Fayette County

Lawsuit: Troubled CenterCourt development defaulted on loans, should be sold

A troubled mixed-use development near the University of Kentucky campus allegedly has defaulted on more than $8 million in past-due loans. Now, the investor group owed that money wants a Fayette Circuit Court judge to order the sale of the building to recoup their money, court documents show.

According to a lawsuit filed in August by CL45 MW Loan I LLC, a Minnesota investor group that specializes in distressed assets, CenterCourt I and others took out a series of loans for the four-story building. Those loans were purchased by CL45 in November 2018 from WesBanco. The lawsuit alleges CenterCourt I and other owners failed to repay more than 30 loans when they matured in February of this year.

The loans total more than $8.1 million.

Named in the lawsuit are CenterCourt I, Doonbeg LLC, Bill Lear, WML Properties, South Hill Group LLC and James Phelps.

Mel Camenisch Jr., a lawyer for CenterCourt I, Lear and other owners, said the amount owed is in dispute. The owners have asked CL45 to produce documents showing the amount the owners have already paid on the loans and the total amount CL45 says is in arrears. In court documents, CenterCourt I does not deny that it failed to pay the principal of the loans when the notes came due in February.

CL45 wants a court-ordered sale of the building so it can collect on the past-due loans. Individual condo owners in the building would not be directly affected by the potential foreclosure action and would still retain their units.

Lawyers for CL45 did not return calls requesting comment.

Repair work was under way on the South Mill Street side of the CenterCourt Condominiums in February 2017. Charles Bertram cbertram@herald-leader.com

Parties to the lawsuit include others owed money by CenterCourt including CenterCourt Condominium Association and the Lexington-Fayette Urban County Government.

Meanwhile, Robert Ryan, a lawyer for the CenterCourt Condominium Association, argued in court documents that CenterCourt I, Lear and other owners owe the association more than $1.2 million in past-due monthly assessments and for a 2017 emergency assessment to fix the garage on the property. The association wants a judge to appoint a receiver and order any rents collected be turned over to the association to pay off the $1.2 million CenterCourt owes the association.

The building has ground-floor retail space, a garage and three stories of condos. It has struggled to retain commercial tenants and has been embroiled in other lawsuits over its construction.

Fayette Circuit Court Judge Ernesto Scorsone agreed during a Friday hearing in the case to sign an order placing all rents collected from the building at 535 South Upper Street in escrow until the case against CentreCourt and its possible sale is settled.

During Friday’s hearing, Scorsone said he could not rule on the motion to appoint a receiver because he may have to recuse himself from the case. In an earlier lawsuit involving CenterCourt, Scorsone said he was asked to step aside because someone who rented office space from him years ago was on the condo association board. Scorsone said that former tenant is no longer on the condo association board.

Lawyers for CenterCourt and the condo association said during Friday’s hearing they did not have an issue with Scorsone remaining on the case.

A lawyer for CL45 said she would check with the investor group to determine if they wanted Scorsone to step down.

A hearing is scheduled for Oct. 4.

In the previous lawsuit, CentreCourt condo owners alleged that poor construction, negligence and building code violations in the complex cost them millions in repairs, rental income from tenants who had to move, and a loss in the value of their units. That lawsuit was eventually settled for an undisclosed amount in 2017.

The city also lost $400,000 on the CentreCourt condo development, city records show. The city and the Downtown Lexington Housing Fund, a group formed to loan money to downtown residential projects, loaned money to the development. The city paid off a loan that included the $400,000 it loaned CentreCourt in June 2014, records show. City officials have previously said that debt is still outstanding.