April 13, 2008 Copyright © Las Vegas Review-Journal
Jennifer Robison LAS VEGAS REVIEW-JOURNAL
By JENNIFER ROBISON
REVIEW-JOURNAL
When Brad Cohen’s monthly mortgage payment jumped from $1,700 to $2,400 and the bank came calling with foreclosure notices, Cohen did what any red-blooded, meat-and-potatoes American would do.
He called a lawyer.
The pending lawsuit could become the first local test case in a broadening national spate of claims against Realtors and lenders who lawyers say put buyers in houses too pricey for their budgets.
Cohen is suing the mortgage broker who refinanced his loan and has retained trial attorney Robert Cottle to represent him.
Cottle is preparing several lawsuits against Realtors, lenders and appraisers — “a triangle of professionals, every one of whom failed consumers most of the time,” Cottle said.
He expects to file Cohen’s lawsuit within the next 60 days.
Cottle, a founding partner in Las Vegas law firm Eglet Wall Cottle, said he’ll prove agents, lenders and mortgage brokers failed in their fiduciary duty to explain all borrowing and buying options, and to give home buyers professional recommendations on their best interests. Rather, brokers and agents focused on commissions, fees and corporate bonuses that came from placing buyers in expensive homes with interest-only loans and option adjustable-rate mortgages that adjusted upward. And they did so without explaining the consequences to borrowers, Cottle said.
Attorneys in Arizona, California, Maryland, Ohio and New Mexico have filed similar lawsuits, claiming professional lapses could cost hundreds of thousands of homeowners their properties.
Cottle estimated as many as 15,000 Las Vegans could have solid claims against sales agents, loan brokers and appraisers. He’s evaluating about a dozen other cases for a multiparty lawsuit he might file after he files Cohen’s lawsuit. Though all his mortgage-related clients have come thus far from referrals, he’s planning a public announcement within three to six months to let more homeowners know he’s handling such cases.
“The burden of making a good financial decision is on the consumer, but he’s got to have the right guidance,” Cottle said. “If the defendants can’t prove they did their job with professional responsibility, then the consumer wins.”
Some observers say the lawsuits won’t be so easy to prove.
Tom Davidoff, an assistant professor at the Haas School of Business at the University of California, Berkeley, said consumers rely on brokers and Realtors to give them the right advice.
“People have to rely on the say-so of the professional, because mortgages are very hard to read,” Davidoff said.
If a mortgage broker informs a borrower of the loan’s terms, however, and the borrower simply ignores the paperwork or doesn’t listen to an explanation of the loan, the case weakens. Consumers can’t demand more honesty than the law requires, Davidoff said.
And barring cases of outright fraud, it’ll be difficult to find a “deep well of sympathy” for homeowners under water on their mortgages, said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains, N.J., mortgage-consulting firm.
“It’s important to ascribe some responsibility to the borrower, or we have to paint everybody as a victim,” he said. “If someone said you could have a 2 percent interest rate, did you not ask anymore questions? Did you not call a lawyer or anyone elsevestment was made knowing that Las Vegas is one of the country’s fastest-growing cities and that a regeneration plan was under way throughout downtown, said Harry Braunstein, Tamares’ general counsel in New York.
“We saw tremendous potential not just in the entire valley, but in particular downtown,” Braunstein said. “Although it’s been slow to mature, we are big believers that it will happen. We bought out our partners. Our holdings are very diverse downtown. We’re part of the East Fremont entertainment district and we just submitted a proposal for a residential property on east Fremont Street.”
International investment has reached suburban projects such as Sullivan Square, a 16-acre mixed-use development by Glen, Smith & Glen near Durango Drive and the Las Vegas Beltway. Making its first venture into Las Vegas, Harcourt Developments of Ireland has committed $800 million in construction financing for the project.
“We are aware that the property market is in a bit of down time at present across the (United) States, but people are still moving to Vegas to live at a rate greater than anywhere else in the U.S.,” Harcourt Director Mike Murphy told the Review-Journal. “After we came to see the project on the ground, we agreed that Sullivan Square had the look of a winner.”
Israeli money is behind One Queensridge Place and Queensridge Village being built at Rampart Boulevard and Alta Drive, said Yohan Lowie, chief executive officer of Executive Home Builders. He said the credit crunch has “decimated” foreign investment now.
Tom Climo, a Las Vegas economic consultant educated in England, said foreign capital invested in Las Vegas increases local gross domestic product and disposable income.
“This means Vegas residents are better off than they would be without foreign capital,” he said. “What you worry about is the longer-run scenario where foreign ownership stigmatizes sustainable local employment in favor of the transfer of employment to foreign-based personnel, the lack of unionization which goes with that as well as attendant loss in job quality, distortions of investment in planning and research and, in general, the control given to a foreign entity over American capital and land.”
Real estate appraiser Shelli Lowe of Integra Realty Resources said she appraised a proposed high-rise site on Sahara Avenue, east of the Strip, for an investment group from Spain. The 13-acre site, now home to the 200-unit Palms Apartments, was purchased last year for $24 million.
The buyers aren’t planning to “flip” the property for a quick profit, said Jason Glasgow, a California broker who negotiated the deal. They’ve developed more than 3,000 high-rise condos in the United States in the past 10 years.
Opportunities to develop projects within walking distance of the Strip will continue to present themselves in Las Vegas as “more reasonable, thoughtful operators” enter the market, Glasgow said.
Despite a high foreclosure rate and declining home prices, land values in Las Vegas are not dropping, appraiser Lowe said.
“Not if they’re commercially oriented,” she said. “We’re doing a piece that’s selling for $30 million an acre across from the Mandalay (Bay), so we’re still seeing large prices paid for commercial and industrial property.”
John Vorshek, regional manager for Marcus & Millichap brokerage in Las Vegas, said his office has closed two commercial deals with different foreign investors this year.
A group from Hong Kong with holdings in California bought a 92-unit apartment complex for $18.4 million. It was an all-cash transaction and closed in 28 days.
“Unbelievable,” Vorshek said.
Durango Commons retail center was sold to a Korean group for $7 million, he said.
“They flew over and looked at the property and asked all the right questions about vacancy and leasing and household income,” he said. “Why Las Vegas? We’re the most known city in the world.”
Generally speaking, the “smart money” is buying in Las Vegas right now and some of that capital is coming from overseas, said Charles Clawson, president of Noble Title in Las Vegas.
“With the dollar so weak, foreign investors have much greater purchasing power than they might normally have,” he said. “That greater purchasing power, combined with the distressed real estate market, makes real estate investments in Las Vegas very attractive to foreigners.”
They’re also investing in Las Vegas technology. BetBrokers of London signed a letter of intent to acquire operating assets of Winning Edge International, a Las Vegas-based sports handicapping Web site, for $6.5 million.
The Association for Competitive Technology released a report in 2006 on the importance of direct foreign investment, particularly for small and midsized enterprises.
“Innovative technology startups — an important engine of economic growth — are especially dependent on a constant flow of capital which can be invested into the research and development that often leads to breakthrough new products,” co-author Nora von Ingersleben wrote. “With the United States facing the worst financial crunch and crisis since the Great Depression, it is much harder for start-ups to raise capital to develop innovative new products.”
BUYING INTO VEGAS
Fontainebleau
Developer: Turnberry Associates
Foreign investor: Crown Ltd.
Country: Australia
Amount: $250 million
Interest: 20 percent
Cannery, Eastside Cannery
Developer: Cannery Casino Resorts
Foreign investor: Crown Ltd.
Country: Australia
Amount: $1.8 billion
Interest: 100 percent
CityCenter
Developer: MGM Mirage
Foreign investor: Dubai World
Country: Dubai
Amount: $2.7 billion
Interest: 50 percent
Plaza, Las Vegas Club
Developer: Jackie Gaughan
Foreign investor: Tamares Group
Country: Liechtenstein
Amount: $82 million
Interest: 100 percent
New Frontier
Developer: Phil Ruffin
Foreign investor: Elad Properties
Country: Israel
Amount: $1.2 billion
Interest: 100 percent
This story first appeared in the Business Press. Hubble Smith writes for the Business Press’ sister publication, the Las Vegas Review-Journal. He can be reached at hsmith@reviewjournal.com or 383-0491.
