arrested, Saratoga Springs Mayor Scott Johnson bailed him out. Johnson said then that his son was friends with McLagan’s son and Johnson had known McLagan’s family for years.
When McLagan was arrested this month, Joseph Raccuia of Gansevoort bailed him out.
According to court records, Raccuia had filed a claim against McLagan in court for $125,000 the builder owed him. McLagan paid the debt in April 2007, court records show.