Gray•Duffy Obtains Judgment of More Than $15 Million on Behalf of Real Estate Investor Clients

February 2013

Overview

Kevin M. Cruz of Gray•Duffy’s Encino office represented the trustees of a trust comprised of more than thirty investors who put up monies for the defendant, Construction Loan Company, to issue loans to third-party borrowers to purchase specific properties. Years after making the investments, the defendant abruptly stopped paying interest to the investors. A group of investors formed a trust with defendant with the purpose of pooling the investment properties, liquidating them, and distributing the proceeds on a pro rata basis. The defendant continuously failed to comply with the terms of the agreement.
As a result, arbitration proceedings were initiated in December 2011. The award for damages of more than $15 million was conformed to a judgment on January 18, 2013.

Discussion

Trustees of the CLC Trust v. The Construction Loan Company, Inc.

Construction Loan Company, Inc. (“CLC”) acted as a licensed real estate broker and lender in various California counties. Dating back to approximately 1991, CLC secured investments from more than 30 separate investors who put up monies for CLC to issue loans to third-party borrowers for the purchase of specific properties. Each investor’s investment was intended to be earmarked for a specific property and the investor was supposed to receive interest on the loan issued to the specific property. CLC was to have made the loans to the individual borrowers and CLC was to have received a percentage of the loan fee in its capacity as agent in arranging a loan. The loan to value was not to exceed 50 percent and trust deeds were to have been recorded with the respective county recorders in the name of the individual investor on each property where the loan was applied to, however this was never done. In September 2008, CLC ceased to pay any interest to any of the investors.
In October of 2009, after much correspondence and communications between the investors and CLC, it was decided that the group of investors would enter into an agreement with CLC whereby all properties would be pooled, liquidated, and the sums from liquidation would be distributed on a pro rata basis. A trust was created and the terms between the trust and CLC were put to paper. Despite numerous requests that CLC comply with the terms outlined above, they continuously failed and refused to perform its obligations under the subject agreement.
As a result, arbitration proceedings were initiated on December 29, 2011. On October 25, 2012, an award was issued providing for damages of $15,137,898.28, plus attorney’s fees of $70,000. CLC was also ordered to submit to an accounting to identify all trust property. The award was conformed to a judgment on January 18, 2013.

Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.