EVERETT — Frontier Bank is suing the Edmonds-based McNaughton Group, stating in court documents that the bank is owed more than $40 million by the real estate development company.
Frontier filed a civil case in Snohomish County Superior Court Monday alleging a breach of contract by the McNaughton Group and listing 10 defaulted loans.
The McNaughton Group is one of the Puget Sound region’s largest land development companies. Village Communities, the home-building arm of the McNaughton Group, is also named in the suit, along with Creekstone, Arbor Grove and Cottage Court — three housing developments.
The suit also states the McNaughton Group’s managing member, Mark McNaughton, and his wife, Marna McNaughton, personally guaranteed the loans, and therefore are responsible for payment.
“This recession has hit banks and the real estate community equally hard,” Mark McNaughton said in a statement Thursday. “Land valuations are clearly not what they were a few years ago and understandably as banks have come back to developers with lower appraisals, they in turn needed developers to find money that simply isn’t there.”
He added: “Clearly, we value our relationship with Frontier Bank and would like to resolve this and move forward as soon as possible. Frontier is a great bank. They have been — and will continue to be — a strong asset in our community.”
The lawsuit won’t stall the company’s other operations, including a high-profile development in Lake Goodwin, McNaughton said.
Frontier President Pat Fahey declined to comment on the suit, saying he won’t discuss ongoing lawsuits or specific clients.
Frontier has struggled under the weight of bad real estate loans for more than a year. The bank faced censure from state and federal agencies and staff layoffs as it tries to free itself from a loan portfolio weighted heavily with construction projects.
A merger with a New York-based acquisition company worth $427 million was announced earlier this year, but bank officials called the deal off this month when it became clear federal regulators would not approve the merger in time for the closing deadline.
Read Amy Rolph’s small-business blog at www.heraldnet.com/TheStorefront. Contact her at 425-339-3029 or arolph@heraldnet.com.
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