Newport’s Baldwin Co. Sues Its Chief Lender : Real estate: The home builder asks U.S. Bankruptcy Court to keep General Electric Capital Corp. from foreclosing.

Baldwin Co., the bankrupt Newport Beach home builder, filed a fraud and breach of contract complaint against its chief lender late Monday, inking a new chapter in a saga that has been playing in U.S. Bankruptcy Court since late July.

The complaint, accompanied by a motion for an order prohibiting lender General Electric Capital Corp. from foreclosing on Baldwin Co. assets, likely signals an end to the stormy relationship between the two, one attorney involved in the bankruptcy said.

And that could leave Baldwin Co. without a source of financing for ongoing operations that consume about $3.3 million a week.

“I don’t believe they will kiss and make up this time,” said David Frauman, attorney for the committee representing unsecured creditors in the bankruptcy.

Baldwin Co.’s lawsuit seeks a court ruling that GE “duped” it into a series of situations that left bankruptcy as the only out. Because of the alleged fraud, the suit argues, the bulk of Baldwin Co.’s nearly $70-million debt to General Electric should be wiped out.

Neither GE nor its attorney could be reached for comment and brothers Alfred and James Baldwin, wealthy Newport Beach socialites who own Baldwin Co., declined to discuss the suit.

In its suit, the embattled builder claims that General Electric Capital intentionally set up a chain of events that culminated in a June 29 declaration by GE that Baldwin was in default on its loan agreement. GE, the suit contends, systematically lied to Baldwin Co. about loan terms and collateral requirements in order to maneuver the builder into position to be pushed over the brink.

The Connecticut-based lender has been shifting its business out of real estate lending, the suit alleges, and its goal was to get rid of Baldwin as a client while profiting from the forced liquidation of Baldwin’s considerable real estate assets.

Despite several previous fights with Baldwin Co., General Electric Capital actually has increased the company’s credit line several times since the bankruptcy was filed, but each time it has forced the builder to accept harsher loan terms--all designed for “forcing the debtors into bankruptcy,” the suit alleges.

The latest break occurred last week when GE, as part of yet another credit line increase that would have boosted the Baldwin Co.’s borrowings to $85 million, demanded a level of collateral that the company could not provide.

Frauman, the creditors’ attorney, said the suit “is a basic lender liability suit” in which the borrower is claiming that the lender coerced and duped it into getting deeper into debt. Baldwin is asking the court to find that General Electric Capital illegally seized cash from its accounts and forced it into bankruptcy--a finding that would effectively wipe out Baldwin’s debt to GE.

Because Baldwin has filed for Chapter 11 bankruptcy reorganization in Santa Barbara, the case will be heard by the bankruptcy court rather than in Superior Court. A Jan. 29 hearing has been scheduled.

Meanwhile, General Electric Capital is negotiating to sell its Baldwin debt to one of the builder’s biggest creditors.

New York investment company Morgens, Waterfall, Vintiadis & Co. owns about $50 million of the $155 million worth of junk bonds that Baldwin Co. sold in 1993. The bond holder last week announced that it has an option to buy up General Electric’s debt and replace it as the Baldwin Co.’s chief lender.

There is no deadline for a deal, but a Bankruptcy Court hearing has been scheduled for Monday for further arguments in General Electric’s bid to cancel its lending relationship with Baldwin if the company won’t meet its demand for additional collateral.

Baldwin Co.’s request for an order stopping a foreclosure by GE is expected to be ruled on during that court session.