'You're sued!' Bank of America files against The Donald
The colorful efforts of Donald Trump to buy Patricia Kluge's former home have pushed Bank of America so hard that the bank has apparently gotten fed up and filed suit against the New York-based powerbroker. The case revolves around Albemarle House– a storied mansion of over 23,000 square feet that Kluge once offered for sale for $100 million but ultimately lost earlier this year at a foreclosure auction.
Trump, who has snapped up the surrounding properties and peppered them with no-trespassing signs in a brazen effort to scare off competing bidders, has lambasted the bank's effort to sell the house to anyone but Trump himself.
"Maybe someone is stupid enough to buy the house," Trump recently told the Wall Street Journal. "I wish them luck."
Bank of America, which had lent Kluge nearly $23 million against Albemarle House, transferred the property to a subsidiary called Quality Properties, and the 98-acre estate is jointly listed by the Richmond office of CB Richard Ellis and Charlottesville-based estate broker Jim Bonner for $16 million.
The sticking point is that Trump owns Albemarle House's front yard, and he maintains that even if the bank finds a buyer, he retains the option of matching the price and buying the mansion, which now sits in the middle of what are called the Trump Vineyards, most of which The Donald acquired at an April auction for $6.21 million.
The current contretemps stems from Patricia Kluge's 1990 divorce from billionaire John Kluge. In the settlement, she received Albemarle House and the land upon which it was built, but the 200-acre front yard and former golf course were retained by her ex– and eventually went into a trust for their son, John W. Kluge Jr.
The elder John Kluge saddled Albemarle House with a right of first refusal– a provision requiring Patricia to submit any purchase offer on the house to the owner of the surrounding land within 15 business days.
Flash forward 21 years. Patricia Kluge has seen nearly everything she owns auctioned off in an unsuccessful attempt to hold on to her Kluge Estate Winery and Vineyard. She appeared in bankruptcy court in July and now works for her winery's new owner, Trump.
In late January, a trustee for John Kluge Jr. granted Trump the option to buy the house-hugging parcel and assigned the right of first refusal to Trump Virginia Acquisitions, according to court documents. A few days later, Trump lawyer Jason Greenblatt demanded that BofA advise all potential bidders of Trump's alleged right.
In early June, Trump son Eric followed up by asserting the right of first refusal to Quality Properties, which was trying to market the mansion after the bank claimed it at the forclosure auction.
In response, Quality Properties demanded that Trump Acquisitions release the right– or pony up the foreclosure value of $15.26 million and buy the house.
In the lawsuit, filed August 26 in federal court, Quality Properties argues that the right of first refusal has become unenforceable, as the original tract has been subdivided and now owned by three different entities: Quality Properties, Trump Acquisitions, and Trump Vineyards. In another legal theory, BofA also maintains that the right expired when Patricia Kluge encumbered Albemarle House with debt.
"I think the lawsuit is a little bit desperate," says Eric Trump, calling the Albemarle House loan one of the "all-time worst deals" for Bank of America.
"They shouldn't have let the front yard go; they shouldn't have lent money on a property with a right of first refusal," says Trump. "Bank of America received a huge amount of negative publicity. And the lawsuit means the property will be tied up in litigation for years, unfortunately."
"[F]or the reasons outlined in the Complaint, the bank believes that Trump does not have a right of first refusal on the property and the bank filed the litigation to validate this belief," says Bank of America spokesperson Shirley Norton in an email. "This suit is not impacting the marketing of the property, we continue to market the property and have seen good interest from prospective buyers." She notes that Trump's $3.6 million bid at the foreclosure auction was "well below the appraised value for the property."
"There's been some good activity and a couple of proposals on the property," says broker Jim Bonner, adding that he can't comment on the lawsuit because he doesn't know much about it.
"Probably any buyer would be spooked," says Bill Shmidheiser, a lawyer who handled the winery foreclosure for another lender but who is unconnected to the current controversy.
Shmidheiser says that with the disputed right of first refusal hanging over the property, he can imagine the bank saying, "We need to clear this up."
Because the right of first refusal specifically noted that the property can be encumbered, "I think Bank of America will prevail," says Shmidheiser.
Updated 4:40pm with Shirley Norton's comments.Attached Documents: