A group of banks -- led by J.P. Morgan Chase & Co. -- are demanding some of the nation's largest home builders buy hundreds of acres of raw desert land at prices from the housing boom era days to fulfill an agreement between the banks and builders from several years ago.

Depending on the outcome of an ongoing legal battle, builders -- such as KB Home and Toll Brothers Inc. -- may have to buy the acres of desert development known as Inspirada, which is 10 miles from the Las Vegas Strip and was once envisioned as a $1.5 billion planned community. The mostly abandoned project now has just 635 homes out of the 14,500 planned before financial problems brought the project to a halt.

A group of builders had bought the land in 2004 and believed their liability would be limited to $370 million in return for the 2,000 acres of land.

The banks loaned the builders $585 million for the project and now say the builders are responsible for buying hundreds of millions of dollars in raw land and develop it as they originally agreed to--which would repay the lenders and give home owners in Inspirada the development they were promised.

Toll Brothers Chairman Robert Toll called the banks' legal action without merit. It's like the rest of Vegas, Toll said. It didn't go as it should, but the question is: Who should take the loss?
Source: Home Builders Face a Desert Reckoning, The Wall Street Journal (Jan. 5, 2011)