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July 29, 2014

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Bank responds to lawsuit over shopping center loan

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Community Bank of Nevada has responded to a lawsuit filed against it April 9 by hard-money lender Jeff Guinn, who claims the Las Vegas-based bank reneged on promises to fund a loan.

Jeff Guinn, who controls real estate lender Aspen Financial Services, charged in the lawsuit that, among other things, Community Bank failed to fund $2.8 million in tenant improvements needed at a Henderson shopping center developed by one of his companies. The bank had earlier funded a $29 million construction loan for the center.

Without the extra money, Guinn charged, the company could not lease space to tenants interested in the center, called the Coronado Canyons development at Green Valley Parkway and Horizon Ridge.

But the bank, in its response filed last month, said the alleged oral agreements to further fund the shopping center development are not enforceable because they were not in writing.

Further, the bank charged: "Plaintiffs have defaulted on some $32.085 million in loans from Community Bank. They brought this meritless action to stall foreclosure on the collateral securing the defaulted loans and to strong arm Community Bank into renegotiating the terms of those loans and nearly $7.828 million in other Community Bank loans that are not in default."

In its response filed in Clark County District Court, Community Bank also offered a simple resolution to the legal dispute. If Guinn and his co-borrowers will repay what they already owe Community Bank on various loans, the bank will happily cancel the loan contracts at issue.

"Community Bank will gladly agree with plaintiffs to rescind these various loan agreements," the bank's response said. "But recission requires that plaintiffs immediately return all of the loan proceeds such that both plaintiffs and Community Bank are restored for the positions they occupied prior to entering into the various loan agreements at issue in this case."

But the prospect of Guinn and his companies immediately repaying Community Bank appears to be unlikely. The bank this week sued one of Guinn's companies, claiming it's in default on a $5.68 million loan for an aircraft and that the last payment on that loan was made in December.

In their April lawsuit, Guinn and Aspen also alleged the bank, in order to leverage its position on the $29 million Coronado Canyons loan, had required Jeff Guinn to put his home in Del Mar, Calif., up as collateral for lines of credit totaling $3.358 million for him personally and for Aspen; and also refused to negotiate new terms on other loans until the investors showed progress in performing on the Coronado Canyons loan by leasing the center's shop space to retailers.

The additional loans included a line of credit to Jeff Guinn, Coronado Canyons manager R. Kent Barry and Sean P. Corrigan, president of Aspen; and the $5.68 million loan secured by the plane.

Also at issue is a loan to a company called Coronado Aspen II in which former Gov. Kenny Guinn, Jeff Guinn's father, is involved. A loan for Coronado Aspen II was cited in the April lawsuit as being one that Community Bank refused to renegotiate until the problems with the Coronado Canyons loan were resolved. The suit says that loan was made in June 2004 for $4.72 million.

In its response, Community Bank said the $4.72 million loan is secured by the real estate housing Aspen's corporate headquarters. Community Bank also noted that Guinn's home in Del Mar is a beachfront property, and that the aircraft loan is for Jeff Guinn's personal private jet, a 1984 Bombardier Challenger.

For both Guinn and Community Bank, their lawsuit is part of a larger problem tied to the recession.

Guinn is being sued by numerous investors who are unhappy after loans arranged by Guinn to developers went into default in recent years.

And Community Bank and its parent Community Bancorp, hit hard by loan losses tied to real estate, last month signed an agreement with the Nevada Financial Institutions Division and the Federal Reserve Board requiring it to improve lending practices.

The company must submit plans to maintain or boost its capital position, strengthen its board of directors' oversight of the bank's management and operations, strengthen the bank's credit risk management practices and improve the bank's loan review process.

The bank is not allowed to extend credit to any borrowers who owe the bank money or had a loan charged off by the bank as a loss.

The agreement also restricts the company from increasing brokered deposits; paying dividends and interest on its outstanding trust preferred securities, taking on additional debt and redeeming stock.

Community Bancorp has hired investment bankers to assist in its efforts to increase capital.

The company also disclosed it will be in default on the remaining balance of an installment loan for $5.2 million and will remain in default on several of the loan's covenants. The loan is secured by all the stock of its Arizona subsidiary bank and was to be paid off with the merger of Community Bank of Arizona into Community Bank of Nevada. The merger application was not approved by the Federal Reserve and Community Bancorp is now looking to sell its Arizona bank.

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