[Source: Andrew Johnson, Arizona Republic] — A judge approved part of a settlement Tuesday between Mortgages Ltd. and a real-estate developer that had threatened to sue the bankrupt lending firm for shorting it $100 million in constructing financing. The ruling answered a few questions about Mortgages Ltd.’s authority to negotiate deals that could affect the position of its 2,700 investors, who were the Phoenix-based company’s primary funding source. In an oral ruling, Judge Randolph Haines granted Mortgages Ltd.’s proposal to revise terms for a loan that KML Development obtained to build a high-rise condo tower at the northwest corner of University Drive and Ash Avenue in downtown Tempe. KML’s loan was supposed to be for $130 million. Mortgages Ltd. has admitted to funding only $30.3 million of the amount. Under the settlement, the outstanding principal due on that loan is reduced to $14.9 million. That is because the difference was never funded to the borrower. The settlement also allows for a five-year window within which development can commence. Project plans discussed in court call for high-end student housing to be built at the site.
However, Haines rejected portions of the settlement that would have revised repayment terms for two other loans worth a combined $13.1 million that KML borrowed to buy land in downtown Phoenix. One of those loans, worth $7 million, was to buy land in downtown Phoenix at Roosevelt and Third streets. The other loan, for $6.1 million, was to acquire nearby land for a mixed-use project. Allowing such a settlement would have been unfair to investors in those two loans, which Mortgages Ltd. fully funded and are now due for repayment, Haines said.
Investors fronted Mortgages Ltd. about $925 million to make loans to mostly commercial real-estate developers prior to the firm’s involuntary bankruptcy filing in June. Their rights have been a focal point throughout the case. Attorneys for some investors opposed the settlement. They argued that the agreements investors signed when giving money to Mortgages Ltd. do not give them the right to change terms of a loan without investors’ consent. Haines, however, said that even if investors withheld their consent for Mortgages Ltd. to alter deals, as some of have tried to do, that does not mean they were withholding Mortgages Ltd.’s right to continuing making decisions regarding loan terms for the other investors the company acted as an agent for.
Mortgages Ltd. is currently trying to negotiate settlements with other borrowers. Among them are the developer of the stalled Centerpoint condo towers in downtown Tempe and the developer of the stalled Hotel Monroe project in downtown Phoenix.