Mixed Verdict on Foreclosure Suit for Colorado Springs Council President

Colorado Springs City Council President Scott Hente and his business partner Robert Ormston recently obtained a mixed verdict in a real estate lawsuit with an ANB Bank affiliate over 44 acres of property in northeast Colorado Springs.

The two former Air Force officers purchased the land with an $8.8 million loan in 2005, which they personally guaranteed. The officers transacted the deal "on a handshake," their lawyer said in his opening statement, and "didn't worry about the fine print," the Colorado Springs Gazette reported. The bank later foreclosed on the land, and the bank sued to recover nearly $2 million still left after foreclosure on the personally guaranteed loan.

Hente and Ormston countersued, alleging a breach of good faith and fair dealing and breach of fiduciary duty. They argued the bank failed to renew a $2 million line of credit intended to go toward a special property tax, which brought about a district assessment on the entire property and contributed to the land's decline in value. In addition, Hente and Ormston claimed that the bank hired them to work on foreclosed homes on the property, and that they performed the work at a discount because of their relationship with the bank. Finally, they claimed that the bank agreed to buy out the property for $275,000 in lieu of foreclosure, but foreclosed on the land anyway.

The jury ultimately issued a mixed verdict, finding that Hente and Ormston owed the bank $1.94 million, which was the remainder of the loan plus 21 percent interest. However, the jury also found that the bank did breach its obligation of good faith and fair dealing and its fiduciary duty, and so owed $1.5 million to Hente and Ormston.

Hente and Ormston had planned to build 206 multiple- and single-unit homes, but the work was never finished and the land remains vacant.

Breach of Good Faith and Fair Dealing

In any contractual agreement, each party has an implied obligation to act with good faith and fair dealing. The meaning of good faith and fair dealing varies depending upon the circumstances, but generally means the parties must perform faithfully the obligations required by their agreement and not impair any benefit of the contract to the other party. In this case, the jury found that the bank violated this implied duty because it did not renew the $2 million loan and foreclosed on the property.

Breach of Fiduciary Duty

Colorado law generally holds that a lender has a fiduciary duty to a borrower if there is a relationship of trust on the part of the bank customer, and the bank gives business advice to the borrower to his or her detriment. A fiduciary, by law, must act in the best interests of the beneficiary - in this case Hente and Ormston. Because Hente and Ormston believed they had a "special relationship" with the bank, as they claimed at trial, and the bank's actions ultimately harmed Hente and Ormston, the jury found the ANB affiliate breached its fiduciary duty.

Real Estate Litigation

If you have a dispute over commercial real estate in Colorado, contact a skilled real estate attorney to discuss your legal options.