June 25, 2019

Charlotte Bankruptcy in the Headlines

210 Trade - Luxury high-rise Condominium Uptown Charolette North CarolinaWhen you’ve been around as long as I have, you call things as you see them.  Maybe that’s why reporters call me to comment on high-profile bankruptcy cases.

Charlotte’s 210 Trade files Chapter 7 Bankruptcy

In case you missed my 2-second TV debut last week on WSOC, here’s a link to what I said about the 210 Trade condominium bankruptcy filing when the reporter asked if buyers were likely to be refunded their earnest money.

Lenders Pulling Plugs

I’ve commented twice on lenders foreclosing on commercial loans at the first sign of difficulty instead of taking a wait-and-see approach.

Last week the story in question surrounded condo developer Ray “Rip” Farris III, who sued his lender, First Horizon Home Loans, and parent company, First Tennessee Bank National Association.  Mr Farris claimed that the companies acted in bad faith when they stopped paying on a $24.4 million loan.

My quote, “You’re free to sign away your life, and you’re free to reap the benefits,” made it into the paper, but it seems a bit obscure.

The quote referred to lending agreements that contain all sorts of terms that give lenders an open door to call loans and push harsh terms on borrowers. Either-do-this-or-we-call-your-loan type terms. Of course, the guarantees make the individuals liable. We are seeing some nutty stuff from banks that have decided to get out of land loans and don’t care who they run over to do it.

I think the reporter cleaned up my original statement, which was  probably more like,

“We have freedom of contract. That means that we have freedom to make a great deal for ourselves, and we have freedom to make damn fools of ourselves.”

More on the story: Sometimes, depending on the facts of the case, I advise clients not to sue their lenders because such cases are difficult to win in NC, where banks hold great sway with the legislature. NC laws favor financial institutions, which means pursuing a case against one can cost millions and result in nothing more than wasted money. I had a builder, who is going through foreclosures and trying his best to salvage what he can with work outs, tell me recently that when this is over he would have a large number of new friends but that none of them would be bankers.

Cornelius Foreclosure

In case you missed this story, a huge project, Augustalee, in Cornelius, NC, was foreclosed by its lenders because it hadn’t met key project milestones. NOT because the developers had missed payments.

Foreclosing when the Loans are Current

Since I originally wrote about the story, The Observer has reported updates on the story, including the most recent news that the original developer has been replaced after a foreclosure auction. The mezzanine lender said the foreclosure resulted from “the borrowers’ failure to satisfy certain milestones and inability to raise additional capital needed to complete the project, including the financing of certain infrastructure and required offsite improvements.”

The developer countered in a lawsuit that the mezzanine lender promised to lend $23.5 million but paid only $19.5 million. Shortly after the fund failed to pay the remaining $4 million, the developers’ senior lender started to foreclose.

If you have business loans, I recommend reviewing them with a qualified attorney. Your legal counsel will identify possible triggers in the agreements that lenders could use to call your loans or foreclose. Lenders have legal departments to guide them in protecting their interests. You need a lawyer to help you protect yours.