On August 12, 2014, a Houston arbitrator found that International Bank of Commerce had defrauded the purchasers of 14 condominiums at the Emerald by Sea development in Galveston, Texas and ordered the bank to pay $1,097,287. Attorneys Randall O. Sorrels and Sammy Ford IV of Abraham, Watkins, Nichols, Agosto, Aziz & Stogner represented the condominium purchasers in the arbitration.
Planning and construction of Emerald by the Sea began in 2004. IBC was the construction lender, and invested millions of dollars in the project. All of the condominium purchasers executed purchase contracts between 2004 and 2007 and put down their earnest money. They closed on their units in 2008.
As originally designed, the Emerald was supposed to have a precast concrete exterior. During construction, the exterior of the building was changed to stucco. But the project’s architect refused to approve this change. The skin that was placed on the building had not been approved for use in coastal developments, which meant that without costly and extensive testing, it would not qualify for insurance by the Texas Windstorm Insurance Association. Failure to qualify for that insurance would raise the deductible on the building significantly, exposing condominium owners to very large assessments in the event that a named storm (like Hurricane Ike) caused major damage to the property.
Throughout 2007, the Emerald experienced work stoppages due to disputes between the developer and general contractor over payment. IBC knew about these disputes and stepped in. By late 2007, IBC had learned of the change to the skin of the building and the problem that this change would have on the building’s insurability. The building was severely delayed at that point, however, and IBC was concerned about getting units sold so that its construction loan could be repaid. To encourage owners to close on their units, IBC directed and approved a “feel good” letter to be sent to the purchasers. According to the arbitrator, the letter contained “misleading half-truths.” The letter stated that IBC would fund the completion of the Emerald as it had been originally specified. But the letter did not disclose the change to the exterior of the building from precast concrete to stucco. Nor did the letter disclose the problem the Emerald would have obtaining TWIA insurance due to the stucco exterior.
According to the arbitrator, IBC’s actions constituted fraud in a real estate transaction. The arbitrator found that each condominium owner relied on the letter that was sent to them before closing on their units. Most importantly, the arbitrator determined that fraud perpetrated by IBC caused the purchasers to overpay significantly for their condominiums.
Attorneys Randall O. Sorrels and Sammy Ford IV are board-certified attorneys at the Houston law firm of Abraham, Watkins, Nichols, Agosto, Aziz & Stogner. Since 1951, the firm has advocated for the rights of thousands of individuals and businesses in disputes ranging from catastrophic personal injury to breaches of fiduciary duty and fraud. For more information on the firm, visit their website at www.abrahamwatkins.com. .