The legal tussles surrounding the lengthy, messy bankruptcy of builder Tousa got a bit of clarity last week, when a judge said Starwood Land Ventures could collect a $1.8 million breakup fee if it failed to acquire the Hollywood-based homebuilder. But only a bit, said commercial lenders, who are pondering how the case could affect the business more broadly.

The fee ruling followed an earlier commentary from U.S. Bankruptcy Judge John Olson, who slammed the lending and due diligence practices of Tousa’s syndicate of prominent banks. He said Citigroup, Wells Fargo and Bank of America had committed wrongdoings so egregious as to be called a “fraudulent conveyance,” and ordered that they pay back Tousa’s subsidiaries, whose assets secured the loan, more than $400 million.

Olson’s 182-page ruling, issued in federal court in Fort Lauderdale, is being appealed. Spokespeople for each bank declined to comment, citing the pending appeal.

The rise of Starwood as a likely new owner of Tousa is the ultimate aim. While the breakup fee could serve as a further inducement for Starwood, a Bradenton-based residential real estate investment firm, Olson’s comments make many lenders nervous. The detailed ruling attacks some of their basic lending practices, including the hiring of solvency experts. Tousa declared bankruptcy in January 2008. [more]