Hill Williams Defaults on Building Mortgage : Developer: The cash-strapped home builder is more than $95,000 behind in payments on a loan for its Anaheim Hills headquarters.

ANAHEIM HILLS —  Hill Williams Development Corp., a home builder that over the past four years raised more than $90 million from about 5,000 Southern California investors, is more than $95,000 behind in payments on a loan for its Anaheim Hills headquarters building.

The lender, San Francisco-based Union Bank, filed a notice of default against Hill Williams Jan. 20--two weeks after the company told investors that it had “temporarily” stopped issuing their monthly dividend checks. Hill Williams President Donald Williams said in a newsletter that the company was undergoing cash-flow problems because of the sluggish real estate market but assured investors that their investments were safe.

A notice of default is the first step a lender takes before foreclosing on a piece of property and selling it to pay off the loan.

According to the trust deed, Hill Williams took out a $4.1-million mortgage from Union Bank on the 40,000-square-foot low-rise in 1988, a year before the company formed its first of four partnerships designed to raise funds for building single-family homes.

The developer quit making payments on its building, at 175 Riverview Drive, in October. Union Bank officials declined to comment.

“It’s just another sign that Hill Williams is in serious trouble,” said James Pollock, a San Diego attorney representing a pair of investors in one of two lawsuits filed against the company last week.

But Robert M. Silverman, an attorney representing Hill Williams, said the default shows that Williams kept his original promise to investors to back their investments with his own money and assets.

“This man sacrificed all of his assets for the good of the partnerships,” he said. Silverman said he does not know if Williams is negotiating with the bank to keep it from foreclosing on the building.

Silverman reiterated Williams’ earlier claim that the partnerships’ money is securely invested in valuable land and housing developments throughout Southern California. “Every project has tremendous equity,” he said.

In its brochures for investors, Hill Williams lists about 25 real estate investments--most of them partially developed lots or raw land--as projects funded by investor dollars.

Silverman said “some of those properties are technically in default” as well, though he said he could not specify which ones. “We are renegotiating the terms with holders of the first deeds of trust,” he said.

Until the sudden suspension of checks last month, Hill Williams made monthly payments to investors with interest rates that amounted to up to 15% annually plus an additional 5% of the profits on the project.

The company formed its fourth partnership last June and for a few months afterward continued its campaign to attract investors. “The cash-flow problems did not become evident until recently,” Silverman said.

He added that the company formed the fourth partnership with hopes of picking up land at deflated prices. “It’s a good time to buy,” Silverman said.

The lawyer described the lawsuits filed last week against Hill Williams as “detrimental to the investors.”

“Allegations (by the lawsuits) that these properties have no equity make it difficult for Hill Williams to work through its problems when it comes to such matters as renegotiating terms with the holders of first deeds,” he said.

The second lawsuit, a class-action suit, demands an accounting of the funds. The first lawsuit claims fraud and deceit, alleging that Hill Williams misrepresented the value of its properties.

San Diego attorney Tim Cohelan, who filed the class-action suit, said the company owes investors a detailed explanation: “No matter what, people need a full and complete disclosure of all the facts, with an understandable accounting of the whereabouts of their funds.”