Creditors of Taylor Bean & Whitaker Mortgage Corp. are asking a bankruptcy judge for authority to sue company insiders, including former leader Lee Farkas, who oversaw one of the messiest mortgage-lending collapses in the housing crisis.
The committee representing Taylor Bean's unsecured creditors in the bankruptcy case wants to sue Farkas, who built up the modest Florida mortgage company into the nation's largest wholesale mortgage lender not owned by a bank, and other insiders for money the company loaned them that allegedly hasn't been paid back.
The creditors committee said in court filings Tuesday that Taylor Bean's lawyers have "conflicts or other concerns that make it unable or unwilling" to pursue the suits, but the committee said the company is backing its efforts. The committee says it plans to pursue claims against Farkas, colleague Coda Roberson III and "certain of their entities" - namely 3201 Partnership, Uplead Technology LLC, South Towne Capital Holdings LLC and Dine Design Group Inc. - in addition to other insiders over loans made by the mortgage lender.
It's also planning to go after Bank of America for money the bank allegedly held back after selling securities backed by Taylor Bean mortgages. Pursuit of claims against the bank's insiders could well represent the unsecured creditors' best shot at seeing a significant recovery in the bankruptcy case.
Judge Jerry Funk of the Bankruptcy Court in Jacksonville, Fla., has scheduled a Feb. 19 hearing to consider the committee's request.
Taylor Bean's management stepped down following Taylor Bean's Chapter 11 filing and a restructuring firm has been overseeing the company's operations, including the sale of a portfolio of more than 1,000 foreclosed properties for some $80 million.
The company has been sparring throughout much of its bankruptcy case with Freddie Mac, which claims the lender's bankruptcy estate is wasting cash in Chapter 11. Taylor Bean was once among the largest originators of mortgages insured by the Federal Housing Administration before its collapse. In addition to issuing loans, it also serviced them, collecting payments from borrowers on behalf of owners of the loans, including Freddie Mac.
Taylor Bean serviced nearly $51 billion of Freddie Mac mortgages before it filed for bankruptcy last August, representing nearly 60% of its servicing business, according to the mortgage-finance company. Freddie Mac says it is owed hundreds of millions of dollars.
Meanwhile, another lawsuit is focused on the activities surrounding Ocala Funding, a mortgage conduit set up by Taylor Bean to borrow money for short periods to fund the company's home loans before they were sold to Freddie Mac. Bank of America, which acted as the trustee for notes issued by Ocala, has been sued by Deutsche Bank and BNP Paribas for failing to redeem some $1.7 billion in notes held by the two banks.
Taylor Bean, a one-time high-flying mortgage lender filed for bankruptcy protection in August 2009 after federal regulators froze its accounts and suspended its authority to make loans insured by the government agencies. The lender was forced to shut its doors after federal regulators and the FBI raided Taylor Bean's Ocala, Fla., offices at a time of reports that the company's accounting firm halted an audit after uncovering evidence of massive fraud.
The mortgage lender's collapse came amid problems at its lender Colonial Bank. Last year, Taylor Bean and a group of other investors sought to pump $300 million into Colonial, which would have enabled Colonial to become eligible for a $550 million federal bailout. But the two sides failed to get regulatory approvals, and that plan was scuttled.
Colonial has acknowledged it was the target of a criminal probe by the Department of Justice in relation to its mortgage warehouse lending division and alleged accounting irregularities.
The FDIC, which is acting as the receiver for the shuttered Colonial, has said that Taylor Bean may have "double-pledged" $866 million in mortgage loans and kited millions more in loans between its bank accounts.