DENVER-One of 19 credit unions that were paid pennies on the dollar on the loan participations it held with Norlarco CU is asking a federal court to order NCUA to pay an additional $10.2 million in order to fulfill the participation agreement.
Superior Choice CU, which purchased $22.1 million of construction loans Norlarco (CU Journal, Feb. 23) made in southwest Florida, is suing NCUA, saying the $696,583 paid on the Norlarco loans under an agreement with K. Hovnanian Homes is not adequate and that the federal regulator, which is representing Norlarco as its conservator still owes it the remaining millions.
The $160-million Superior, Wis., credit union was one of about 30 credit unions that purchased more than $220 million of loans from Norlarco, which went bust in 2007 because of its involvement with the speculative Florida real estate developments in Cape Coral and Lehigh Acres. In a suit filed in U.S. District Court for the Colorado, Superior claims that Norlarco violated the terms of the loan participation by selling loans that were not owner-occupied, but were investment properties. In fact, most of the loans sold by Norlarco were part of an investment scheme known as "Millionaire University" in which properties were sold to investors seeking to flip the homes after a year.
Superior asserts that 45 of the 112 loans it bought from Norlarco were not owner occupied, and that 33 of those loans worth more than $6.9 million went into default.
In addition, Superior asserts that Norlarco's south Florida loans had been classified by the Colorado Department of Financial Services, which would have voided the participation deals if Superior had known.
Norlarco was one of three credit union failures involved in the south Florida developments, along with Huron River Area FCU, of Michigan, and New Horizons Community FCU of Denver.
In a deal with NCUA, Hovnanian has paid credit unions that bought participations from Norlarco a total of about $12 million, less than 10% of the book value of the loans, sources told Credit Union Journal. K. Hovnanian Homes was the main developer in Cape Coral and Lehigh Acres.
A lawyer for Superior Choice would not comment on the case, saying only that both the credit union and NCUA have filed disclosures in the suit. Gary Elliott, president of Superior Choice, did not return a phone call seeking comment.
NCUA also declined to comment.
