The Federal Deposit Insurance Corp. has reached a wide-ranging settlement with scandal-scarred mortgage lender Taylor Bean & Whitaker over the ownership of more than $1 billion in disputed loans and mortgage-related assets.
The FDIC, the receiver of Alabama's shuttered Colonial Bank, had been sparring with Taylor Bean over ownership of various mortgage loans and other assets since the two companies collapsed a year ago amid allegations of massive fraud. But a deal filed last week in Taylor Bean's bankruptcy case sets the stage for resolving one chapter in one of the messiest collapses in the recent mortgage meltdown.
"This settlement resolves a number of significant issues over the company's three financing lines and clarifies Taylor Bean's interest in other loans," said Taylor Bean attorney David Dantzler, a partner at Troutman Sanders.
Colonial, which was Taylor Bean's main lender, provided the company with $3 billion in mortgage financing under three separate financing lines. Mortgages made by Taylor Bean were bundled into securities and sold to investors. When both Colonial and Taylor Bean went under in August 2009, thousands of mortgage loans were left in the pipeline with both the bank's receiver and Taylor Bean's estate claiming ownership.
According to the settlement, the FDIC is the recognized owner of Colonial Bank's 99% interest in some 3,400 loans with unpaid balance of $696.1 million. These are participation interests in mortgage loans that Taylor Bean sold to Colonial.
In return, more than 3,200 loans with an unpaid balance of about $464 million plus another 579 loans with a balance of $89 million become the property of Taylor Bean's estate. The result, according to court papers, is that the estate will receive $78 million in sale proceeds from Taylor Bean owned property that's already been sold off.
All told, the FDIC settlement could well be worth $150 million to Taylor Bean's bankruptcy estate. The committee representing Taylor bean's creditor has signed off on the deal. The FDIC has also agreed to back a Taylor Bean's Chapter 11 liquidation plan, which calls for the creation of a trust to be run by Neil Luria. Luria, of turnaround firm Navigant Consulting, has been overseeing Taylor Bean's liquidation.
A hearing on the settlement is scheduled for Sept. 2 in U.S. Bankruptcy Court in Jacksonville, Fla.
Taylor Bean and Colonial had a close relationship. Last year, as Colonial teetered near collapse, Taylor Bean and a group of other investors sought to pump $300 million into Colonial, which would have enabled Colonial to become eligible for $550 million in federal bailout funds. But the two sides failed to get regulatory approvals and that plan was scuttled.
The FDIC was named receiver of Colonial Bank after regulators seized the Montgomery, Ala., bank on Aug. 14, 2009, and sold its assets to BB&T Corp.
Colonial Bank, which had $25 billion in assets and $20 billion in deposits, was the biggest bank failure of last year. The FDIC estimates Colonial's collapse will cost its insurance fund $3.8 billion, making it one of the most expensive bank failures in U.S. history.
Colonial Bank's parent BancGroup Inc. is involved in its own bankruptcy fight with the FDIC over the regulatory agency's $1 billion claim against the bank holding company.
Taylor Bean filed for Chapter 11 bankruptcy protection 10 days later.
Meanwhile, Lee Farkas, the Florida businessman who built Taylor Bean from a small mortgage company into the nation's largest mortgage lender not owned by a bank, awaits trial in Virginia on charges of bank, wire and securities fraud.
Federal prosecutors claim Farkas engaged in a seven-year, multibillion-dollar fraud by double-pledging Taylor Bean's mortgage loans held for sale and improperly transferring loans and securities between the company's bank accounts. Farkas has pleaded not guilty to the charges. His trial is expected to start in November.