When a Mortgage Company Goes Into Bankruptcy. Robert Franke and Allan Wisk Strasburger & Price, LLP. 4,000 homes. More than 4,000 homes owned and managed by the firm and its RIMCO subsidiary could be put on the market, depressing property values in Detroit and Highland Park.
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Robert Franke and Allan Wisk
Strasburger & Price, LLP
More than 4,000 homes owned and managed by the firm and its RIMCO subsidiary could be put on the market, depressing property values in Detroit and Highland Park.
Mortgage and land contract holders worry about losing homes because taxes and property insurance premiums weren’t forwarded and not all monthly payments were credited, court records show.
Mortgage firm’s collapse leaves thousands in limbo and jeopardizes property values.
of my own money having the roof fixed,” said Mary Watts, who lives on Braille Street and complained to a bankruptcy court trustee in March.
“Now we have rats. I’d be surprised if anything gets fixed.”
The Michigan regulator said his investigators found MCA had taken mortgage payments of thousands of customers and put them in its general operating fund – rather than crediting customers’ accounts.
MCA Financial was servicing about 4,700 mortgages totaling $355 million and about 7,000 land contracts valued at $181 million, bankruptcy court records show.
Dozens of MCA borrowers received foreclosure notices despite making full monthly payments, . . .
Most of the homes owned by MCA and managed by RIMCO are in neighbor-hoods where the average annual income is less than $10,000, according to maps generated by the U.S. Department of Housing and Urban Development.
One example cited in court involves RIMCO’s purchase of a Detroit house for $10,000 at a tax sale. Within weeks, it mortgaged the house to outside Investors for $50,000.
$4,000The company also made payments for a boat owned by Quinlan and leased six luxury cars for executives, including a Mercedes 500 SL, two Cadillacs and two Jeep Grand Cherokees.
One of the biggest MCA investors was the Detroit Police and Firemen’s Pension Fund, which gave the company $60 million in unsecured loans. Nick Degel, administration secretary for the pension fund, declined to discuss the loan.
The firms may owe Detroit as much as $5 million in property taxes and an untallied sum in unpaid water bills.
The year before MCA laid off 900 employees . . .
Mortgage Originator Files Bankruptcy
• Automatic Stay - Section 362
• Except as provided in subsection (b) of this section, a petition filed under section 301 operates as a stay, applicable to all entities, of;
• the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
• any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
• any act to create, perfect, or enforce any lien against property of the estate;
The Lender is Prevented from: the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
Impact of Bankruptcy:
MCA Financial Corp. the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;Case No. 99-42172U.S. Bankruptcy CourtEastern District of Michigan, Southern Division
Total Number Of Filed Claims: liquidated most of their assets. 3193
The Debtors’ Plan on collateral.
Bank Group Claim/Implementation of Settlement claims on the effective date. Class 12 Benefit Claims and Class 13 Deposit Claims to be paid 100% of their allowed claims on the effective date. The Bank Group agreed to allow use of its cash collateral to fund these payments in connection with settlement.
Treatment of Bank Group Claim
USA Commercial Mortgage Company Group agreed that 319 of the rental Properties sold and 118 of the retail Properties sold were Title-Mismatch Collateral, and that 520 of the rental Properties and 75 of the retail Properties were Related Entity Collateral.Case No. 06-10725U.S. Bankruptcy CourtDistrict of Nevada
• USA Commercial Mortgage Company (“USACM”), which sometimes did business under the trade name “USA Capital,” is a Nevada corporation with its main office in Las Vegas. USACM filed a voluntary Chapter 11 case on April 13, 2006.
• Prior to the petition date, USACM was in the business of underwriting, originating, brokering, funding and servicing commercial loans primarily secured by undeveloped land and residential and commercial developments, both on behalf of investors and for its own account.
• The primary shareholders relinquished management authority to Thomas J. Allison of Mesirow Financial Interim Management, LLC, who became the President, Chief Restructuring Officer, and Chief Executive Officer of USACM continues to serve in that capacity.
The Bankruptcy Case authority to Thomas J. Allison of Mesirow Financial Interim Management, LLC, who became the President, Chief Restructuring Officer, and Chief Executive Officer of USACM continues to serve in that capacity.
The Plan/Disclosure Statement Filed operating;
Asset Sale/Liquidating Plan
1. Changes in Market Conditions, in the Business Environment, Can Take a Company Down.
3. Other Notes from Bankruptcy Cases involving the Company, or (b) Make Money, a Lot of Innocent Bystanders Get Hurt. Mortgage Companies.
In Re First Alliance Mortgage Company, 298 B.R. 652 (C.D. Cal. 2003)
“Debtor’s repayments of fully secured obligations, where each payment by debtor results in dollar-for-dollar reduction in debtor’s secured debt, do not hinder, delay or defraud creditors, and are not avoidable as fraudulent transfers, because they do not put assets otherwise available in bankruptcy distribution out of creditors’ reach and do not result in diminution of debtor’s estate.”
“Creditors’ committee could not set aside, as fraudulent transfers subject to strong-arm avoidance, payments that debtor had made to financial institution that provided it with secured warehouse line of credit, where each payment that debtor made to financial institution to satisfy particular extension of credit resulted in release of mortgages with value in excess of amount repaid, which payments did not result in diminution of estate assets available to debtor’s creditors.”
“Residential mortgage broker’s assignment of its interest in mortgage notes and in mortgages securing them to investors who funded its mortgage loan business…[the] fact that these assignments were or were not recorded had no bearing on whether investors’ interest were perfected. [Perfection] could [only] be accomplished if investors took possession of [the] notes.”
In re Leedy Mortgage Company, Inc., 111 B.R. 488 (Bkrtcy. E.D. Pa. 1990)
“Mortgagees, whose accounts the debtor had agreed to service, were not entitled to secured claims for shortages in accounts, as funds which debtor had misappropriated could not be traced and mortgagees were unable to identify any specific property held by debtor at time of Chapter 7 filing that belonged to any of the mortgagees.”
Recent amendments to the Bankruptcy Code may however provide a way for a lender restructure its transactions with the mortgage originators to lessen, and possibly eliminate, the costs of a mortgage originators bankruptcy to lender.
(1) enforceability of ipso facto default clauses in the repurchase agreement,
(2) limited exemptions from the automatic stay,
(3) additional defenses to preference claims asserted by a trustee or debtor-in-possession.
Bankruptcy Code Definitions repurchase agreement,
Benefits Afforded to Repo Participants under the Bankruptcy Code which are not Available to Secured Lenders
• Contractual Right to Liquidate, Terminate, or Accelerate a Repurchase Agreement
• 11 U.S.C. §559 which provides that “the exercise of a contractual right of a repo-participant to cause the liquidation of a repurchase agreement because of a condition described in section 365(e)(1) shall not be stayed, avoided, or otherwise limited by operation of any provision of this title or by order of a court in any proceeding under title 11 of the United States Code.
• Allows for the enforcement of so-called Code which are not Available to Secured Lenders“ipso facto” default clauses in the repurchase agreement which generally allow for acceleration of the term of repurchase agreement, termination of the repurchase agreement, and/or liquidation of the securities held as part of the repurchase agreement.
• Code which are not Available to Secured LendersExemption from Application of the Automatic Stay for Setoff Rights:
• 11 U.S.C. §362(o) provides that the rights not subject to the stay pursuant to §362(b)(7) shall not be stayed by any order of a court or administrative agency in any proceeding under title 11 of the United States Code.
• to the stay pursuant to §362(b)(7) shall not be stayed by any order of a court or administrative agency in any proceeding under title 11 of the United States Code.Affirmative Defense to Avoidance Actions:
• 11 U.S.C. §741(8) defines “settlement payment” as a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, or any other similar payment commonly used in the securities trade.
Impact of Amendments preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, or any other similar payment commonly used in the securities trade.
• Commentators believe that all repurchase agreements are explicitly covered by the definition of “Securities Contract” and intended to eliminate any inquiry as to whether a repurchase or reverse repurchase transaction is a purchase and sale transaction or a secured financing.
Conclusion “[t]he selected inclusion…of terms customarily found in secured loan transactions does not automatically convert the [repurchase agreements] into secured loan instruments and does not nullify the express language of purchase and sale which the parties voluntarily choose to describe their transactions. However, the presence of such terms in the agreements does raise sufficient doubts as to the intent of the parties to justify examination of extrinsic evidence of intent.”
• It remains to be seen if the debtors and/or trustees will acknowledge that the repurchase agreements are protected transactions that fit within the formal definitions developed in the marketplace and included in the Code.