Wells Fargo Bank backed out of an agreement to finance a hotel and casino in Las Vegas after acquiring Wachovia Bank, then sold the land at a foreclosure auction in which an entity of the bank was the sole bidder, a lawsuit filed by Nevada-based Alkimya Investment group claims.
The lawsuit, filed July 14 in Clark County District Court, involves a $70 million loan from Wachovia to purchase a 42-acre commercial property that was once a trailer park on Tropicana Avenue, across from McCarran International Airport and east of MGM Grand.
Wells Fargo “concealed its plans to foreclose” on the property by reassuring borrowers that the bank was going to work in good faith to restructure the loan, while continuing to ask them to make interest payments, said Michael Mushkin, an attorney for Alkimya in Las Vegas.
Wells Fargo did not follow through on restructuring the loan and instead forced the property to auction, he said. With no other buyers, the bank got the title to the land with a $20 million bid credit against the loan amount.
This artificially low-priced sale will be used in appraising other properties in the area, driving valuations so far down that properties can’t be refinanced by their current owners, creating a cycle of foreclosures and potential takeovers by Wells Fargo and other banks, the attorney said.
That’s hurting the market as a whole, forcing other properties into foreclosure and undermining the entire value of the real estate market, Mushkin said.
“This sale is believed to have set an all-time low for a comparable hotel and gaming property in the Las Vegas market and perhaps in the world,” Mushkin said. “Why would they do this and further suppress property value around Clark County? How does this fulfill the charter for the bank?”
Alkimya’s 76-page complaint alleges, among other things, breach of contract, breach of good faith and fair dealing, fraud in inducement, negligent misrepresentation or omission and specific performance of oral contract.
A spokeswoman for Wells Fargo in Denver said she could not comment on the lawsuit because it’s pending legal review.
Wells Fargo gained a large portfolio of commercial loans for pennies on the dollar through its acquisition of Wachovia and is now steering those loans into foreclosure in order to buy the properties at auction, Mushkin said. The bank then holds the properties for resale at potentially enormous profits.
The Alkimya land, zoned for high-rise residential, hospitality and gaming, was appraised at $293 million in November 2009 with debt of $69 million.
Unlike the residential housing market, in which banks that hold or service the mortgages do not want to own the properties, large commercial banks such as Wells Fargo view foreclosures of large commercial properties as an opportunity to sell and finance properties for future profits, Mushkin said.
“I guess the most striking fact in all this is they told my client, ‘Pay the interest,’ and then they go ahead and foreclose. It’s a strange thing and some fundamental things happened, not the least of which is the purchase of Wachovia,” he said.
Alkimya Investment, founded by Masoud Shojaee, president of Florida-based Shoma Group, purchased three trailer parks in 2005 for $120 million, with $70 million funded by Wachovia.
Alkimya paid the loan down to $50 million and spent about $10 million on property improvements such as permitting and entitlement for a casino, hotel and 50-story condo towers. Investors borrowed $19 million more to buy an adjacent parcel, which brought the loan amount to $69 million.
The one-year term of the original loan was designed to be extended, which was done several times, with Wachovia charging Alkimya hundreds of thousands of dollars in “facility fees,” attorney fees and other fees for the extensions.
“In the original loan documents, Wachovia has the first right to provide construction financing,” Mushkin said. “These are not one-year terms. That’s not the intent of this agreement. The timeline and this option for construction financing are two elements that are illustrative of that.”
Wells Fargo became the owner and manager of the loan when it acquired Wachovia in January 2009.
That’s when everything changed, Mushkin said.
Wells Fargo representatives met with Alkimya to complete the renewal and forbearance agreement documents. The meeting concluded with bank employees promising Alkimya they had no intention of foreclosing on the property, but no agreement was signed, he said.
Mushkin said that within seven days of the meeting and without warning to Alkimya, Wells Fargo transferred the trust deed to a new trustee and prepared the Alkimya property for a trustee sale while filing a notice of foreclosure with the Clark County Clerk’s Office.
The Clark County Treasurer showed Alkimya Investments being delinquent on $590,000 in property taxes as of May 5. The auction took place on Sept. 2 without any advertising other than the statutory notice, and a Wells Fargo-related entity bought the property for $20 million with no other bidders participating.
Contact reporter Hubble Smith at firstname.lastname@example.org or 702-383-0491.