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Real Estate Developers Warning – What do you mean I could be personally liable?

Posted in Real Estate Development, Real Estate Litigation

The tail end of a recent anti-deficiency decision of minor import has HUGE warning signals for principles, employees or agents of real property. Each could be individually and personally liable to lenders even after a foreclosure.


In Fait v. New Faze Development, the lender to a failed redevelopment project sued both the borrower and individuals owning or employed by the developer. The primary ruling in the case was a conclusion that an action for waste due to the borrower’s demolition of a building on the property in preparation for redevelopment could stand even after foreclosure despite the usual anti-deficiency protections.

The relatively unheralded portion of the decision, however, was a conclusion that the individual owner of the borrower corporation and two individual officers could also be personally liable for the “negligent impairment: of the value of the security. While the individuals essentially argued that they were innocent because there was no ill intent (they were merely preparing the site in good faith for a new project), the court disagreed.  At trail, each individual will have to show ­­that their action in causing demolition of the building was not negligent. While each may have claims of indemnity against the employer their protection is only as good as the ability of the employer to provide an actual indemnity. The shield of the corporate developer was essentially rendered meaningless.

Conclusion: The court is essentially telling employees and agents BEWARE you may be liable for acts (demolition entitlement, etc.) that you cause in pursuing what is later a dialed project. Each participant in a development project needs to think before acting. “Is this prudent? Is this reasonable?” Otherwise, you could be liable. While the case dealt with demolition of building, what about bonds for unusable infrastructure or fee commitments for a failed project.