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Lender sued over Lake Las Vegas loans
Credit Suisse loan product during economic boom comes under fire
Published Thursday, Sept. 3, 2009 | 12:53 p.m.
Updated Thursday, Sept. 3, 2009 | 2:19 p.m.
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Map of Lake Las Vegas Resort
Lake Las Vegas Resort
1600 Lake Las Vegas Pkway, Henderson
The lending practices of Credit Suisse Group AG during the mid-decade economic boom came under attack again Wednesday when the company was sued by an insurer over loans for the bankrupt Lake Las Vegas development.
First American Title Insurance Co. of Santa Ana, Calif., filed suit in U.S. District Court in Las Vegas against Credit Suisse, Cayman Islands Branch, seeking a declaration that title insurance provided for Credit Suisse loans to Lake Las Vegas developers provides no coverage for mechanics' liens against the project.
The 3,600-acre Lake Las Vegas, a development 20 miles southeast of the Las Vegas Strip, includes more than 1,600 residential units, golf courses, two luxury hotels and a casino.
The development was financed in part beginning in 2004 by a unique Credit Suisse loan product primarily designed to allow project owner-developers to take out profits early in the development while leaving the property burdened with debt, the lawsuit charges.
This loan product, used in projects around the country, involved Credit Suisse apparently acting as a syndicator for non-bank investors, the suit says. The majority of the loan would be distributed directly to the owners rather than to development costs and Credit Suisse would receive "substantial fees," the lawsuit charges.
Credit Suisse developed an irregular appraisal methodology called "total net value," which does not comply with the Financial Institutions Recovery Reform Act of 1989, the lawsuit said.
The loan program in May was called "predatory" by a bankruptcy judge in the luxury Yellowstone Club case.
"The naked greed in this case combined with Credit Suisse’s complete disregard for the debtors" and others "shocks the conscience of this court," U.S. Bankruptcy Judge Ralph Kirscher wrote in May regarding $309 million owed by the Montana resort to the lender.
The judge later withdrew that ruling, which has been widely quoted in news stories and lawsuits concerning Credit Suisse.
At issue in Tuesday's lawsuit in Nevada are loans made in November 2004 for $560 million, in May 2005 for $135 million and in June 2007 for $540 million.
First American said Credit Suisse is demanding it be provided a legal defense and that it be indemnified for the contractor liens against the development.
Court records show more than $17 million in contractor liens have been filed against two of the main Lake Las Vegas debtors.
The main debtor, Lake at Las Vegas Joint Venture LLC, last month reported it held assets of $191.2 million, mostly in real estate, against liabilities of $728.4 million. Included in the liabilities is $675 million Credit Suisse says it is owed.
First American says in its lawsuit that one of its title loan policies sold to Credit Suisse excluded coverage for certain mechanics' liens and that those liens should be the responsibility of Credit Suisse.
First American said that before and after the bankruptcy of the Lake Las Vegas developers, Credit Suisse controlled the development and therefore is responsible for liens arising from contractors' unpaid invoices.
"Credit Suisse took over and exercised dominion and control of the owners and their finances. ... Credit Suisse is therefore liable, among other things, for the owners' obligation to pay mechanic's liens and/or for any liability of the owners under the indemnity," the insurer's lawsuit said.
"On information and belief, the fair market value of Lake Las Vegas, net of all priority claims, is zero or so small that Credit Suisse will not be able to recover anything on the various loans and amendments with (developers) entered into prior to the bankruptcy proceedings. In addition, Credit Suisse may have permitted or directed that proceeds of the debtor in possession financing be used for improper purposes that adversely affected the mechanics' liens against the Lakes of Las Vegas," First American said in its lawsuit.
Lien lawsuits are now pending in the Lake Las Vegas bankruptcy case, which was initiated in July 2008, and the Official Committee of Unsecured Creditors in the case has asserted that Credit Suisse's claims should be disallowed or subordinated because of deals involving fraudulent conveyance and other irregularities.
The creditors alleged that Credit Suisse willfully overburdened Lake Las Vegas with debt to enrich itself and the developers, and that before the debt ultimately caused the bankruptcy, Credit Suisse controlled the owners and caused the remaining funds to be paid preferentially in a manner that led to the filing of the mechanics' liens at issue, First American's lawsuit says.
"If these allegations are true, then First American should not be required to defend or indemnify Credit Suisse," First American's lawsuit says.
The creditors' adversary action in the bankruptcy case says: "Credit Suisse's predatory lending practices warrant subordinating Credit Suisse's lien."
The creditors say Credit Suisse earned a fee of $12.8 million for arranging the $560 million in financing to Lake Las Vegas developers in November 2004, a fee of $3.7 million for the $135 million loan in May 2005 and a $10.8 million fee for the July 2007 refinancing loan of $540 million.
"The structure of the November 2004 transactions allowed the equity holders of debtors (Lake Las Vegas developers) to individually take out their equity, loans, as well as profits by over mortgaging the development," the creditors charged.
"The loan product offered by Credit Suisse to debtors provided debtors and/or the predecessor equityholders the opportunity to recover their initial investment in the project through leveraging the project rather than through profits over time," the creditors charged. "Credit Suisse would loan the money ..., earn a substantial fee and sell off most of the loan credit to loan participants.
"The development owners would take most of the money out as a return of capital as well as a profit dividend, leaving their developments saddled with enormous debt and no liquidity to honor their contractual or other obligations when they became due," the creditor complaint said. "Credit Suisse and the development owners would benefit, while their developments -- and especially the creditors of their developments -- bore all the risk of loss.
"Credit Suisse knew or had reason to know that, due to the distributions to the predecessor equityholders, debtors were left with too much debt and too little capital to develop the Lake Las Vegas development, meet their financial obligations or pay their obligations when when they became due," the complaint says.
Zurich-based Credit Suisse on Thursday disputed the allegations.
"We believe the complaints are without merit and will defend ourselves vigorously. First American's actions are inconsistent with their obligations," said Credit Suisse spokesman Duncan King.
Bloomberg News has reported that besides the Yellowstone Club and Lake Las Vegas loans, Credit Suisse similarly raised $275 million for Promontory, a high-end ski resort in Utah; $400 million for Turtle Bay Resort in Hawaii; $675 million for Ginn Resorts in Celebration, Fla.; and $475 million for FX Real Estate & Entertainment's failed plan to build an Elvis Presley-themed resort on the Las Vegas Strip.
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that flushing noise you hear...
is lake las vegas going down the toilet!!!
Its still a great place to live..although we lost everything we had from our house and down payment (over 52% down payment) and want to still live there - if they got the crooked banks out of there and put some developers in that aren't as greedy and get some people some realistic loans as well as work with us existing people, the Lake would come back strong...but when even the lenders don't want to work with you or talk to you - there's nothing anyone can do...
y ster; stop voting republican for starters; thats the first thing you can do; your old buddy phil gramm, senator from texas, is w/credit suisse. you fell hook line and sinker and your investment is in the toilet. welcome to the america you voted for.
52% down payment?
LLV is gona be a real ghost town soon. The tombstone will read,
"LLV, sounded good on paper."
Ron Boeddeker and the Bass Brothers out of Dallas completely raped LLV, and it looks like they'll get away with their criminal actions. The idiots and taxpayers at the City of Henderson wasted 33 million on the infrastructure, and somehow they think that a project with hundreds of foreclosures will pay them back. Sure, now you can buy a small condo for 89G, but that's not all-you can pay 5-10,000 a year in HOA"s! Jesus God, are people really that stupid to buy in a place with 3 closed golf courses, an empty shopping village, and a failing casino? 'Way to go, Ron and your Texas Rangers-you pulled off a theft of immense proportions-and you won. A pack of thieves.....
Hmm.... Well, this lawsuit filed BY Lake Las Vegas creditors AGAINST the bank is a good thing. There is a recent similar case by a developer in Yellowstone that successfully defeated credit Suisse. Which means, they get their money back from the bank. This is a good thing, not a bad thing for Lake Las Vegas. People should really read the article before commenting.
It should also be pointed out that it is the developers that filed bankruptcy, not the village itself. AND, all of the foreclosures are being bought up and the community is resetting itself, including the still well maintained golf courses. LLV is not the only resort in the world with issues right now.
The Lake is not drying up. The village is busy, even the casino, (except at 3pm on a Thursday afternoon as pointed out by BDover/NedNougat,who is the same person and probably has more aliases to make it appear there is more than one person with his/her opinion)the great restaurants are full for dinner, there are concerts, live music in the bars, art shows, pig roasts, tri-athalons, movies, Farmer's market, Jam-akoke in Sonrisa, Margaritafest, Labor Day BBQ, outdoor concerts and the list goes on. All in a stunning location and backdrop with no powerlines.
Readers should not rely on the negative comments made here. Go out to the village some weekend/evening and see for yourself if you are interested in the truth.
every time there is a llv article...
bouvier shows up and starts blowing smoke...
last time he said it was busy out there...
and i had been there right before his post...
walked the property...
bottom line...
bouvier's house has gotten crushed...
bouvier is trying to stop the bleeding...
bouvier is full of baloney!!!
Bouvier;
You should check your facts. The Yellowstone Club in MT is now owned by a Boston Development company and nobody got their money back. Nice try though!
Add to the list of Credit Suisse's borrowers all of the Jim Rhodes entities which are in bankruptcy.
Even further is a very strange connection.
The following documents are in the bankruptcy court file, attached to the Declaration under penalty of perjury signed by a Credit Suisse executive: Bass and Boedekker's entities gave Credit Suisse an assignment in lieu of foreclosure, but with the line for the assignee's name left in blank. That assignment is attached as an exhibit. Credit Suisse then filled in names on the assignment, transferring control of all of the development entities to companies controlled by Fred Chin.
Mr. Chin has a great resume as a troubled real estate work out specialist. It was Mr. Chin and his staff who decided to throw the entities into bankruptcy. Credit Suisse quickly stepped up to the plate and started providing debtor in possession financing for Lake Las Vegas' operations. To me, it looked like Mr. Chin's entities looked like "straw men" for Credit Suisse, controlling the development companies which Boedekker and Bass had surrendered to Credit Suisse and using money provided by Credit Suisse.
Even weirder, Mr. Chin was the Chief Financial Office of Rhodes Homes around the time they got their loans from Credit Suisse.
My take on this new lawsuit is that the title insurance company wants to get out of its obligations to indemnify and defend Credit Suisse against mechanics liens which are covered under the standard ALTA Loan Policy of Title Insurance. What we are probably looking at is someone at the First American Title Company screwing up their underwriting work, and not asking the big question: "Based on the budget for the use of this mortgage loan, how do the people building the roads and sewers get paid?" That sort of budget review and approval is a normal step by a title company when it is insuring the lenders' first lien position. If the answer is (1) construction is already underway and (2) there is no money in the loan budget to pay the contractors, First American Title was stupid to issue the ALTA Loan Policy of Title Insurance in the first place.
In addition, the making of huge "take the equity out" mortgage loans is nothing new. Lehman Brothers made $2 Billion of them on approximately 18 unfinished real estate development projects in California, with nothing budgeted to pay contractors who physically developed the property. I wonder which greedy and stupid Title Insurance Company insured those loans?
They loved the loan when the economy was booming, now that its bombing, they are shocked, shocked that it was a risky lender advantaged loan,
I met some Texan pushing Lake Las Vegas when it started out - I never met a more arrogant AH. He thought they were going to sell "family compounds"
(the Kennedy's are dead and people don't want to be by their creepy kids or their cantankerous old parents.)
who's going to drive out to that dump. I would rather go to Green Valley Ranch and the District, good shopping, good casino and food, and not a long dive.
They should build a nuclear power plant at lake vegas, near power grid, security and water for cooling.
The rumor is that someone is taking over the casino. The Alaskan Indians who had the lease have been kicked out by the German bank. So now the operators, PDS Gaming, are taking stock and packing their bags. God knows who would take over such a failed venture. It made a profit one month in 5 years! Maybe it's Bouvier?
One gambler in the Pit today. Maybe it was Bouvier, too. Birdie, we need to help this poor soul.
And don't forget the BBQ this weekend is only $16 per person. Not all you can eat. A beer is $5. So don't forget your wallet. Beer and brisket. What a deal...
I visited LLV for the first time last month and it's almost literally a ghost town. The casino was near empty. What a boon-dogle.
The Lake is dead! Time to celebrate!
Financial reforms are long overdue. And the mega-banks have to be stabilized, they are too interconnected in the financial system we are all dependent on. After they are well, they should be broken up into smaller pieces so this cannot happen again -- found a cool site; Balkingpoints ; incredible satellite view of earth
I am worried that you might have hit your head. It's going down. The place is absolutely, positively, going down, I will bet my olds on it. I don't have powerlines over at my place, mostly cause I don't have power. I felt bad about it, but after reading how I am one of the advanced peoples, I guess I will forgo my anti- depressant tonight,& instead meditate on power lines. I am putting My money (bus pass) on Credit Swisse to win the litigation.