Bank-Developer Relationships Hit The Rocks

It’s a divorce that may soon dwarf the Brinkley-Cook debacle in ugliness.

The banking industry, pressured by regulators to reduce its exposure to the collapsing real estate market, has been squirming out of its loan obligations to developers, killing projects midstream, according to developers quoted in an article in today’s Wall Street Journal:

"As lenders rush to curtail their real-estate exposure and preserve sorely needed capital, they are triggering lawsuits from builders that say the banks have unfairly cut off their construction financing, stopped their projects midstream and forced their companies to the brink of bankruptcy.

‘Lender-liability lawsuits are coming. It’s only just beginning,’ says Michael Hackard, a lawyer in Sacramento, Calif., who focuses on real-estate law. ‘There are going to be builders who argue that the lender forced me into insolvency by not acting in good faith.’"

Indeed, developers claim banks have thrown a wrench into the construction of both a 222-unit project in Stockton, and the 900-acre Joshua Ranch development in Antelope Valley, both in California.

This isn’t the first time the bank-developer relationship has hit rocky times:

"Lender-liability lawsuits were relatively common during the real-estate bust in the 1990s. Back then, before foreclosing, some lenders often would effectively take control of troubled projects and force many developers to follow their management advice. That gave developers an opening to sue the banks — with success in many cases."

Maybe all those laid-off bankers should consider enrolling in law school.

Bank-Developer Relationships Hit The Rocks