Lawyers: Nate Paul staged fake protest to disrupt 2021 foreclosure sale
Lawyers for Austin real estate developer Nate Paul appeared in a civil courtroom Wednesday and said that in June 2021 a lender conducted an illegal foreclosure sale to buy eight properties from Paul — a move that weakened the near billionaire's once bustling real estate empire.
But lawyers for the lender, Karlin Real Estate, presented a different story, producing video evidence they say shows Paul — a key witness in suspended Texas Attorney General Ken Paxton's impeachment trial — staged a raucous protest to disrupt the sale and then lied under oath when questioned about it.
The sham protest allegations, which went unchallenged in court Wednesday by Paul's lawyers, underscore the extraordinary lengths to which Paul appears to have gone to hold onto his properties as federal agents launched an investigation into his business practices — a probe that recently led to his arrest on fraud charges.
More: Austin developer, Ken Paxton associate Nate Paul charged with 8 federal financial crimes
In 2020, a year before this particular foreclosure sale, Paxton issued a rushed legal opinion to delay foreclosure sales, citing pandemic restrictions on large gatherings. That opinion is a partial basis for Paxton's impeachment and forthcoming trial in the Texas Senate, where he faces possible removal from office. Paul, a campaign donor, could be called to testify, as House impeachment managers say that in exchange for Paxton's intervention in the foreclosure sales, Paul funded Paxton's home remodel and hired a woman with whom Paxton was having an extramarital relationship.
The impeachment trial is set to start Sept. 5.
Wednesday's hearing was before state District Judge Jan Soifer, a Travis County Democrat with a history of sorting through Paul's many legal matters. In March, Soifer ordered Paul to 10 days in jail after finding that he lied to the court about money transfers in an unrelated case involving a local nonprofit. Paul has yet to serve the time, as he is appealing the punishment.
In the matter heard Wednesday, Soifer must decide whether to dismiss the lawsuit Paul filed against lender Karlin Real Estate nearly two years ago. She heard an argument from Paul's lawyer, Mitchell Shapiro, that Karlin crafted an elaborate scheme to take Paul's properties for "grossly inadequate selling prices."
More: What ties Nate Paul to Texas AG Ken Paxton? A timeline from campaign donation to impeachment
Karlin purchased Paul's loans from other lenders and moved to foreclose on eight properties after Paul failed to make payments. Those properties sold at the foreclosure sale for $43.8 million, with six of them going to Karlin.
Soifer did not immediately rule on the defense's motion for summary judgment.
Paul, separate from his myriad lawsuits involving real estate transactions, is also facing criminal charges. In June, a federal grand jury handed down an eight-count indictment against Paul for mortgage fraud, accusing him of misrepresenting his assets to secure $172 million in property loans. Paul's arrest was the culmination of an investigation that began in August 2019 when federal authorities raided his home and the headquarters of his company, World Class. Paul, who is out on bond, did not attend Wednesday's hearing, and is scheduled to go to trial in July 2024.
Paul's lawsuit at the center of Wednesday's hearing said the foreclosure sales were illegal, citing what his lawyers call unusual conditions. Included in the conditions was that bidders would need to pay with cash or a cashier's check made payable to the lender or to a substitute trust conducting the sale.
But a lawyer for Karlin, Jonathan Pelayo, explained to the court that these conditions were not only lawful but necessary, because Paul had a history of disrupting sales.
More: What could Austin real estate developer Nate Paul's federal indictment mean for Ken Paxton?
The lenders' lawyers said that in May 2021, a month before the foreclosure sales, and after Paxton's intervention to delay the sales, Paul and a friend disrupted a sale by bombarding a lender and a trustee with profanities. That friend is Raj Kumar, a Paul employee, who is associated with a construction company that appears in financial records for the Paxton home remodel.
Pelayo presented a video in court showing what he says was yet another attempt by Paul to disrupt a sale, in June 2021. The video showed several persons known to be Paul friends or employees instructing others to chant and yell profanities over bidding instructions from two trustees for Karlin. Paul, in court filings, then made the case that the sale was compromised by the disruption.
Shapiro, Paul's lawyer, watched the video for the first time Wednesday. He conceded, "some of what we saw is potentially troubling or disturbing."
Earlier in the case, the lenders' lawyers submitted a question to Paul asking if he could identify any protesters in the video. He responded that he could not.
Shapiro and co-counsel Brian Elliott are among 13 lawyers who have represented Paul's interests in this case. Eleven others withdrew, with eight citing ethical reasons.
This article originally appeared on Austin American-Statesman: Lawyers: Nate Paul staged fake protest to disrupt 2021 foreclosure sale
