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Tried this on another board but got nothing. Probably not Dr. T's expertise, but I think he knows everything, so worth a try:

Developer has one LLC that owns the property for the development local government want to invest in. This LLC mortgaged (when in default on previous mortgage)to a mezzanine financier for significantly more than needed to pay off previous mortgage.

Meanwhile, another property owned by a different LLC associated with the developer had been sold in a foreclosure auction. It was repurchased during an extended redemption period at a date suspiciously close to that of the mezzanine financing for the other LLC.

Is it legal to take financing to one LLC, written into the mortgage for that property, and spend it for another property by a different LLC? (Both LLCs are shell companies for the developer, of course, but they are set up as legally different with different managers of record.)

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