Judge Grants NCUA Stay In Suit Over Utah CU Failure

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SALT LAKE CITY – A federal judge this week granted NCUA a requested 90-day stay in a suit filed over an alleged get-rich-quick real estate scheme financed by HeritageWest FCU, which was taken over and liquidated by NCUA in December.

Several members of the credit union have filed suit over financing scheme, claiming they were induced to invest in speculative real estate in the Salt Lake City area that was financed by the now-failed credit union.

In his ruling, federal Judge Ted Stewart ruled that NCUA, as liquidating agent for HeritageWest, has legal right to request and obtain the stay.

 

The suit is among a variety of legal actions surrounding a troubled Salt Lake City residential development called Castle Stone Homes that was tied closely to the one-time $330-million credit union. Dozens of the project’s borrowers, who were promised high returns, obtained loans through the credit union, the remnants of which were acquired by Virginia’s Chartway FCU in a supervisory merger engineered by NCUA.

The members claim that HeritageWest engaged in a variety of schemes to make loans readily available for the residential development. According to various court documents, between 2005 and 2007 Castle Stone solicited individual investors with high credit scores to participate in their residential development designed to appeal to first-time investors that would provide big profits. After one of the initial lenders for the project, America First CU, backed out, HeritageWest agreed to provide capital for the investors.

Three years later many of the homes are still not completed and have been foreclosed on. In some cases, the borrowers have repurchased them in foreclosure sales at significant discounts. NCUA has challenged some of those short sales in court.

HeritageWest was chartered in 1948 as Benecia Arsenal FCU to serve employees at Benicia Arsenal, Benecia, Calif., then changed its name to Tooele Army Depot FCU after the arsenal was moved to Tooele, Utah in 1961. In 2003 the credit union was granted one of the biggest community charters at that time to serve more than 1.5 million people in greater Salt Lake City, precipitating its name change to HeritageWest. By the time NCUA liquidated the credit union and assigned its remnants to Chartway FCU in a purchase and assumption agreement, the credit union had lost $12.4 million in 2008 and a whopping $16.9 million in 2009.

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