In the case of foreclosure against the Albert Lea Inn, Freeborn County District Court Judge John A. Chesterman recently denied American Bank of St. Paul’s motion to appoint a receiver to the hotel.

If the motion had been approved, the court would have appointed a person to manage the financial affairs at the business.

Tonya Navarro, the hotel’s owner, said Chesterman’s order last month was one she was pleased with. Though the case is not over, it is a step in the right direction, she said.

The order came after Navarro submitted an affidavit in response to American Bank’s motion. It stated it was the conduct of the bank that caused the hotel’s real estate taxes to not be paid and the mortgage to go into default.

In April of 2007, American Bank loaned the Albert Lea Inn — managed by Blue Dragon Properties — $1.33 million to purchase the hotel, according to the affidavit. The loan was secured by a mortgage on the hotel.

Blue Dragon Properties also maintained a money market account with American Bank, which was used to pay taxes and other operating expenses of the business, the affidavit states.

Navarro said she “believed that the real estate taxes for the property were escrowed and included with the monthly payment.”

But she realized the taxes were not included in the loan when she received an unexpected tax bill of more than $51,000, according to the affidavit. She then contacted American Bank to discuss how to pay the taxes.

American Bank told her “that they would give (her) an additional loan of $150,000 … not to make her mortgage loan payments for April, May or June 2008 … (and that) they would defer Blue Dragon’s loan payments for six months and add the amount to the back end of the loan,” the affidavit states.

Relying on what American Bank told her, Navarro did not pay her April, May or June 2008 mortgage payments, according to the affidavit.

“Navarro then claims that in July 2008, Plaintiff reneged on its promise to extend an additional loan to her and instead took all the money she had in a money market account and applied it to late fees and interest on the mortgage for the months she had not paid,” Chesterman wrote. “This resulted in her being out of money to operate the business, the mortgage going into default, and ultimately the current foreclosure proccedings.”

Navarro said she filed a predatory lending complaint with the Minnesota Attorney General’s Office because of American Bank’s actions.

These allegations went unchallenged by American Bank in it’s reply brief and no one testified against it at the hearing, Chesterman stated.

“As such, they are uncontested, and this court takes them as true for the purpose of this motion,” Chesterman’s memo stated.

“Plaintiff is not entitled to the appointment of a receiver if its own inequitable conduct is what gave rise to subsequent foreclosure proceedings and need for a receiver in the first place.”

The case continues on March 18 with a motion hearing at 1:30 p.m.

Navarro faces criminal charges in Freeborn County District Court including seven taxation violations, for allegedly failing to pay lodging taxes required by city ordinance.

The on-sale liquor license at the hotel was also revoked from the state Department of Revenue for failure to pay state sales tax.

Navarro said she plans to sue American Bank for damages in excess of $50,000, along with defamation of character, the criminal charges, and other interest and fees accrued.

Corey Eilers, American Bank’s attorney with Koepke Law Group, declined to comment about the case.