First Federal Sues Investment Group for Over $1M

First Federal Bank of Harrison has sued an insurance carrier in an attempt to recover more than $1 million tied to losses from a failed subdivision in Northwest Arkansas.

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The financial hit was tied to a 2004 loan to Northwest Arkansas Investment Capital LLC, which was in the business of gobbling up property in Northwest Arkansas and turning it into subdivisions, according to the bank’s lawsuit, filed in U.S. District Court in Fayetteville.

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The bank lent the company $4.2 million to acquire property and develop the first phase of the Borgheses subdivision in Benton County.

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As phase one was nearing completion, NAIC asked for a $3.2 loan to develop phase two of the project. To get the loan, NAIC needed to have sold a certain number of lots in phase one.

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The bank said in its lawsuit that it received the sales contracts for phase one, so it lent the money for phase two.

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But the contracts turned out to be forgeries, which the bank blamed on an unnamed agent with Griffin Real Estate Agency.

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When the project collapsed, the bank foreclosed on the property securing the loan and sued the Griffin Agency, which settled out of court. After all the judgments and settlements were paid, a loss of $1.2 million remained for the bank.

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The bank said its insurance carrier, St. Paul Mercury Insurance Co., should cover the $1.2 million because the bank had a Financial Institution Bond, which was designed to cover losses caused by forgeries. But St. Paul hasn’t paid, the lawsuit said.

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The bank is suing St. Paul Mercury Insurance Co. for breach of contract in an attempt to recover the $1.2 million.

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A spokesperson for St. Paul couldn’t immediately be reached for comment, nor could Jenny Garrett, the Rogers attorney representing St. Paul.