Legal Question in Real Estate Law in California

Re: Undeveloped Subdivision Foreclosure and Blue Print Ownership

You have a complicated situation that requires more than a limited space analysis. The situation with the broker represents a potential litigation asset depending upon the actual facts of the claim. There may be recovery from his E&O insurance. As to the plans, the architect owns them unless you entered into a special contract to purchase those rights. If someone did not respect those rights and used the plans, you would have a legal proceeding against them. This would be a right that goes with ownership of the plans that you want to sell. An outstanding question is how easy it would be to sell the plans. If you want a full-scope analysis of your situation, our office has a unique set of expertises. My father-in-law has extensive experience in bankruptcy law and is a broker as well as a lawyer. I do quite a bit of real estate law as well as business frauds. My husband happens to be a quite brilliant real estate developer. We understand what a difficult time it is in the real estate business right now and the unusual situations that arising for many people.

Re: Undeveloped Subdivision Foreclosure and Blue Print Ownership

First step, I think, is to ask your architect if he agrees with your view as to ownership of the plans. I have had experience with architect claims that might throw into doubt your supposition that they are your property and can be used as a bargaining chip in negotiations with your investors or a buyer in foreclosure. The architect may assert that he or she has some control over who can use the plans if that user is not you.

Next, if I were respresenting you, I would want to know why you were desperate but still took on a 12-unit deal in a declining market with a hard-money loan. On the face of it, this sounds like bad judgment, but people perform desperate acts in business for different reasons. Perhaps you were trying to preserve some option rights or the like that were about to expire. Still, I would gently point out to you that deals involving a high degree of risk are prone to crater, and when they do, the lenders will foreclose and the equity investors and their contingency-basis lawyers will hunt for any evidence of possible fraud that they can sniff out, or imagine.

I can't be anywhere near sure without spending hours with you, going over your deals in full detail, but my hunch is that you may be in really deep and hot water. Possibly your best exit strategy is to preserve your reputation and personal liberty by making a deal with your investors whereby you surrender the project to them in exchange for an unconditional release, including their assumption of the outstanding debt on the project.

If you are planning to file for bankruptcy anyway, your priority should be to de-fuse possible suits against you for matters that would not be discharged in a bankruptcy of the business activity, rather than paying off business debts that will be discharged. A bankruptcy lawyer would be better able than a real estate guy to tell you what issues you have that would come back to haunt you after a bankruptcy and what debs would disappear.

Finally, the allegation of "mismanagement" against the loan broker deserves some investigation. Why was the loan broker involved at all in "managing" the loan proceeds? This is possible, of course, but not necessarily usual. Who licensed the loan broker? The DRE? They have a reimbursement account for victims of licensee fraud. You can't get big bucks, the the guidelines are tough, but the victims of fraud fund is a possible partial answer here.