Condo development owner sues bank for “illegal interest rate”

Bethany Liou, a Cupertino-based businesswoman who previously paid a $50 million settlement in relation to a federal EB-5 case, is suing to prevent a lender from foreclosing on a 63-unit condominium complex in Morgan Hill. 

Liou, through an entity called Diamond Creek Villa, filed a case to shield two condominium buildings located at 15680 Santorini Lane, 15665 Nice Lane and 15655 Venice Lane from foreclosure, according to a complaint filed in Santa Clara County court on Aug. 15. The case has since moved to bankruptcy court as part of Diamond Creek’s Chapter 11 case. 

The defendant in the case, Walnut Creek-based Mechanics Bank, acquired the mortgage as part of its 2019 merger with Dutch lender Rabobank’s U.S. unit. The suit alleges the bank pursued foreclosure on the properties based on “inaccurate and illegal interest rate calculations.” 

According to the court documents, Mechanics Bank declared a default on the properties in January 2021. At the time, the unpaid principal on the loan was $16.9 million. With the default, the bank raised the interest rate on the loan from 2.6 percent to 7.6 percent. 

Liou claims that the interest rate increase was illegal because it was applied to the entire unpaid balance instead of just the monthly payment. Liou claims that this led her to fall “further and further into default at an increasing rate,” with her original $60,000-per-month mortgage payment nearly doubling overnight. The alleged improper calculation led to a $2 million “windfall” for Mechanics, according to the complaint. 

A Mechanics Bank representative declined to comment, citing a policy that prohibits public statements on pending litigation. 

In 2019, Liou and her firm Golden California Regional Center agreed to a $50 million settlement with the Securities & Exchange Commission. The federal agency accused her of diverting at least $45 million from foreign investors into her personal accounts. The foreign citizens were looking to invest in a Cupertino real estate project to qualify for green cards under the EB-5 program. 

In her lawsuit, Liou is seeking damages and a restraining order that would prevent Mechanics from selling the property.