VLF Client Wins Against Bank for Construction Loan Practices

The Vethan
Law Firm, P.C.
is pleased to announce that it successfully represented its
client, Aguilar Investments in a construction lawsuit against its lender, BBVA
Compass Bank (“Compass Bank”).  The basis of the claim was that Compass
Bank failed to follow the terms of the construction loan contract it acquired
between Aguilar Investments and Laredo national Bank.
The case
involved the development of a strip center in North Houston by Aguilar
Investments. As part of the construction loan, our client, Aguilar Investments,
requested that it be able to supervise the construction phase of the strip
center. However, Compass Bank’s predecessor, Laredo National Bank, told Aguilar
Investments that the bank would hire its own inspectors to ensure that all work
and draw requests submitted by the general contractor complied with the
drawings and plans for the strip center.
one year into the construction of the project, Compass Bank issued a letter of
foreclosure to Aguilar Investments alleging that it was in default on the
construction loan. When Compass Bank was asked to explain why a notice of
foreclosure was issued, it stated that the construction was not complete, the
general contractor was nowhere to be found, but the loan proceeds were fully
disbursed. Moreover, Compass Bank advised Aguilar Investments that if the
project was not completed, and the City of Houston did not issue a Certificate
of Occupancy within 90 days, Compass Bank would seize the property.
With the daunting
option of raising a significant amount of money to complete construction on a
project the general contractor abandoned, or lose all the investment they had
in the property, the owners of Aguilar Investments resorted to liquidating
various assets to generate quick and substantial cash to complete the
construction project so that it would receive a certificate of occupancy for
the strip center, and meet Compass Bank’s deadline.
Once Aguilar
Investments moved into the property, it learned that the general contractor had
materially misrepresented the work it had done on the project.  Aguilar
Investments contended that Compass Bank paid on the general contractor’s draw
request without having any documentation to substantiate its position that an
inspector hired by the bank actually verified the work the general contractor
stated was done on the project.
Investments sued Compass Bank in arbitration to recover the cost to complete
the project and the money Compass Bank disbursed to the general contractor for
work that was not done.  Aguilar Investments contended that Compass Bank
had a duty, under the loan agreement, to determine whether the draw request
complied with the general contractor’s estimated completion percentage. 
Compass Bank claimed that any language in the loan document suggesting an
inspection was for the benefit of the bank, and not the borrower.
After a
three-day arbitration before the American Arbitration Association, the
arbitrators found in favor of Aguilar Investments.
The arbitrators
determined that the loan document Compass Bank acquired from Laredo National
Bank was ambiguous as to duties that the lender undertook to inspect and
approve new construction prior to paying draw requests, and that the general
contractor was paid for work that it did not do, but which Compass Bank’s
inspector said was completed.
In addition to
awarding damages to our client, the arbitrators awarded The Vethan Law Firm,
P.C. attorneys’ fees and costs of more than $140,000.
Regardless of
the parties or the complexity of the lawsuit, the business lawyers and
construction attorneys of The Vethan Law Firm, P.C. aggressively prosecutes and
defends complex commercial construction disputes.  Like Aguilar
Investments, we look forward to representing businesses involved in
construction disputes and construction litigation.