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Timing of New LLC’s Formation, Purchase of Loan Sufficiently Suspicious to Allow Construction Lienholder’s Suit to Proceed

A real estate investor’s attempt to use a newly formed company to evade a building contractor’s construction liens suffered a setback recently when the 3d District Court of Appeal reversed a summary judgment that terminated the contractor’s construction liens. The case that the contractor presented, the appeals court decided, offered enough evidence of suspicious timing to raise a triable issue about whether or not the investor created the new company simply to extinguish the contractor’s liens.

The source of the dispute stemmed from the relationship between a real estate investment company, McBride Family Properties, LLC, and two real estate development companies, Riviera Biltmore, LLC and Riviera Sevilla, LLC. In 2006, the investment company transferred ownership of two vacant properties to the Riviera companies, of which the investment company was the primary owner, for the purpose of having them develop the land. The developers then hired CDC Builders, Inc. to construct several dozen luxury homes on the two parcels. To pay for this deal, the developers took out a mortgage loan from SunTrust Bank.

The crashing housing market severely mangled McBride’s plans. The Riviera companies became short on funds and failed to pay for the last eight homes, leading CDC to take out two construction liens. The investment company was unable to sell the homes and therefore fell behind on the SunTrust loan. The investment company’s owner, Brian McBride, reached an arrangement with the bank to make some payments to the bank from the accounts of other companies he owned, but he made those payments on the condition that the bank treat them in such a way that they did not reduce the principal owed on the loan.

Eventually, CDC sued to foreclose the liens. The investment company’s owner, Brian McBride, then formed Biltmore-Sevilla Debt Investors, LLC, which purchased the mortgage loan and sued to foreclose on it. This would have the effect of snuffing out CDC’s construction liens. CDC challenged the action, arguing that McBride’s creation of Biltmore-Sevilla (and purchase of the SunTrust loan) was an improper maneuver designed solely to wipe out CDC’s construction liens. The trial court, however, issued a summary judgment in favor of Biltmore-Sevilla. The appeals court disagreed. The trial court should have allowed the case to proceed to a jury because the facts CDC alleged were enough to make out a potential claim.

The timing of several crucial events in the case was the key fact, in the view of the appeals court. Only after CDC had sued to foreclose on its construction liens and was moving for summary judgment in that case did McBride form Biltmore-Sevilla and purchase the SunTrust loan from the Riviera companies. Additionally, Biltmore-Sevilla only took the step of foreclosing on the mortgage loan after CDC received an earlier favorable ruling from the appeals court in its battle with McBride and his companies. “This timing implies that [Biltmore-Sevilla]’s foreclosure of the mortgage was undertaken to block the Contractor’s efforts to collect the construction liens,” the court concluded.

Additionally, McBride’s arrangement with the bank also served as strong enough support for a triable claim that McBride’s creation and operation of Biltmore-Sevilla was an elaborate attempt to avoid the lien obligations in favor of CDC.

Every business person enters into a contract with the fullest expectation of a successful business relationship. Unfortunately, that is not always the outcome that occurs and, when business deals break down, it is important to have a skilled legal team on your side. For knowledgeable advice and determined representation, consult the Florida commercial litigation attorneys at Stok Kon + Braverman. Our attorneys can help you defend your business’ rights to the fullest extent of the law.

Contact us online or by calling (954) 237-1777 to schedule your consultation.

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