A lawsuit containing factual allegations consistent with Hayman's research regarding the Shahan Prarie development will proceed against several UDF entities, the Fifth District Court of Appeals of Texas ruled on May 29, 2020. Megatel Homes III, LLC sued United Development Funding, L.P., United Development Funding II, L.P., United Development Funding III, L.P., United Development Funding IV, and United Development Funding Income Fund V.
“Megatel asserts that neither Shahan Prairie nor the Buffington Entities took any significant steps to develop the land made the subject of their contracts. Megatel further asserts the UDF Parties did not provide BHM, LAMP, or Scenic Loop with sufficient funds to perform their development obligations.”
Click here to view Megatel's allegations which are consistent with Hayman's research. Below is an excerpt from the pleading.
"For its part, UDF began operating as a Ponzi-like scheme, using freshly-raised capital in newer funds to pay investors in older funds. To implement this scheme, a newer UDF fund (e.g. UDF V) would loan money to Centurion—ostensibly for a specific land-development project—that Centurion would use to repay loans it had received from an older UDF fund (e.g. UDF III). The older UDF fund, in turn, used this money to pay distributions to its investors, thereby concealing the failure of the loans made by the older fund. Each new loan originated from a newer fund to pay an older fund generated millions of dollars in asset management and origination fees for the UDF Defendants, which starved the funding for development projects for which Megatel had contracted."
"Defendants also argue that LOF’s Offering Memorandum discloses that LOF 'expect[s] to make Investments with affiliates of [UMTH].' (ECF No. 32 at 20). Although the Offering Memorandum and the Partnership Agreement discuss that conflicts of interest may arise between LOF and its affiliates, neither document waives or exculpates Defendants from bad faith."
"Further, Plaintiff’s Complaint sufficiently pleads that the UDF Entity Defendants knowingly participated in the alleged breach. (See ECF No. 1 ¶¶ 39, 52) (alleging that Defendants caused LOF to enter into the loan participation agreement with UDF III while 'knowing that UDF III’s financial condition was precarious, that it could not pay distributions to its investors and that UDF III would not be able to fully repay any loan from LOF . . . .')"
Attached is the Consent of United Development Funding III, LP And United Development Funding IV.
Attached is Plaintiff's Unopposed Motion for Entry of Final Judgment Against Defendants Hollis M. Greenlaw, Benjamin L. Wissink, Theodore F. Etter, and Cara D. Obert.