As State Sen. Bill Brady campaigns for the Republican governor primary in March, he is being sued over a $2.38 million loan default. He borrowed much of the money during his previous run for governor in 2010, when he lost to Gov. Pat Quinn. (John J. Kim, Chicago Tribune / August 15, 2013)

State Sen. Bill Brady's homebuilding business has been sued twice for defaulting on loans worth millions of dollars since his last run for governor, including one case playing out in court as he seeks the 2014 Republican nomination.

Brady has built his political career in part on the success of his family's Bloomington-based real estate development business, and he blames the recession that battered the housing market for the financial troubles that emerged as he launched his bid to unseat Democratic Gov. Pat Quinn in 2010.

The family business has continued to struggle. Just weeks before the March primary election, Brady is due in court in Bloomington for a status hearing on a $2.38 million loan default lawsuit filed against him, his brothers and several of their development companies after they failed to make good on a series of loans.

Last year, Brady resolved a $1.7 million default case in Champaign County Circuit Court by selling some of the mortgaged properties to a campaign contributor.

Brady said his inability to pay off the debts was a result of falling land values and the ongoing depressed market for new houses.

"It's hard to develop land and sell lots," he said in an interview, adding that he has reduced his interest in the homebuilding business and focused more on sales of existing homes through his ReMax realty offices.

He also sought to frame his own setbacks in the context of a pro-business political platform. Brady decried a tax environment he believes is hostile to business and said the housing market won't come back until businesses are able to create new jobs around the state.

"There needs to be a government that stabilizes the economy," he said.

The Brady family has long been one of the largest homebuilders in downstate Illinois. Brady is president of the family's Pinehurst Development Inc. His brother Edward is president of the family's WEB Construction Co. and Brady Homes Illinois.

According to the Brady Homes website, over the years they have built more than 1,800 single-family houses and more than 2,000 apartment units. But when the housing bubble burst in 2008, the Brady businesses were left owing millions in loans with diminished prospects for revenue from new home sales.

Over the past few years, Brady has been able to postpone repayment or refinance several loans. But in at least two cases, the banks decided to take action. In both cases, Brady offered personal guarantees to the original lenders, creating the possibility they could pursue him to pay off the debt.

In Champaign, the Bradys owed $1.7 million in interest and principal on a $1.59 million loan taken out in 2006 from First Midwest Bank, according to court records. The money was intended to finance development of multifamily housing in a Champaign subdivision, but home sales trailed off and Brady was unable to sell properties to pay off the loan.

Rather than pursue Brady, in March 2011 First Midwest sold the loan at a discount to a real estate investor — North Carolina-based Mountain Real Estate Group, according to court records. Mountain, which filed a foreclosure lawsuit against the Bradys in September 2011, worked out a deal with the family to settle the debt, said Tim Stoker, an asset manager for Mountain.

"We had a very good working relationship," Stoker said.

Stoker confirmed that Mountain bought the loan from First Midwest at a discount, but he would not disclose the price or other financial details.

But land records show that by March 2012, Brady had found buyers for the properties, though at prices well below the debt they owed on the mortgage.

Brady sold some of the land to O.S. Insulation, operated by Robert and Nick Vericella, who are favored subcontractors on Brady development projects. State campaign finance records show that since 2001, the Vericellas have contributed more than $26,000 to Brady's various political funds.

Brady said campaign contributions had nothing to do with the decision to sell the land to the Vericellas, describing them as long-trusted business associates.

"They thought of it as a good investment," he said.

The Vericellas did not return calls for comment.

State real estate transfer taxes, which are $1 for every $1,000 of the sale price, indicate the Vericellas paid about $155,000 for their portion of the land.

Brady declined to discuss the details of the Champaign settlement, including the sale to the Vericellas and the ultimate sum Mountain received.

"It's proprietary, how much the final amounts were," Brady said.

Land records show that within a year of the sale, the new owners resold several of the properties to other developers at a significant markup — getting $188,000 for six lots they had purchased from Brady for about $96,000.

Another portion of the land was sold to a local investor for about $360,000, according to Champaign County land records.

Mountain dropped its foreclosure suit in April 2012.

Although the parties involved in the deal would not comment on the prices paid to satisfy Mountain's claims, a banking expert said it would not be uncommon for distressed loans to be sold in the distressed debt market for as low as 10 percent of their original value.

"They want to sell for whatever they can get," said Rebel Cole, who teaches real estate and finance at DePaul University and was a longtime federal banking regulator.

Lending to developers during the boom years of the homebuilding business was lucrative for many smaller banks, but in the recession the banks turned to distressed-debt markets to clear the losses off their books, Cole said.

In the ongoing Bloomington case, Brady borrowed much of the money during the 2010 race for governor, which he lost to Quinn by 20,000 votes.

McLean County Circuit Court records show that since 2006, the Brady companies took out 13 separate loans from banks owned by First Financial, borrowing a total of more than $4 million. When the suit was filed in June 2012, the bank alleged that all of the loans were past due, and the Bradys still owed more than $2.38 million.

Brady said his family is working on selling land to satisfy the bank and that he expects a "similar outcome to the previous one" in Champaign. "I expect it to be resolved in the next three or four months," he said.

dheinzmann@tribune.com