Originally Published in  GlobeSt.com April 16, 2013.

- Q&A with Mitchell E. Widom, Partner, Litigation Practice Group Leader

MIAMI—While recovery is well underway, some commercial real estate industry players are still feeling the recession’s after-shocks through litigation in the courtroom. A recent representative high-profile case is Lennar Corporation, which was facing a $30 million claim.

Mitch Widom, a partner and Litigation Practice Group Leader of Bilzin Sumberg Baena Price & Axelrod LLP, turned this suit against the home building giant into $14 million victory in Lennar’s favor. The litigation stemmed from a raw land deal whereby Lennar sold 220 acres to buyer Olivia Savanna.

GlobeSt.com caught up with Widom to discuss the case. He also discussed the legal landscape in the commercial real estate field.

GlobeSt.com: The real estate crash saw an onslaught of problems—from lenders defaulting on their mortgages, buyers pulling out of pre-construction contracts, and developers alleging lack of performance on the part of their subcontractors. What were some of the most common types of disputes that arose from the recession?

Widom: Two of the most common types of disputes we see are mortgage buy-back claims and internal partnership disagreements.

Mortgage buy-back cases involve claims against loan originators by institutional purchasers of mortgages, mostly major banks, seeking to force a buy-back of the mortgages sold to them by the loan originators because of alleged breaches of representations and warranties made by the sellers regarding the sold mortgages. The mortgages purchasers claim the mortgages sold to it had higher risk factors than had been represented in the sale documents. We have had great success defending these claims by focusing on, among other things, the purchasing bank's lack of standing, inability to prove causation or its full knowledge of the risks inherent in the underwriting criteria they established for the types of mortgages they acquired from our clients.

We also are seeing an increase in real estate partnership disputes. These disputes arise after a real estate deal has failed and the partners claim fault, and the obligation to pay damages, lies with the other partner. Often these disputes involve deals with majority and minority owners where each partner brings different benefits to the deal. For example, a “money partner” often joins with other partners who provide construction or management experience. The disputes involve a partner blaming the deal’s failure on another partner’s lack of funding, improper management, or the misrepresentation of risk factors relating to the project.

GlobeSt.com: With economic recovery gaining traction and new construction underway in Florida, have most of these claims been resolved? What is the litigation climate like today?

Widom: These types of claims are increasing despite the upturn in the economy. Companies and individuals who believe they have been wronged in a real estate transaction now have the funds to litigate those matters. In addition, along with recent negative publicity relating to the failure of institutional lenders to conduct appropriate due diligence in their lending practices, there has been a significant rise in the filing of mortgage buy-back cases and lender liability claims.

GlobeSt.com: Tell me a little bit about the case that you just resolved on behalf of Lennar Corporation?

Widom: That case arose from a transaction during the real estate boom in 2005 and 2006. Lennar Corporation sold a 220 acre tract of land to another developer who then flipped the property to a third developer for a substantial profit. Because Lennar’s purchaser had another buyer in the wings, it failed to conduct appropriate due diligence on the property and did not discover that one of the most important entitlements regarding the property, the MCP, had expired four months before they bought the property.

Without the MCP in place, the contemplated development could not proceed. Six months after the purchase closed, all of parties discovered for the first time that the MCP had expired. It took nearly a year and a half to reinstate the MCP, during which time the market dropped significantly. Despite having purchased the property in “as is” condition with a disclaimer of warranties as to development rights on the property, the buyer and its lender sued Lennar for fraud and various other claims seeking $32 million in damages.

After a three-week trial, the court held that the buyer was a sophisticated purchaser of property and signed an “as is” contract without conducting appropriate due diligence. The court ruled that neither the buyer nor its lender can bring claims for negligent misrepresentation under these circumstances and entered a final judgment in favor of Lennar. The court also ruled in favor of Lennar in a countersuit for $14 million since the buyer had failed to fulfill all of its payment obligations stemming from the purchase.