March 14 (Bloomberg) -- Donald Trump, the U.S. real estate developer, and his partners in a defunct hotel and condominium project near Tijuana, Mexico, were sued by condo buyers who claim to have lost as much as $18 million in deposits.

Trump and Los Angeles-based Irongate Development allegedly induced buyers with marketing materials touting Trump’s involvement when he had merely licensed his name to the project, known as Trump Ocean Resort Baja, according to the complaint filed yesterday on behalf of 69 condo buyers in state court in Los Angeles.

Buyers were led to think that Trump played an active role in development and held an equity stake, and that his children Donald Trump Jr. and Ivanka Trump, executives in his company, had bought condo units, the suit claims.

Irongate also concealed from condo buyers that it failed to obtain construction financing after credit markets unraveled last year, while continuing to withdraw their deposits from escrow accounts, according to the complaint. The defendants allegedly set up a shell company in Mexico to deflect liability.

“They were taking money out as late as November ‘08 without saying ‘boo,’” said Bart Ring, a lawyer for the plaintiffs. He said the condo buyers weren’t formally notified until last month that the project wouldn’t go forward.

‘Not the Developer’

Trump rebutted the plaintiffs’ claims. “This was known by everybody that we merely licensed the name,” Trump said in a telephone interview yesterday. “I’m not the developer,” he said. “I have never been to the site.”

Trump said the condo buyers might have lost money regardless, because they couldn’t get loans with the collapse of lending markets and falling property values.

“If you look at it from a practical standpoint, people would have been unable to get their financing and the apartment prices would have been different than what people agreed to,” Trump said. “In all fairness to the developer, the market did collapse. I know they spent a lot of time and money on this development, including land purchases, architects and lawyers.”

Trump Ocean Resort Baja was announced in October 2006 as “a partnership between the Trump Organization and Los Angeles- based real estate development and investment company Irongate,” according to a press release at the time.

In an April 2007 press release, Trump said the project set a “one-day real estate sales record for Mexico of $122 million in December 2006.” That initial success spurred the developers to build a second tower, according to the release. The first tower in the 526-suite luxury hotel-condominium resort was originally supposed to be finished by late 2008.

‘Hole in the Ground’

“What is left is literally a hole in the ground,” said Ring, the plaintiff lawyer. “They signed up over $100 million just in the first weekend alone out there and it was all about the Trump name and about Trump’s involvement in the project,” he said. “They’ll say what’s convenient but if everything goes south, they’ll leave everyone holding the bag.”

The condo buyers paid 30 percent of their purchase price, deposits that were to be refunded if the project was never built, Ring said. He said about 188 units were sold and the developer received about $30 million of deposits, of which the clients he represents account for between $15 million and $18 million.

The suit seeks the return of deposits plus interest, as well as punitive damages and legal costs for alleged fraudulent inducement, negligent misrepresentation and breach of contract, among other claims.

Also named as defendants were Irongate’s affiliates and executives, brokers hired to sell the condos, escrow companies, Trump Marks LLC, Donald Trump Jr. and Ivanka Trump.

‘No Access’

Trump referred questions about the buyers’ deposits to Irongate. “I don’t have any access to that money as you can imagine,” he said. “The money was taken by the developer, not the Trump Organization.”

Timothy Hughes, a lawyer for Irongate, and Irongate principal Jason Grosfeld, who is named as a defendant, didn’t immediately return calls placed after regular business hours.

Trump said he terminated the relationship with Irongate on Baja “a number of months ago because they were in default.” He declined to specify the nature of the default. He and Irongate continue to have a licensing agreement for a 38-story hotel- condo development in Honolulu known as Trump Tower Waikiki.

“I am looking into it myself because I want to find out exactly what happened with respect to this,” Trump said, referring to the Baja resort dispute. “We’re going to get to the bottom of it.”

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

Last Updated: March 14, 2009 03:14 EDT