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07/26/09
Mortgages Ltd. emerges from Chapter 11
Filed under: General, Real Estate, Mortgages
Posted by: Lillian Wong @ 7:13 pm

In what may be one of the unlikeliest business survival stories in Arizona history, real estate lender Mortgages Ltd. has emerged from U.S. Bankruptcy Court with an approved plan to continue operations — and a $20 million loan to execute it.

Former Arizona State Land Commissioner Mark Winkleman has been hired to run the business under the direction of a formal committee of five Mortgages Ltd. investors.

In the past two months, a final reorganization plan was approved, financing was secured in the most arid of economic climates, and Winkleman signed on to move the company forward after interrupting a summer escape to Costa Rica.

“This is quite a story of how you get to the end,” said Cathy Reece, an attorney with Fennemore Craig PC who represented the Official Investor Committee of Mortgages Ltd. through the Chapter 11 process.

Numerous attorneys represented a host of stakeholders in the contentious proceedings that began in June 2008. But it was the plan submitted by the Offfical Investor Committee, on behalf of about 1,400 individual investors, that prevailed.

Working with Ed McDonough, a certified public accountant with the Phoenix office of Alvarez & Marsal, Reece crafted a reorganization plan that ultimately was approved by U.S. Bankruptcy Court Judge Randolph Haines on May 20. The plan, however, required financing — a difficult prospect given the stingy credit markets.

A few lenders expressed interest, and the court approved a $20 million loan from Universal Equity Group. The loan closed June 15.

Part of the loan paid off two loans Mortgages Ltd. obtained last summer to stave off a Chapter 7 liquidation process. That “debtor-in-possession” financing, obtained from private local lender Stratera Portfolio Advisors, had to be paid off for the company to move out of bankruptcy.

The remainder of the $20 million loan will be used to pay fees submitted by a long list of attorneys involved in the bankruptcy and operating expenses for the small Mortgages Ltd. staff, now headed by Winkleman. Already, the fees submitted by some law firms have generated formal objections from some parties for being too steep. Those issues will be argued in court, most likely in September and October, and will not prevent the firm from moving ahead with its new mission, Reece said.

A new purpose

Once the largest private commercial real estate lender in Arizona, with a loan portfolio valued at nearly $900 million, Mortgages Ltd. no longer will originate loans. The purpose of the reorganized firm will be to work out the 66 loans in its portfolio, many of which have not seen any repayment activity for more than a year. Some of the loans funded major developments, including Centerpoint in downtown Tempe, Hotel Monroe in downtown Phoenix and Chateaux on Central in midtown Phoenix.

According to Reece, by the time the reorganization plan was approved, less than 2 percent of the loans in the firm’s portfolio were current. That meant the vast majority of borrowers — mostly developers and real estate investors — either were unwilling or unable to pay after Mortgages Ltd. founder and CEO Scott Coles committed suicide in June 2008 and the company was thrown into a tailspin.

Long-term strategy

Mortgages Ltd. funded the construction of numerous high-profile projects in metro Phoenix, several which sit partially completed or never got off the ground. Winkleman’s task will be to assess each of the loans to determine the best long-term strategy for paying back investors. It’s a mission he welcomes.

“I have no illusions that this will be simple, but I think I have the experience and skill set to help these people,” he said.

Winkleman officially works for ML Manager LLC, one of two entities that now govern the workings of Mortgages Ltd. The other entity, ML Liquidating Trust, is headed by trustee Kevin O’Halloran. He will assess legal remedies that may be associated with the various loans, including pursuing borrowers who signed personal guarantees to obtain Mortgages Ltd. loans.

The goal, Reece said, is to get borrowers to repay their loans or for Mortgages Ltd. to initiate foreclosure proceedings against the properties that secured the loans. Even though property values are depressed now, she said the environment will improve, and so will the outcome for investors.

“This is not like the (Bernie) Madoff case, where investors had nothing,” Reece said. “There will be the ability to recover.”

Maintaining integrity

McDonough, like Reece, has worked on some of the largest and most convoluted bankruptcy cases in the state. He said the key to finding a workable solution was to stay focused on protecting the investors and not to get distracted by a multitude of extraneous issues. Maintaining the integrity of the notes and deeds of trust and avoiding liquidation was of paramount importance, he said.

That required obtaining the $20 million, three-year loan at 17.5 percent interest. About $1.6 million in up-front fees would have to be subtracted from the loan. The high cost of the loan, McDonough said, reflects the “realities” of today’s credit market, which is limited largely to private money.

Moreover, operating within Chapter 11, Mortgages Ltd. was rapidly running out of money to continue.

“The debtor had about $75,000 left. They would lose (employees) who knew the loans. That was a real deadline,” McDonough said.

In the end, Universal Equity Group, a normally quiet private equity firm in Tempe that counts high-net-worth individuals among its longtime investors, was willing to provide the operating capital.

“They were the only firm willing to do it without having foreclosure rights, and they closed without having full title,” McDonough said.

Even with those risks, Brian Evans, a principal at Universal Equity, said his firm spent weeks performing due diligence on behalf of its own investors and visiting every property in the Mortgages Ltd. portfolio. Even without the foreclosure rights, the loan is collateralized by the Mortgages Ltd. portfolio.

Evans said other potential lenders perceived the situation as “too messy” or wanted to take a more active role in the management of the new company. But he and his partners feel better about taking a hands-off approach and letting the new management take control without any additional stress.

“We envision that it will take some time,” he said.

The three-year loan may be extended to five years. Evans said his Tempe-based firm is delighted to be a part of a plan to help individuals recover their investments in Mortgages Ltd.

Get Connected

Mortgages Ltd.: www.mtgltd.com

Mortgages Ltd. Notable People

Randolph Haines: The U.S. Bankruptcy Court judge who presided over the company’s Chapter 11 reorganization, which was filed in June 2008 in the wake of Scott Coles’ death and court actions taken by several Mortgages Ltd. borrowers.
Brian Evans: Co-principal of Universal Equity Group, the Tempe-based private equity firm that provided a $20 million loan enabling Mortgages Ltd. to move out of bankruptcy.
Cathy Reece: The attorney with Fennemore Craig PC who represented the Official Investor Committee, which was created by the Bankruptcy Court to represent about 1,400 individual investors with Mortgages Ltd. Ultimately, the plan submitted by that committee was the one approved by Judge Randolph Haines.
Ed McDonough: A certified public accountant with Alvarez & Marsal in Phoenix who helped craft Mortgages Ltd.’s reorganization plan. Reece and McDonough also have worked together to resolve other large bankruptcy cases, including the Baptist Foundation of Arizona’s 1999 fraud case that involved 13,000 investors from across the country. That case was fully resolved in 2007 with both civil and criminal actions.
Mark Winkleman: The former Arizona state land commissioner who is taking the helm of the reorganized Mortgages Ltd. He will work with liquidation trustee Kevin O’Halloran to maximize the return of the firm’s 66 existing loans, which originally were valued at an estimated $900 million.
Kevin O’Halloran: An Atlanta-based turnaround expert who’s been named trustee for ML Liquidating Trust. It’s one of two entities that now govern the workings of Mortgages Ltd.

Phoenix Business Journal - by Jan Buchholz Friday, July 24, 2009



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New law triggers fear for housing
Filed under: General, Real Estate, Mortgages
Posted by: Lillian Wong @ 6:51 pm

A new law passed by the Arizona Legislature that makes homeowners liable for tens of thousands of dollars on homes lost to foreclosure is now the focus of an intense repeal battle.  more…



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Hobbled for the future
Filed under: General, Business, Real Estate
Posted by: Lillian Wong @ 6:39 pm

You may have heard recently that Phoenix won its fifth All-America City title.

It’s a prestigious honor, and we’re very proud of this recognition.

The National Civic League, which sponsors the national competition, recognizes cities that work in partnership with residents to tackle communitywide challenges and achieve outstanding results.   more…



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It’s an opportune time to find vacation-home bargains
Filed under: General, Real Estate
Posted by: Lillian Wong @ 6:14 pm

When summer temperatures soar, Valley residents begin to dream of a second home in one of Arizona’s cooler northern communities.

This year, those dreams might include bargain prices.

Home prices are down in Flagstaff, Payson, Pinetop, Sedona and Prescott, though not as much as in the Valley.  more…



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Local home builders had busy June
Filed under: General, Real Estate
Posted by: Lillian Wong @ 5:52 pm

Metropolitan Phoenix’s home-building market experienced a mini revival in June, signaling buyers aren’t only interested in the area’s bargain-priced foreclosure houses.

 

Last month, 1,183 single-family housing permits were issued Valley-wide, according to RL Brown’s latest “Phoenix Housing Market Letter.” That’s the highest level for home building in six months, and a 57 percent increase from May’s permits.  more…



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Temptation to tap 401(k) fuels debate
Filed under: General, Finance
Posted by: Lillian Wong @ 5:37 pm

Hold it or fold it?

 

In a tough economy, when cash-strapped individuals are looking for a ready source of funds, retirement plans figure as a tempting pot of money.

 

Admit it: You probably wondered whether now’s a good time to tap your retirement cash, especially with investment returns sluggish for so long.   more…



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Hispanic group tests home-loan program
Filed under: General, Mortgages
Posted by: Lillian Wong @ 5:12 pm

The National Council of La Raza has chosen Phoenix to test a development-loan program for non-profits buying and renovating vacant homes in high-foreclosure Latino communities.  more…



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SkySong earns green certification
Filed under: General
Posted by: Lillian Wong @ 4:40 pm

SkySong is officially “green.”

The first two buildings at SkySong, the ASU Scottsdale Innovation Center, received Leadership in Energy and Environmental Design certification from the U.S. Green Building Council this month. It is the fifth project in Scottsdale to earn LEED certification.  more…



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128,000 ARMs yet to ‘reset’ in Arizona housing market
Filed under: General, Mortgages
Posted by: Lillian Wong @ 4:21 pm

There are still at least 128,000 other shoes to drop in the Arizona housing market, according to housing experts tracking the progress of adjustable-rate mortgage loans.

 

Adjustable-rate “resets,” in which a low initial interest rate changes to a typically higher rate, represent a looming threat to the state’s economic recovery, some real-estate analysts said.  more…



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President Obama’s transparency faulted
Filed under: General, Business
Posted by: Lillian Wong @ 3:47 pm

As the watchdog of the government’s massive bailout of the financial sector, Neil Barofsky had a simple question: What had the nation’s banks done with all their bailout money?

 

Can’t be answered, said the Treasury Department, because of the way banks move money internally. The department declined to put the question to the banks.  more…



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Dispute arises over Elevation Chandler sale
Filed under: General, Real Estate
Posted by: Lillian Wong @ 3:38 pm

Real-estate investor Tom Peltier says he bought Elevation Chandler for $1 million, even though the 10.6-acre property was appraised at more than $36 million.   more…



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Waveyard to seek two-year deadline extension with Mesa
Filed under: General, Real Estate
Posted by: Lillian Wong @ 3:18 pm

Two and a half years ago, Mesa landed what it hoped would be the ritziest project in its history: a $250 million resort and mixed-use development built around water-sports venues.  more…



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Waveyard to seek two-year deadline extension with Mesa
Filed under: General, Real Estate
Posted by: Lillian Wong @ 3:00 pm

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07/19/09
FDIC will start suing bank executives, local experts say
Filed under: General, Business
Posted by: Lillian Wong @ 8:49 pm

The Federal Deposit Insurance Corp. is expected to start taking civil and criminal legal actions against bank directors and other business executives involved in the real estate meltdown and soured deals that have dragged down the financial sector.

Legal and financial experts expect the FDIC to initiate civil lawsuits seeking financial damages from bank directors and other individuals deemed responsible for bank failures. The suits would seek civil damages for lost funds, but also could evolve into criminal prosecutions. Those actions would mirror lawsuits filed by the FDIC and other federal entities in the late 1980s and early 1990s against savings and loan executives Charles Keating and Neil Bush.

Michael Manning, managing partner of the Phoenix law office of Stinson Morrison Hecker LLP, prosecuted Lincoln Savings & Loan cases involving Keating. He expects the FDIC to file civil suits against bank directors, developers, commercial brokers and attorneys in the wake of more foreclosures and failures in the commercial real estate market.

“That will start the more serious inquiries by the FDIC,” he said.

Manning said the FDIC will have more ammunition to sue bank directors and others involved in commercial deals, because those deals are larger than residential mortgages, and any negligence or fraud will be magnified. While bank executives are the most likely targets, Manning said prosecutors could go after real estate developers, brokers, appraisers and accountants, as well as their corporate attorneys, if they intentionally misled or misrepresented projects to lenders.

“Typically, the insider can’t do this alone,” Manning said.

Seventy-nine banks have failed since the beginning of 2008, including First National Bank of Arizona, Washington Mutual and Silver State Bank, all which operated in Valley.

Jack Hebert, a < ?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Phoenix attorney with Polsinelli Shughart PC, represented Keating in American Continental Corp.’s Chapter 11 bankruptcy case in 1989. He said the federal government could use some of the legal powers gained in the S&L aftermath to go after banks now.

“All of their superpowers are still in existence,” he said.

Hebert said the FDIC could sue bank directors for significant damages for negligence and defaulting on their fiduciary duties. He said more extreme cases could prompt civil and criminal fraud charges. He predicts most of the civil cases will be settled out of court.

FDIC spokesman David Barr said the federal banking regulatory agency has not filed any director suits and does not comment on future actions.

Suits likely will be filed, said Dale Walters, CEO of Keats Connelly & Associates LLC, a Phoenix-based investment firm.

“I expect (the FDIC) to make a statement,” he said. “The government wants to show the public they mean business, and that what they are doing to fix the banks is working.”

The faltering commercial real estate market is prompting foreclosures as well as scuttled commercial and mixed-use projects. A tanked real estate market in Phoenix and other large U.S. cities could exact a higher toll on the banks that financed those projects, prompting more failures and lawsuits.

“The FDIC generally engages in a broad-based investigation any time there is a failure of a financial institution,” said Allen Kimbrough, executive director of the Maricopa County Bar Association. “Of particular interest or concern to the FDIC are issues such as self-dealing or breaches of fiduciary duty by directors or management, or even attorneys, which may result in civil litigation. On occasion, the matters are so egregious that criminal prosecution is warranted and pursued.”

Kimbrough did legal work for the FDIC and for some defendants in Texas during the S&L crisis in the late 1980s.

Several banking officials in the Phoenix market contacted for this story did not respond to requests for comment.

It is likely the FDIC and other prosecutors will go after failed banks, in part because regulators can access all of a bank’s records after it falls into receivership. But legal experts said there also could be civil or criminal actions against executives, directors and other deal makers at banks that are still operating if they made deals negligently or fraudulently.

Milton Schroeder, a law professor and banking law expert at Arizona State University, said the FDIC has a broad range of regulatory and legal powers at its disposal, and it could look at possible misuse of funds, reckless negligence, fraudulent appraisals and financial mis­management.

Get Connected

Stinson Morrison Hecker LLP: www.stinson.com

Keats Connelly & Associates LLC: www.keatsconnelly.com

Polsinelli Shughart PC: www.polsinelli.com

Maricopa County Bar Association: www.maricopabar.org

Fast Facts

Notable U.S. bank failures since January 2008:

First National Bank of Arizona
Washington Mutual
Silver State Bank
First Bank of Beverly Hills
IndyMac Bank
Bank of Wyoming
Colorado National Bank

Source: Federal Deposit Insurance Corp.

Phoenix Business Journal - by Mike Sunnucks Friday, July 17, 2009



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Commercial real-estate vacancies top 20%
Filed under: General, Real Estate
Posted by: Lillian Wong @ 8:32 pm

Phoenix-area businesses vacated a net 1 million square feet of commercial real estate in the second quarter - enough to cover more than 17 football fields, including the end zones.  more…



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Act protects renters amid foreclosures
Filed under: General, Real Estate
Posted by: Lillian Wong @ 8:21 pm

Renters living in foreclosed homes have been thrown a lifeline.

In the past, a few days after a foreclosed home was sold in a trustee sale, renters heard a knock on the door. They had to go. Never mind the fact that they still had plenty of time left on their lease. That contract was wiped out by the foreclosure. The bank which likely took over the home wasn’t interested in being a landlord.   more…



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Fulton Homes sees burst of sales in recession
Filed under: General, Real Estate
Posted by: Lillian Wong @ 8:07 pm

Fulton Homes is fending off a two-pronged attack in both bankruptcy and state courts from lead creditor Bank of America, which gained ground recently when a judge ruled it could go after Fulton’s sales and home-warranty companies in its push for remittance.

But the Tempe-based builder has unleashed a secret weapon that could fend off any immediate threat of liquidation:  more…



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CityScape names new restaurants, shops
Filed under: General, Real Estate
Posted by: Lillian Wong @ 7:55 pm

Six restaurants, two boutiques and a law firm will join a $900 million project under construction in downtown Phoenix.

CityScape is a cluster of businesses that will include an office tower, shops, eateries, a hotel and 165 condos. The first parts of the project are expected to open in spring 2010.   more…



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Deals abound for bargain-hungry apartment renters
Filed under: General, Real Estate
Posted by: Lillian Wong @ 7:14 pm

Job losses and an explosion of foreclosure homes on the rental market have caused serious losses for Phoenix-area apartment communities, according to a new study.

Apartment complexes suffered severe declines in both occupancy rates and lease rates during the past year, with the average rent for all types of apartment and townhouse units declining by nearly 6 percent in 2008.  more…



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Real-estate agents use Twitter, blogs to boost clients
Filed under: General, Real Estate
Posted by: Lillian Wong @ 7:01 pm

Dru Bloomfield has worked in Valley real estate for five years and contributed to the real-estate blogs click2az.com and athomeinscottsdale.com for nearly half of that time.

And for the past year and a half, she, like many Valley real-estate agents, have added Twitter and Flickr to her arsenal.  more…




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