An inconvenient builder

Jim McLagan rode the golden crest of the latest moneymaking wave to wash over the American economy. Like many builders, he saw limitless money to be made as banks littered the region with home buying loans like confetti a Macy’s holiday parade.

At the peak of the city’s building craze, McLagan looked toward the end of Division Street and saw his fortune waiting in the wetlands hemmed by Newton and Outlook avenues. So when the city completed a $2.9 million sanitary sewer and water line to the area, he started borrowing. And he didn’t stop until he had amassed more than $5 million worth of loans in less than two years from Home Funding Finders, a Latham-based mortgage banker that once boasted there was no limit to their growth potential.

McLagan’s plan was simple: borrow the money, build the homes, sell them for above the market average and then pay off the loans. But what he didn’t count on is how precipitously the Spa City’s sparkling market would lose its luster, thanks to the inevitable sub-prime lending crash. Less than two years after he sold his first house on the block, McLagan was being hauled away in cuffs, charged with allegedly bilking more than $200,000 from his customers.

News of the arrest riled many small business owners and subcontractors still in the hole thanks to McLagan’s failed speculating. But a whole new layer to the flap was added last week, when the small contractor-turned-high end builder was plucked from the clink by none other than the Spa City’s recently installed Republican mayor. Even stranger was that McLagan promptly secured the legal counsel of E. Stewart Jones, a high-toned shark who has made quite a career of defending embattled Republicans.

J. McLagan Builders began to achieve modest acclaim in 2004, when one of his showcase homes in Stillwater was given the “Best in American Living Award” by Professional Builder magazine and the National Association of Home Builders. By then, he had made a decision to market his business as a high-end custom builder.

When the vastly over-budget sewer project was completed on Bensonhurst and Outlook avenues, it had the effect of turning acres of water-soaked scrubland into prime real estate. McLagan was quick to jump onto the building fray that rapidly ensued. At the time, developing the area seemed like a smart move; the Spa City’s market was at a peak, with home sale averages hovering around $250,000 for even a modest single family.

McLagan decided to one-up this market when he started developing what was then known as the Washington Crossings development. Instead of sticking with the average, he decided to go high style; elite even. Simultaneously, he was building another project called Nielson’s Landing, a development near Saratoga Lake with homes being offered for nearly $1 million.

Initially, McLagan’s excursion in venture capitalism appeared to be paying off. The homes on Outlook Avenue were each selling for more than $400,000, which was far more than what they were valued at. But the good times weren’t going to last long.

By 2006, Banks across the region started tightening up their purse strings as fallout from the subprime lending debacle reached Saratoga Springs, where reckless borrowing caused a massive over-inflation of the housing market. At the time, McLagan ironically served on a panel discussing the buying and selling residential real estate. He advised folks to investigate contractors in advance of signing them onto a project.

“Check the builder's references and go see the homes he has built,” he wisely advised in an article published in the Saratogian.

In reality, McLagan’s world was crashing down around him. Unable to continue his turn and burn style of developing and in the hole for thousand to his subcontractors, McLagan started searching for a ripcord, which manifested itself in the company “Elite Style Builders.” Starting in May 2007, the incorporated company sold four of McLagan’s former projects for a total of more than $2 million.

Meanwhile, things were going from bad to worse for McLagan’s business. County court records show he was sued three times between March and December 2007; two of the suits were for breach of contract. Tom Thibeault, the owner of Adirondack Appliances, told CBS 6 Albany McLagan maxed out his credit and then repeatedly dodged his calls to collect. The small business owner said he eventually sued the builder in small claims court and won back roughly 80 percent of what he had borrowed.

By November 2007, McLagan’s business had no less than $40,000 worth of federal tax liens on it. The hammer finally dropped on McLagan when he could no longer build the homes he had accepted down payments on. He allegedly bilked $158,000 from horse trainer H. James Bond and another $57,000 from a Spa City couple hoping to build on Central Avenue. Sources also claim McLagan stiffed the owners of DeLucia’s deli in Ballston Spa, leaving the owners holding a second mortgage on their property valued at more than $138,000.

But here’s where the story gets bizarre. In what seems like an act of sheer political stupidity, Spa City Mayor Scott Johnson brazenly bailed McLagan out of jail. Johnson would later tell the media he received a sobbing phone call from the builder’s wife, pleading for a $16,000 loan to pluck her hubby from the clink.

The mayor claims his son had befriend McLagan’s son five years earlier and that his act was nothing more than a family friend helping out in a time of need. And perhaps this is partially the case. There are also some suggestions that McLagan recently completed a project at Johnson’s home, which further muddies the waters.

Rationally, Johnson’s act makes no sense. The mayor rushing to the rescue was either a factor of unabashed stupidity or a move to protect a guy who has a few political favors to cash in; or perhaps both. Johnson’s act has willingly armed his opposition with an election’s worth of campaign rhetoric. While some now portray this purportedly benevolent move as admirable, it will look quite different to voters in 2009, once they receive the inevitable glossy mailer boasting Johnson’s record for bailing out big development.

It should also be noted that contractors building half-million dollar homes can usually afford the $1,600 it takes to purchase a $16,000 bail bond. This is especially the case for a fellow still in possession of at least three properties on Outlook Avenue with an aggregate value totaling in the hundreds of thousands. Even stranger is that McLagan can somehow afford an attorney like Jones and suddenly has some well-known names among the city GOP coming to his defense.

In other words, there is a lot more to this story than one fat cat coming to rescue another, despite Johnson’s ludicrous assertion that there is nothing “newsworthy” about the situation. And that story may very well lie with Home Funding Finders, which has a local branch in the Spa City. After all, this was the organization that afforded more than $5 million worth of capital to a builder with a pie-in-the-sky idea to build affluent homes in a historically low-income neighborhood built over recently mitigated wetlands.