Three Monterey Peninsula investors recently filed suit against Basil and Roger Mills, claiming the Mills brothers tangled the investors in a scheme to buy undeveloped lots at Monterra and then sell back the properties back to the Millses to inflate the price of lots at the development.

According to the lawsuit, Arthur Smith, Jr., Melena Scampa and Douglas Graham all agreed to purchase lots at Monterra in 2002 or 2003. "The investor's investment would be used as a down payment for the purchase of the lot, and the investor would apply for a mortgage for the balance of the purchase price of the lot," the lawsuit says. "Mills agreed to pay for the costs of the loan, the property taxes on the property, and any and all other costs."

But instead of refunding the investors, the lawsuit says Chicago Title forced them to accept their payments outside of escrow and didn't notify the lender, Washington Mutual, of the sales. Graham is still on the hook for the $895,000 WaMu loan even though Monterra owns the property, says Michael Lykken, the plaintiffs' attorney.

"They were really sham sales. It's almost like a Ponzi scheme," Lykken says, explaining that the Millses would use the sales to show real estate activity to attract new investors in Monterra.

David Armanasco, who has acted as a spokesman for the Mills brothers, says Roger has not yet been served with the suit and he does not comment on litigation. Caroyln Wylie, the Chicago Title escrow officer listed on the transactions, declined comment. A call to Chicago Title's county manager was not immediately returned.

The plaintiffs are seeking $1.6 million in losses. The lawsuit is the latest legal trouble for the Millses, which have been tied up in foreclosures and civil suits for more than two years.