Le Melange, the white condo development on Wilshire and Fairfax that went rental last year is now in foreclosure, according to a complaint filed in Los Angeles Superior Court last month by the lender, Chicago-based Builders Bank. In this case, the bank sought judicial foreclosure and receivership on the property, known as Wilshire Fairfax LLC. The developer is Los Angeles-based Summerland Properties. As far as “judicial foreclosure,” and "receivership," the legal jargon is explained after the jump. Hey, everyone dutifully learned new words like “Sub-Zero refrigerator" during the run up of the housing boom; now, let’s learn about “receivership” or, in the simpler terms, what happens when you try to sell not particularly well-made condos at a major intersection when the real estate market is tanking. And an edited version of the court complaint can be downloaded here.
When recoding a notice of default, a bank will typically file a lawsuit, as Builders Banks has done here, against the borrower and any guarantors, explains Robert Goe, a lawyer at Newport Beach-based Goe & Forsythe, LLP, who specializes in bankruptcy issues. "The reason the bank files the complaint is because it wants to get the building into receivership," says Goe.
As Goe explains, receivership is when a court appoints a trustee to basically take control of the building and protect the assets, including any income that may be coming in. Anything--condos, businesses, more--can go into receivership. While receivership isn't necessarily the end of the line because in some cases the developer is able to repay the loan, it's usually precedes foreclosure, explains Goe.
In this case, local firm Robert Evans & Associates is acting as the receiver (you can see that Wilshire/Fairfax is listed 7th down on the list; you’ll also recognize some of West Millenium’s properties on this list). You’ll also recognize the Villas at Carbon Beach, but more on that later this week.
Back to the suit: In some cases, the borrowers will try and conjure up a cross complaint against the lender, but 99 percent of the time, the complaints are bogus. "It's things like “Oh, the lender told us they’d give us more time,” says Goe.
As far as options going forward, Summerland needs to repay the bank. Or they may declare bankruptcy on the project, but Goe explains that filing for bankruptcy is expensive (paying lawyers' fees, etc), and "typically in the these deals smaller developers don’t have a lot of money. "
The complaint filed notes that Wilshire Fairfax defaulted on a $10 million loan. Builder Banks looks to have the property sold, “with the proceeds of the sale being applied against the debts and obligations secured by the Wilshire Fairfax Deed of Trust..."
Additionally, the same complaint (case number: BC409751) seeks judicial foreclosure on two other Summerland properties: Oreland, LLC, also known as Colton at 1315 Colton Street, and Tierraview, LLC at 215 North Toluca Street & 1314 West Court Street. In those two cases, both the loans are much smaller. Builders Bank isn't seeking receivership on those properties.
Executives at Builders Bank refused to comment on the Le Melange case. Summerland hung up on us (twice) when we called.
· Fairfax Avenue's Le Melange Puts Out Balloons, Opens Doors [Curbed LA]