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TEMPE, AZ-Centerpoint Condominium developer Avenue Communities LLC filed for voluntary Chapter 11 protection in the Arizona District of US Bankruptcy Court on Dec. 5. The move was made in conjunction with a 10-count lawsuit filed the same day against lender Mortgages Ltd., alleging that the Arizona lender never came forward with promised funds for development of the 275-unit Centerpoint Condominiums.

Ken Losch, principal with locally based Avenue Communities says the actions will help Centerpoint’s development entity Tempe Land Co. LLC seek relief from creditors and investors resulting from Mortgages Ltd. non-payment of a promised loan for the development at 110 E. Seventh St. “No one will be shorted. Investors are going to get 100 cents on the dollar. That’s not what any of this is about,” Losch says.

Stanley Bronstein, a licensed real estate lawyer and CPA in Arizona, says filing Chapter 11 is the only way Avenue Communities could slow demands of creditors and investors, while new financing is put in place and the court decides the outcome of the suit against Mortgages Ltd. “Chapter 11 gives him time and control to have a prayer of this working out,” says Bronstein, who is not involved with the case, nor affiliated with Mortgages Ltd. “This move makes sense to me. He has people chasing him. He’s trying to slow them down, and allow him the chance to make things happen.”

Losch says Avenue Communities has found a new lender for the project, which he declined to name. The new lender will be the first paid back under the proposed bankruptcy plan as Mortgages Ltd. defaulted on the original loan payment of $150 million agreed to in March 2007 and the settlement agreement of $75 million which was arranged last summer.

Subcontractors, in the meantime, will be paid for future work, with past work reimbursed through a specific schedule. Losch says he hopes to get moving on getting the second tower of the two-tower Centerpoint Condominium during Q1 2009.

In a Dec. 5 article, GlobeSt.com reported that Avenue Communities filed litigation documents claiming Mortgages Ltd. defaulted on its funding obligations for Centerpoint Condominiums. Among other things, the suit filed against Mortgages Ltd. claims misrepresentation, violation of implied covenant of good faith and fair dealing, breach of loan agreements and usury.

Losch tells GlobeSt.com that when it came to Mortgages Ltd., he was willing to be patient, but enough was enough. “We kept trying to call with them, meet with them, but they kept postponing and putting us off,” he comments. Mortgages Ltd. has not responded to several calls placed by GlobeSt.com.

Losch declined to comment on how much he is asking in damages, but says it will likely be in the tens of millions of dollars. With the court involved he continues, the judge can determine a fair settlement while Avenue Communities finishes Centerpoint Condominiums a year after its original scheduled completion date. “One process will take a couple of years, the other a couple of weeks,” Losch adds. “In the meantime, we can move forward.”

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