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Predatory Lending's Newest Victims: The Rich


Resort property owners want $24 billion from their lenders.

Payday scams, high interest credit card offers, and unimaginable home loan offers are a few of the examples that come to mind with the term "predatory lending." The victims are typically poor, less educated people who are down on their luck and ill-equipped to read the fine print in get-rich-quick schemes.

Well, not after this credit crisis. Welcome to 2010, where some of the richest and most sophisticated investors in the country see themselves as victims of predatory lending.

The property owners of some of the country's most exclusive resorts filed suit on Sunday against Credit Suisse Group (CS) and the real estate firm Cushman & Wakefield. The plaintiffs seek a whopping $24 billion in damages for what they allege was a predatory "loan-to-own" scam that intentionally inflated the value of the properties with the intent to acquire the assets under foreclosure.

Two named plaintiffs, L.J. Gibson and Beau Blixseth, filed the suit on behalf of 3,000 property owners at the Ginn Sur Mer Resort in the Bahamas, the Lake Las Vegas resort in Nevada, the Tamarack Resort in Idaho, and the Yellowstone Club in Montana. Three of the four resorts filed for bankruptcy. The suit charges Credit Suisse (which provided much of the financing for the resorts) and Cushman & Wakefield (which offered appraisals of the properties) with racketeering, breach of fiduciary duty, fraud, and negligence.

According to Bloomberg, the complaint says the scheme worked like this: Credit Suisse encouraged developers to take out cash on their projects in loans based on their projected growth. The real estate market crashed and the developers, saddled with unsustainable debt, went into default and left property owners in the lurch without the promised pools, golf courses, and other amenities.

In short, it was a big mess in paradise. But it sounds like a bigger version of what played out in neighborhoods across the country during the years of ARMs, interest-only loans, and home equity lines of credit. The equity in your home is yours to own, the banks promised, with low interest rate offers and propped up appraisals. When the market crashed, homeowners quickly realized that the equity was never really theirs at all.

It's unclear just how far this suit will go. Credit Suisse shareholders certainly aren't worried -- its stock is up nearly 6% today.

Making the suit even more complicated is the uncomfortable fact that plaintiff Beau Blixseth is the son of one of the developers at issue in the suit. Tim Blixseth, once a billionaire, took a $375 million loan from Credit Suisse to develop the posh Yellowstone Club where young Beau got taken for a ride as well as a host of other resorts that never came to fruition. When Tim divorced, his wife Edra got the Montana resort in the proceedings. Once the club went belly up in bankruptcy, so did Edra, and the couple's dirty financial laundry came out in a mess of subsequent court proceedings involving the Blixseths, Credit Suisse, and the resort's creditors.

In the end, it's difficult to really feel sorry for any of the parties involved. The Yellowstone Club reportedly attracted moguls like Microsoft's (MSFT) Bill Gates and News Corp.'s (NWS) Peter Chernin to its private ski slopes. According to the New York Times, membership included a minimum of $250,000 to join, plus the cost of a $5 million to $35 million mountainside home, plus annual dues of about $20,000, according to members.

Sure, rich people can be targeted in predatory lending scams just like the poor can. But it's hard to imagine that the millionaires targeted by Yellowstone and the other exclusive resorts really have anyone but themselves to blame.
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