A Nevada bankruptcy court judge has sided with banks led by J.P. Morgan Chase in an effort to force a joint venture among several big builders involved in the troubled Inspirada development in Henderson, Nev., into involuntary bankruptcy.

The joint venture, South Edge LLC, owes some $328 million on an original $585 million credit facility. The builders, led by KB Home's 48.5% stake in South Edge, could face sequential liability for the JV's debt.

The judge approved the involuntary bankruptcy petition sought by the banks Thursday and ordered the appointment of a trustee to oversee the bankruptcy.

In an 8K filing with the Securities and Exhange Commission, KB stated that it had provided the lenders with a "springing repayment guarantee" that "purports to guarantee the repayment of certain amounts to the lenders, including principal and interest, if an involuntary bankruptcy petition is filed against South Edge that is not dismissed within 60 days or for which an order approving relief under bankruptcy law is entered."

KB said it would contest that demand for repayment if one is made. However, if the guarantee is upheld, KB is on the hook for approximately $180 million. The other builders involved, including Focus Property Group, Meritage Homes, Woodside Group, Toll Brothers, Beazer Homes, Kimball Hill Homes and Pardee Homes, provided similar guarantees, according to KB's filing. Kimball Hill has since declared bankruptcy.

KB also pointed out in its filing that "the trustee may or may not pursue remedies proposed by the lenders, including attempted enforcement of alleged obligations of the South Edge members to purchase land parcels from South Edge, which, if successfully enforced, would likely have the effect of reducing the debt owed by South Edge on the Loans."

In their petition, the lenders claimed that builders, stung by the moribund Las Vegas housing market, were not taking down lots from South Edge as had been previously arranged, which in turn deprived South Edge of the cash it needed to remain current on its debt.

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