Concord -- Plans to build a new Lebanon middle school on a Route 4 property could be stalled by a lawsuit alleging that the land's seller “fraudulently misled” a bank to which it owes more than $5 million.

After voters approved purchasing the 32-acre parcel, Lebanon School District officials paid just over $1 million for the property on Nov. 7 and began making plans to present a building proposal to voters in March. But a recent legal ruling has threatened to derail those plans.

On Dec. 8, Presiding Justice Philip P. Mangones of Merrimack County Superior Court granted a request by the bank holding a mortgage on the property to continue freezing the proceeds of the sale while bank officials pursue a claim against the property's seller, Erik Moulton and his M&M Equities, LLC.

In a lawsuit filed in November, the bank alleged that Moulton had “been unjustly enriched” by understating the amount of the sale by roughly $1 million.

And as of this week, the bank had not provided the mortgage release needed to put a building proposal forward to voters in March. “They have not done that,” Stephen Girdwood, an attorney representing the Lebanon School District, said in a phone interview.

Nor does much time remain, Girdwood said; The Lebanon School Board has until Jan. 13 to finalize the $23.9 million proposal in time to place it on the agenda for a public vote at Town Meeting time. “For us, it's a timing issue.”

In paying more than $1 million, the district was supposed to get a clear title to the Moulton property on Route 4. But the title is still encumbered by a mortgage M&M took out from First Tennessee National Bank Association. To obtain more than $5 million in mortgage loans from the bank, court records state, M&M used the 32-acre school site and other parcels it owned as security.

In a lawsuit filed in Merrimack County Superior Court on Nov. 21, the bank claims it was "fraudulently misled" by Moulton about the facts under which it initially agreed to release the mortgage for the school land.

The bank alleges that Moulton, the principal owner of M&M Equities, “misrepresented” how much money he expected to get for the property, and to whom he intended to sell it, court records show. Moulton allegedly told the bank that he was negotiating a deal with a private buyer in Quechee to sell the property for $120,000 -- about one-tenth of the price the school district actually paid.

According to the lawsuit, First Tennessee found out the true details of the sale more than a week after the Nov. 7 closing with the school district. According to the suit, the bank was tipped off by an “independent citizen who had his own concerns about the sale of the property to the Lebanon School District.” The suit does not identify the citizen.

The bank argues that it agreed to release the mortgage for $118,000 based upon its belief that the land would sell for only $120,000, according to court documents. The bank claims that it would have demanded a much larger chunk of the $5 million-plus owed had it known that Moulton was selling the property for nearly $1.2 million. (The actual cost to the school district was closer to $1 million, after M&M provided a $150,000 “donation credit.”)

Moulton's Concord-based attorney, Friedrich K. Moeckel, did not return calls from the Valley News. Erik Moulton did not respond to requests for comment.

Girdwood said that as an “innocent third party,” the school district is legally entitled to the mortgage release regardless of the accusations against Moulton.

“The bank issued us a payoff statement,” Girdwood said. “We simply relied on what the lender provided us.”

The $118,000 payoff to the bank was included in the sale price of the property.

Girdwood said the school district has asked the bank to remove Moulton's mortgage lien from the deed to the land, which has been transferred to the Lebanon School District. He said that if the bank won't do it, he would try to get it done by court order.

“We'd be going to the court and asking for an equitable remedy,” Girdwood said. “We're still hopeful that we won't need to go that far.”

Dan Muller, a partner in the Manchester, N.H. law firm representing First Tennessee, declined to comment.

Girdwood said that he's “sitting tight” for now, and that he would give the bank until next week to come through with the mortgage release before pursuing a remedy in court.

“We do have a limit to our patience,” he said.

Martin Downs can be reached at mdowns@vnews.com or (603) 727-3210.