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VLF Client Wins Against Bank for Construction Loan Practices


The Vethan Law Firm, P.C. is pleased to announce that it successfully represented its client, Aguilar Investments in a construction lawsuit against its lender, BBVA Compass Bank (“Compass Bank”).

The basis of the claim was that Compass Bank failed to follow the terms of the construction loan contract it acquired between Aguilar Investments and Laredo national Bank. 

The case involved the development of a strip center in North Houston by Aguilar Investments. As part of the construction loan, our client, Aguilar Investments, requested that it be able to supervise the construction phase of the strip center. However, Compass Bank’s predecessor, Laredo National Bank, told Aguilar Investments that the bank would hire its own inspectors to ensure that all work and draw requests submitted by the general contractor complied with the drawings and plans for the strip center.

Approximately one year into the construction of the project, Compass Bank issued a letter of foreclosure to Aguilar Investments alleging that it was in default on the construction loan. When Compass Bank was asked to explain why a notice of foreclosure was issued, it stated that the construction was not complete, the general contractor was nowhere to be found, but the loan proceeds were fully disbursed. Moreover, Compass Bank advised Aguilar Investments that if the project was not completed, and the City of Houston did not issue a Certificate of Occupancy within 90 days, Compass Bank would seize the property.

With the daunting option of raising a significant amount of money to complete construction on a project the general contractor abandoned, or lose all the investment they had in the property, the owners of Aguilar Investments resorted to liquidating various assets to generate quick and substantial cash to complete the construction project so that it would receive a certificate of occupancy for the strip center, and meet Compass Bank’s deadline.

Once Aguilar Investments moved into the property, it learned that the general contractor had materially misrepresented the work it had done on the project.  Aguilar Investments contended that Compass Bank paid on the general contractor’s draw request without having any documentation to substantiate its position that an inspector hired by the bank actually verified the work the general contractor stated was done on the project.

Aguilar Investments sued Compass Bank in arbitration to recover the cost to complete the project and the money Compass Bank disbursed to the general contractor for work that was not done.  Aguilar Investments contended that Compass Bank had a duty, under the loan agreement, to determine whether the draw request complied with the general contractor’s estimated completion percentage.  Compass Bank claimed that any language in the loan document suggesting an inspection was for the benefit of the bank, and not the borrower.

After a three-day arbitration before the American Arbitration Association, the arbitrators found in favor of Aguilar Investments.

The arbitrators determined that the loan document Compass Bank acquired from Laredo National Bank was ambiguous as to duties that the lender undertook to inspect and approve new construction prior to paying draw requests, and that the general contractor was paid for work that it did not do, but which Compass Bank’s inspector said was completed.

In addition to awarding damages to our client, the arbitrators awarded The Vethan Law Firm, P.C. attorneys’ fees and costs of more than $140,000.

Regardless of the parties or the complexity of the lawsuit, the business lawyers and construction attorneys of The Vethan Law Firm, P.C. aggressively prosecutes and defends complex commercial construction disputes.  Like Aguilar Investments, we look forward to representing businesses involved in construction disputes and construction litigation.

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