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PHOENIX-In the wake of pending litigation and the recent death of its CEO Scott Coles, prominent commercial real estate lender Mortgages Ltd. is stepping back from making new loans and accepting investor capital, executives said during a recent conference call. Now senior management is re-evaluating its approximately 70 outstanding loans.

Meanwhile, real estate veterans are weighing in on what will happen to both the company and developments it has financed.

Mortgages Ltd., the largest private mortgage investor in the state, has lent close to $1 billion in short-term active loans throughout the metro area. It came under fire in March and April when several borrowers filed suit against the company claiming under-funded loans in one case and a breach of contract in another. The company entered the spotlight again on June 2 when chairman and CEO Scott Coles was found dead.

In the wake of Coles’ death, company loan officer and senior vice president Laura Martini was named interim president. In a conference call on Tuesday, Martini said Morris Aaron, president of MCA Financial Group Ltd. of Phoenix and local business consultant and Mortgages Ltd. investor Barry Monheit will help sort out the company’s future. Representatives from Mortgages Ltd. did not return phone calls by deadline.

A source close to developers involved with the firm tells GlobeSt.com that his contacts have said that more litigation could come in the future. He adds that several large projects funded by Mortgages Ltd. have already either been halted or completely shut down because of the lender’s financial woes.

David Glimcher, president of Glimcher Ventures Southwest LLC of Scottsdale, says the situation facing Mortgages Ltd. borrowers isn’t surprising. When loan commitments can’t be funded, projects grind to a halt. “That’s a scenario that could kill current projects and seriously and adversely effect the developers,” says Glimcher, whose company develops destination entertainment and retail centers.

John C. Smeck III, principal and managing member of Johnson Capital’s Phoenix office says the projects to be most adversely impacted are the non-traditional real estate ones. “Mortgages Ltd. did a great job of funding debt to traditional borrowers who developed non-traditional projects,” Smeck says. “They took a lot of risk, but got paid very well for that risk.”

Smeck goes on to say that in a market like the current one, non-traditional borrowers are desperately needed. “It’s tough enough to find enough equity and debt these days for traditional real estate investments,” he comments. “It’s nearly impossible to find it for the non-traditional speculative developments and land.”

Though Mortgages Ltd. is going through tough times right now, neither Smeck nor Glimcher believe the company’s problems will have an impact Valley-wide. Smeck points out that the contracting credit markets and sub-prime crisis, not lack of funding from Mortgages Ltd., are the reasons for development slow-downs.

Glimcher agrees, adding that Mortgages Ltd. doesn’t hold the debt on all real estate projects. “Even though they have a billion dollars in lending out there, it’s only a small portion of the loans outstanding,” he says.

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