Last week KB Home, based in Los Angeles, said the company could potentially be forced to pay $180 million plus attorney fees in a bankruptcy case involving a joint venture project.

The joint venture, South Edge LLC, was behind homebuilding projects in Las Vegas and included KB Home and other developers. KB Home owns a 48.5 percent interest in the venture. Before the housing market crisis, South Edge borrowed roughly $585 million in loans, of which approximately $328 million remains unpaid.

The venture is now involved in a legal dispute with several lenders, including JP Morgan Chase Bank and Wells Fargo. In December, the banks sought to force South Edge into bankruptcy by filing an involuntary Chapter 11 bankruptcy petition. The lenders also want to compel the venture partners to purchase land back from South Edge to pay back the loans.

A U.S. Bankruptcy Judge helped the lenders’ case last Thursday when he agreed to appoint a trustee to manage the case. Although KB Home has yet to receive a demand for funds, the company stated in a regulatory filing on Friday that it anticipates the judge’s action may make them responsible for paying “certain amounts” to the lenders of the joint venture because of a limited guaranty the banks were given by the developers.

KB Home says it will contest any demand for funds and warned being forced to pay lenders of the venture or buy land parcels would materially impact its financials.

Source: Bloomberg Businessweek “KB Home warns it could be forced to pay $180M” 2/4/11