Construction Contractor Foreclosure Lawsuits Surge in Troubled Real Estate Markets

Construction contractor foreclosure lawsuits against the owners and developers of major properties have been making headlines during the last several years, especially in markets such as Miami and other parts of South Florida as well as Las Vegas that have experienced some of the most significant downturns in real estate values and sales. One of the most recent cases that is being watched very closely involves the developer of the new PH Towers Westgate timeshare and hotel development in Las Vegas, which is disputing allegations that it owes the general contractor $19.3 million. In fact, the developer says that it is the contractor, Tutor-Saliba Corp., which owes it millions of dollars.

The property involved in this litigation is the massive 52-story, 1,200-room development linked to the Planet Hollywood resort and Miracle Mile Shops mall. The construction contract is from 2007, and it is valued at approximately $495 million.

The construction contractor’s lawsuit indicates that Tutor-Saliba filed a lien against the property for the $19.3 million, and it is now entitled to foreclose on the project because its claim is superior to the claims from lenders against the developer. However, Tutor-Saliba’s lien is one of at least five active liens filed against the project since November 2009.

The privately-held Westgate Resorts Ltd., which is based in Orlando and has projects there as well as in Miami and other parts of the U.S., has indicated that it will fight the contractor lawsuits and claims of lien. The company’s attorneys argue that the specific claims in these lawsuits are totally without merit, and they point to the findings of a third-party construction management firm as independent verification. They say that it is actually Tutor-Saliba which owes Westgate more than $18 million. In addition, they indicate that Tutor-Saliba signed an agreement subordinating its claim to the lenders on the project, which leaves it with no legal recourse, and Westgate will pursue claims against the contractor entailing “. . . overcharges, credits due for unperformed work, liquidated damages for untimely performance, and failure to comply with the plans and specifications of the project,” according to a recent statement by the COO of Westgate Resorts.

Tutor-Saliba is owned by Los Angeles-area construction company Tutor Perini Corp., which is also pursuing $500 million for work on MGM Mirage’s CityCenter and is in litigation over unpaid invoices and alleged construction defects at the One Queensridge Place condominium project, both of which are also in Las Vegas. The company is also a creditor in the Fontainebleau Las Vegas bankruptcy.

The new PH Towers Westgate, which opened in December, has been described by its owner as the largest single timeshare building in the world and the first timeshare resort to be fully integrated with a major resort and casino. In recent newspaper reports, the developer said that approximately 20 percent of the PH Towers Westgate rooms have been sold as timeshares. The remaining units are being used as hotel rooms for the Planet Hollywood resort.

With so many major real estate developments coping with the recession and the slow pace of economic recovery in the hardest-hit markets, construction disputes and lawsuits such as those involving the PH Towers property are going to continue to unfold in the months and years to come. Our attorneys who focus on construction matters and litigation will continue to work very closely with our clients in the construction industry to protect the value of their work and enforce their contracts.