Clark County builders caught in bank failure bear ill will for Lennar

Published: February 17, 2012
By Elliot Njus, The Oregonian OregonLive.com

Brent Wojahn/The OregonianJohn Fazzolari at Messner Estates, a Clark County housing development he started with a group of partners before their bank failed. He recently reached a legal settlement with the Lennar Corp. subsidiary now managing their loan.
The announcement by Lennar Corp., the nation's third-largest homebuilder, that it plans to expand into the Portland market has left some local builders with a bitter taste.

The discord stems, in part, from Lennar's handling of a portfolio of
construction loans from the Bank of Clark County, which failed in 2009. The loans spent a year in Federal Deposit Insurance corporation control before being sold to Lennar just over two years ago.

Now a loosely organized group of builders say a Lennar subsidiary, Rialto Capital Management LLC, has pushed many of the loans into failure and done little to work with borrowers. Some asked the Clark County Building Industry Association this week to reject Lennar's application for membership, saying the newcomer has damaged the industry.

John Fazzolari, a Vancouver homebuilder who was developing a subdivision with a Bank of Clark County loan, attended the association's board meeting Tuesday to share his concerns.

"They've basically stripped all they worked for over the last four to eight years and handed it to this East Coast corporation, all because we chose the wrong banking institution," Fazzolari said in an interview Thursday.

More More Portland housing and real estate news on the Front Porch blog.Lennar announced in December it planned to build homes in the Northwest. In the Portland area, including southwest Washington, the company said it would acquire mostly foreclosed lots. That's heightened builders' suspicions that the company is purposefully hurting competing builders while adding to the inventory of
distressed construction projects. Foreclose on other builders rather than work things out, the logic goes, and your development competition diminishes in the metro area.

Ryan Selby, a Lennar Northwest division vice president leading the company's operations in Portland, dismissed the other builders' fears, saying the company's expansion into the area has nothing to do with Rialto, the Bank of Clark County or other construction loans.

"I don't really have any input at or knowledge of Rialto," Selby said. "We're two separate companies."

He added that Lennar Northwest can't acquire or build on any of the properties Rialto bought in its loan portfolio.

A Lennar Corp. spokesman in Miami did not respond to a request for comment.

Fazzolari owns Fazzolari Custom Homes, but his loan with the Bank of Clark County came from a side project. He was developing a 72-lot subdivision in Clark County's Felida neighborhood with seven partners and had sold all but 25 lots when the Vancouver bank was shut down.

The closure cut off his business line of credit, so building homes to sell wasn't an option. And the FDIC required the partners to meet their most recent agreement with the bank, which called for a bigger payment per lot than they were worth.

Fazzolari and his partners felt stuck, and at the advice of an attorney and accountant, they stopped making payments while waiting for the loans to be sold in hopes of negotiating with the new owner.

In February 2010, Lennar announced it had made a deal with the FDIC to acquire $3 billion worth of loans for $243 million -- including those made to Fazzolari and his partners.

The FDIC retained 60 percent ownership of the loan portfolio and gave Rialto a $627 million no-interest loan to manage the loans.

Fazzolari said it took months to hear from Rialto after it took control of the loans. The company initiated foreclosure proceedings on the remaining subdivision lots, but halted the procedures to sue Fazzolari and his partners personally.

Fazzolari said he finally reached a settlement with Rialto this month, but couldn't discuss the terms. Still, he gave voice to the worries of existing builders.

"Going forward, it's going to be hard to be competitive," Fazzolari said. Lennar suddenly "got access to this capital and access to information up here, and now they're moving into town."

The Clark County Building Industry Association rejected Lennar membership Tuesday, saying it didn't have enough information to decide whether the company meets the group's qualifications. Executive Director Avaly Mobbs said no other application has been turned away in the three years she has been with the group, but declined to comment further.

Selby said he has arranged a meeting with association representatives to get more information.

The Clark County builders have found an ally in the American Land Rights Association, a Battle Ground, Wash., group that has formed a network of builders whose loans ended up in Rialto's hands.

Executive Director Chuck Cushman said he wants to persuade other builders' groups to shun Lennar and organize a boycott of the company.

"We have to fight them in a place where it will hurt them in the economic marketplace," he said. "There has to be a cost to Lennar for these malicious and abusive tactics that they're using.

Meanwhile,Rep. Jaime Herrera Beutler, R-Wash., has asked for a congressional hearing on the sale of the loan portfolio to Rialto. In a news release, her office said several Clark County borrowers hoping to repay their loans "hit dead ends and lost their businesses." The FDIC has agreed to review Rialto's actions in Clark County, she said.

-- Elliot Njus
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