With credit tightening, commercial real estate struggling and lenders facing liquidity problems, we now have the sad tale of Mortgage Ltd. The courts are now faced with determining who owes what to whom. According to the East Valley Tribune, Mortgages, Ltd. was the state’s [Arizona] largest private mortgage bank involved in financing many high-profile Valley projects. Scott Cole, who was the president and chief executive of Mortgage Ltd., was found dead in his home on June 2nd from an apparent suicide. June 19 it was announced that Mortgage Ltd. was laying off 40% of it’s staff:
Phoenix-based real-estate lender Mortgages Ltd. plans to lay off 17 of its 43 employees to cut costs as it addresses problem spots in its loan portfolio.
The announcement comes a week after the company, which finances the purchase, construction and development of commercial real estate, said it has halted making new loans and stopped accepting money from investors.
Now Mortgage Ltd. finds itself being sued, not by its creditors, but by its debtors: [Thanks L!]
A developer behind several high-profile real estate projects and a construction contractor filed a petition late Friday to force lender Mortgages Ltd. into bankruptcy.
Grace Communities, which is developing the 44 Monroe condominium tower and Hotel Monroe in downtown Phoenix, filed motions in U.S. Bankruptcy Court for the District of Arizona asking a judge to put Mortgages Ltd. into Chapter 7. Separately, the firm also filed a lawsuit against Mortgages Ltd. seeking the $48 million in financing it claims it is owed for the Hotel Monroe project and to get a $100,000 bond from the lender’s regulator, the state Department of Financial Institutions.
If a judge accepts the bankruptcy petition, the Phoenix-based financier would be required to sell its assets. Grace Communities also filed an emergency motion to appoint an independent trustee to take over Mortgages Ltd.’s operations.
Mortgage Ltd. disputes Grace’s claim:
John Clemency, an attorney for Mortgages Ltd., said Friday night that the petition lacks merit because the contractor that signed on with Grace – KGM Builders Inc. – has no direct creditor relationship with the lender.
Law stipulates that an involuntary petition have at least three creditors who are owed at least $10,755.
"From Mortgages Ltd.’s perspective, this is a completely inappropriate petition," Clemency said. "It’s not supported by creditors that have undisputed liquidity claims against the company."
He also disputed claims that Mortgages Ltd. owes the Grace entities money. Central & Monroe and Osborn III Partners are two of five companies that Grace Communities controls that are in default of $120 million in loans they have borrowed, Clemency said.
This isn’t the first case against Mortgages, Ltd:
Mortgages Ltd. settled a large lawsuit over a $47 million loan just three days before Coles died, Maricopa County Superior Court records show. The lawsuit alleged that Mortgages Ltd. had insufficient funds to provide the $47 million loan it guaranteed. The suit is one of eight involving Mortgages Ltd. since January.
L sums up the problem for us:
Grace and others are suing because Mortgages LTD has not continued funding on their projects. Most lenders won’t fund the whole project all at once, they fund it in stages. They give the developer more money as the value on the collateral increases as it is built.
Apparently Mortgages LTD ran out of funds. This is probably due to several reasons– they overextended themselves, their investors have stopped investing, and the ones that are funded aren’t making their payments in a timely manner, if at all. In addition, the values of the projects they have loaned on have more then likely lost value.
Last summer Doom posted this video with the comment Here’s what happens when demand is gone and developers are out of money.
Phoenix appears set to have a few "ghost projects" of its own.
I just got back from Miami (don’t ask WHY I went to Miami in June!!). Downtown Miami looks just like the project he shows at the end of the video and I don’t see why anything there will be different. A lot of projects there that may not pick back up for 5-10 years….if ever???
Oh g**, I remember that video. Thanks for posting it again.
Portland, Oregon is building ghost tower projects on the ‘South Waterfront’ … where there used to be nothing but shipping docks and shipping repair companies. Now, we have several empty condo towers (now ‘luxury apartment rentals), and a tram to nowhere.
Phoenix will just have thousands and thousands of fake stucco suburbs to remove. And no question, in a couple of years, they will start to bulldoze the suburbs of Phoenix.
Queen Creek, Anthem…. we hardly knew ye.
[Slight edit. T.]
Yossarian-
Ghost buildings and ghost burbs are the inevitable conclusion to this mess. According to the Census Bureau, household formation is currently shrinking in the U.S., not growing.
Supply in many areas is such that developers will not be able to hold on long enough to fill their projects. Commercial lenders are hurting, and why would they continue to fund projects that are doomed before they even get the plumbing in?
Igor says “explode” I think “fizzle” is more like it.
Household formation is declining… that’s true. If it wasn’t for the effects of illegal immigration, US population growth would likely be negative.
Didn’t household formation peak back in the 80s?
Just wondering.
No problem on the slight edit, by the way.. I always try to be careful, but should have remembered that one.
Yossarian-
I appreciate your patience. : )
We can’t count on the illegals for household formation anymore. I’ve mentioned before about an “undocumented” friend of mine. A year ago there was no parking on her street. When I stopped by in May there wasn’t a single car. She said her neighbors were leaving in droves.
She returned to Mexico last week.
We are hearing that tougher border enforcement is slowing illegal immigration. I think that it’s just that lots of Mexicans are going home.
Immigration to the US (legal and illegal) tends to track US job growth. That’s often not accounted for in city planning ‘growth’ models.
Oops… that means there will be even MORE unsold inventory of homes.
And overcrowded schools will become ‘merely crowded’ and then later, ‘uncrowded’ …
And yet, and yet… cities and school districts everywhere are still counting on continued growth.
Absurd.