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Banks lose millions on Petaluma apartment project

  • Companies led by Marin County developer Bijan Madjlessi defaulted on at least $48 million in loans obtained to turn the Greenbriar Apartments in Petaluma into a condominum complex. The condo conversion never took place. (BETH SCHLANKER/Press Democrat)

A Marin County developer, whose companies defaulted on $11.2 million in loans made by the now-defunct Sonoma Valley Bank for a project in Petaluma, is fighting in court to prevent the foreclosure of six apartment buildings used as collateral.

Bijan Madjlessi filed a lawsuit in federal court this month that seeks to avoid foreclosure of the Petaluma buildings by selling the property and repaying 38 cents for every dollar his companies owe.

The ongoing court battle has, for the first time, revealed the inner workings of some of the controversial loans made by Sonoma Valley Bank to Madjlessi's companies, which received and defaulted on at least $24 million in loans from the small community bank for two projects in Santa Rosa and Petaluma.

The lawsuit stems from the Petaluma project and was filed against Westamerica Bank, which acquired the loans after federal regulators seized Sonoma Valley Bank in August and sold its assets to the San Rafael-based bank.

The lawsuit claims Madjlessi struck a deal with the president of Sonoma Valley Bank, Sean Cutting, only days before federal regulators closed the bank. That arrangement now prevents Westamerica Bank from foreclosing, the lawsuit contends.

Westamerica Bank claims the agreement to stop the foreclosure expired in December and Madjlessi's companies are pressuring the bank to accept a partial repayment by using the court system to stall foreclosure, according to court documents.

As their legal sparring has continued in court, once-private documents have entered the public record and provided further details about the developer's relationship with Sonoma Valley Bank and the potential financial damage caused by the deals.

The six disputed buildings in the Petaluma Greenbriar Apartment complex are now valued at $400,000 each — far below the $1.86 million loaned by Sonoma Valley Bank to purchase each one, according to court documents. At that value, the losses on the bank's original $11.2 million in loans would reach $8.9 million — or almost 80 percent.

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