In today's blog, I will discuss CDC Builders, Inc. v. Biltmore-Sevilla Debt Investors, LLC, --- So.3d ----, 2014 WL 4628515 (Fla. 3d DCA 2014), a recent opinion in which a contractor appealed a foreclosure initiated by a third party owned by the developers who contracted for the improvements made by the contractor, stating that the foreclosure was an attempt to avoid payment of construction liens recorded against the improved real property.
This case involves interrelated land development companies managed by Brian McBride. McBride is an attorney the manager of McBride Family Properties, LLC, a real estate investment firm owned by him and his family members. In February 2006, McBride Family Properties transferred ownership title to vacant properties to companies ("the Developers"), companies formed by McBride and others for the sole purpose of developing the properties. To fund the development project, the Developers obtained construction loans from SunTrust Bank—at the same branch location where McBride had been a long-time customer. After securing construction funding from SunTrust Bank, the Developers hired contractor, CDC Builders, Inc. to construct 25 luxury homes on the property. However, the Developers did not yet have the full resources to compensate the contractor for real estate development services.
While Developers at first paid the contractor with checks, by the time the contractor had officially finished construction, the developers lacked the funds to compensate the contractor for the final eight homes that were built. To enforce its entitlement to payment , the contractor recorded construction liens, to be followed by a lawsuit against the entities in order to foreclose its liens.
In the meantime, the Developers also lacked the funds to fully pay off the construction loans, asking for several extensions on these loans. As a condition to granting the renewals, SunTrust required "curtailment" payments that reduced its exposure on the loan. McBride authorized SunTrust to debit these payments from accounts at SunTrust of other companies owned or controlled by McBride. McBride specifically directed SunTrust that these payments should not be treated as reductions in the principal amount of the loan. He took this unusual step, the SunTrust officials noted, in order to limit the equity available to satisfy the contractor's construction liens.
These and similar documents obtained from SunTrust demonstrated that McBride took pains to ensure that the contractor's construction liens would not be satisfied, even if the contractor's lawsuit was successful. McBride then created Biltmore-Sevilla Debt Investors, LLC (BSDI) in 2010, a company operated out of the same building as McBride's other businesses. That same year, BSDI obtained a loan from the Royal Bank of Canada to purchase the Developers' SunTrust loans "at full face value". According to SunTrust's documents, the original construction loans were "repaid by the borrower buying our documents".
Around the time of BSDI's formation, the trial court, in the contractor's action against the Developers, granted the Developers' motion for partial summary judgment and discharged the contractor's construction liens. The Contractor successfully appealed that decision. Days later BSDI commenced a foreclosure on the construction loans it had purchased from SunTrust, naming the contractor as a defendant in that action.
The Developers answered the complaint but did actively defend the foreclosure. The contractor defended aggressively, counterclaimed against BSDI and McBride, cross-claimed against the Developers, raised affirmative defenses, and actively challenged BSDI's attempt to eliminate the construction liens.
The trial court entered a final judgment of foreclosure in favor of BSDI, concluding that the contractor's case was "legally insufficient and/or factually disproven by the undisputed record evidence". That decision resulted in the appeal currently discussed.
The Third District Court of Appeal concluded, based on the facts of this case, material issues existed making summary judgment against the contractor reversible error. The appellate court, relying on the Florida Supreme Court decision in Clermont-Minneola Country Club v. Loblaw
, 143 So. 129 (Fla. 1932) concluded that what investors cannot do indirectly through a single company, investors cannot do indirectly thought a network of companies.. In this case, BSDI's owner managed 90% of the developers' membership interests, personally saw to the SunTrust loan renewals, and created BSDI, initiating the loan buyout and foreclosure through that company. The timeline of events plus SunTrust's records strongly suggests that BSDI was formed and used with the main goal of thwarting the construction liens in question. Furthermore, in deposition the owner of BSDI offered no other explanation for his actions regarding BSDI and the decision to no longer renew the loans.
While the contractor's liens could legitimately be erased if a third party purchased the mortgage, in this case, both the developers and the "third party" were the same entity, satisfying the Developers' interests before those of the contractors, an express violation of the contractor's "bargain" and a violation of the Florida Supreme Court precedent The appellate court overturned the judgment that would have foreclosed the construction liens and remanded the case for further proceedings consistent with the court's analysis.
As demonstrated by this commercial litigation case, matters of real estate litigation can be highly contested, lengthy, and involving complicated issues. If you are facing disputes over liens, foreclosure, or any other legal complication in real estate or commercial law, you can find AV® rated representation at my business law firm, Gregg H. Glickstein, P.A. With decades of experience to my name, I am a Palm Beach commercial litigation attorney who can deliver the knowledgeable, proven advocacy you need in your corner. Call (561) 953-6662 to
contact my office today.