Banking Law
More Builders Sue Lenders for Dried-Up Financing
Posted Jul 23, 2008, 05:49 am CST
By Debra Cassens Weiss
Lender liability lawsuits that were popular during the real-estate downturn in the 1990s are making a comeback.
Builders are beginning to file lawsuits that contend their lenders cut off financing for construction projects, threatening their financial viability, the Wall Street Journal reports (sub. req.).
Fearing real-estate losses and under pressure to reduce their exposure, many financial institutions are seeking to pare down construction loans. Some lenders are justifying decisions to stop financing with appraisals that show a project’s value has plummeted. In some cases, the lenders are seeking to enforce personal guarantees to make up for the lower value.
One developer who filed suit is John Thomas. He contends his lender, First Bank, refused to release the final $6 million of a $40 million construction loan for his 222-unit condo and hotel project in Stockton, Calif., the newspaper says. Now liens are encumbering the project and it can’t be completed.
Said Thomas’ lawyer, Matthew Quint: "In our view, the bank took a healthy project and destroyed it."
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