A squabble between stakeholders has led to a foreclosure suit against a downtown Miami luxury condo project. BrickellHouse developer Harvey Hernandez and his business partner Jesus Quintero are facing a foreclosure suit filed by the first mortgage holder of the 46-story project, which is well under way and reporting strong sales. The dispute turns on a $15.8 million loan that comes due in the summer of 2016.
The lien holder, JBG Development LLC, is seeking to accelerate the loan to force early payment of the debt. JBG argues that the developer breached terms of the contract and is in default, according to a suit filed Oct. 4 in Miami-Dade Circuit Court.
JBG Development, which is controlled by Jose Baboun, sold the land at 1300 Brickell Bay Dr. to BrickellHouse Holding LLC in August 2012, receiving $10 million and taking back a mortgage for $15.8 million.
The current dispute erupted when Hernandez sought to obtain a construction loan for the 374-unit project and urged Baboun to subordinate JBG’s mortgage to a construction loan, a move that would send JBG further back in line to get paid.
In its suit, JBG said terms of its loan provide for it to subordinate its position to a construction lender under certain circumstances, but asserts BrickellHouse hasn’t met those conditions.
It said BrickellHouse pressured Baboun to accept a subordination that is disadvantageous to JBG and in violation of the loan agreement.
The suit alleges BrickellHouse defaulted on non-monetary terms of the loan by failing to seek JBG’s approval on various matters, including the price list for units, the wording of sales contracts and the selection of an escrow agent, and didn’t provide JBG timely copies of purchase contracts.
The suit also seeks an accounting of the books and records at BrickellHouse “to determine if net sales proceeds have been properly allocated, whether BrickellHouse has paid money to parties in contravention of the note.’’
Carlos A. Marin, a Miami attorney who filed the suit, said “JBG Development LLC is not seeking a premature payment of the loan, but rather is suing to protect its interest as provided under the terms of the mortgage documents.’’
BrickellHouse’s attorney Robert P. Frankel said the suit is full of frivolous claims.
“To me it looks like you have a loan that hasn’t matured yet and a seller that has misgivings or sellers’ regret,’’ Frankel said.
“This case is about trying to force BrickellHouse to pay them three years before BrickellHouse is obligated to pay them.’’
According to Hernandez, chairman and managing director of Newgard Development Group, the BrickellHouse project is progressing well, with 99 percent of the units sold and construction moving on time and on budget.
“We are working on the 37th floor out of 46,’’ Hernandez said. “Everybody is very happy with it. The quality we’ll be delivering is very, very nice.’’ The project is slated to be completed next summer, he added.
Alicia Cervera Lamadrid, managing partner of Cervera Real Estate, which is in charge of marketing units in the BrickellHouse project, said the lawsuit has not affected the project to date. “Construction is still going on,’’ Cervera Lamadrid said. “From our perspective, it’s business as usual.’’
The Baboun family has been involved with the Brickell Bay Drive site for years. Kenneth Baboun, Jose’s son, had worked with Hernandez on the BrickellHouse project during its early phases but left about year ago.
During the last building boom, the Babouns tried to develop the site themselves. But in February 2006, Kenneth Baboun, president of BBB Group, announced he was abandoning the project and returned all the deposits to the buyers.
“This case is about trying to force BrickellHouse to pay them three years before BrickellHouse is obligated to pay them,’’ said Frankel. “I’m very concerned the filing of this lawsuit in bad faith by the plaintiff is going to have some chilling effect on the project.’’
The BrickellHouse suit comes as Hernandez obtained a release this year from the trustee in his Chapter 7 personal bankruptcy case. He filed for protection from creditors in 2010 in the wake of problems with several real estate developments. According to bankruptcy court papers, Hernandez still faces claims from the Internal Revenue Service and his ex-wife.
Luis Salazar, an attorney for Hernandez, said aside from the outstanding issues with the IRS and his former wife, Hernandez’s personal bankruptcy case is resolved. “He put in a pot of cash. He paid all the creditors,’’ Salazar said.