Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

LaSalle Bank, N.A. v. Cypress Creek 1, LP Decision from Illinois Supreme Court

In past posts we've been following this case as it wound its way through the Illinois judiciary up the the Illinois Supreme Court.  This morning, the Supreme Court issued this decision (PDF).  The Justices decided that a lender gets priority to the extent their loan proceeds paid for property improvement, regardless of whether the contractors paid with those proceeds timely, or properly, perfected mechanics liens. 

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For the first time since the S&L crisis, the FDIC is suing a failed bank's former lawyers for professional malpractice.

The claims come against lawyers who formerly represented the now failed Neighborhood Community Bank in Newman, Georgia.  The FDIC's complaint (PDF) alleges that the lawyers deviated from the bank's instructions and colluded with a borrower to falsely represent disbursement of loan proceeds.  Important for those in the construction industry, each was an acquisition and development loan.

The complaint also alleges that the lawyers represented both the bank and the borrowers in various capacities at the same time, subverting the lawyers' loyalty to the bank and violating their fiduciary duties.

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The D'Oench, Duhme doctrine and Section 13(e) of the Federal Deposit Insurance Act (a/k/a 12 U.S.C. §1823(e)) were active in Sacramento late last month to deny a borrower's claim for reformation of her loan documents.  The decision: Magdaleno v. IndyMac Bancorp, Inc. (PDF).

Backstory: Magdaleno v. IndyMac Bancorp, Inc.

Catalina Magdelano borrowed money from IndyMac. Her mortgage broker assured her that the interest rate on her loan would be a 30-year fixed rate with interest at 1% per year. But the documents for the loan set an adjustable rate starting at 1% per year, with a 9.950% maximum. Then IndyMac failed and the FDIC was appointed as IndyMac's conservator. Ultimately, the FDIC transferred the borrower's loan to a new lender: OneWest Bank.

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