No Recourse, Some Waste

The loan agreement for the Regal Parc apartments in Irving was generally non-recourse to the borrower, but it also included a carve-out that made the loan fully recourse if the borrower breached its obligation to remain a single-purpose entity.  After the lender foreclosed on the property, it sued the borrowers for an $11.6 million deficiency, alleging they had violated the agreement by commingling funds with their related entities and committing waste by failing to maintain the property.  The trial court accepted the borrowers’ explanations of why they had not commingled Regal Parc funds with those of other entities, meaning that the loan remained non-recourse.  But the trial court also entered judgment against the owners for approximately $1 million due to waste and improper retention of post-default rents.  The court of appeals affirmed, holding that the trial court’s finding was adequately supported by the testimony of the borrowers’ witnesses.  The court of appeals also rejected the lender’s claim that the borrowers should have been responsible for an additional million dollars worth of waste that occurred before they assumed the loan, because the loan agreement only made the borrowers responsible for waste that occurred “henceforth” — i.e., from the date they assumed the loan.  Finally, the court found sufficient evidence to support the award of damages for waste and retained rents.

Wells Fargo Bank, N.A. v. HB Regal Parc, LLC, No. 05-10-01428-CV