BB&T Fraudulently Declares Default – Florida Court Orders FDIC Payments From Loss-Share Agreements to be Credited to Borrowers Loan

BB&T Fraudulently Declares Default – Florida Court Orders FDIC Payments From Loss-Share Agreements to be Credited to Borrowers Loan

By Daniel Edstrom
DTC Systems, Inc.

Thanks to Neil F. Garfield and the LivingLies Blog for this ruling.   The following are excerpts from Judge Levens orders.

Findings of Fact

This case involves a $5,182,128.00 commercial loan made by Colonial Bank to Kraz for the purpose of building and developing a mini-storage and flex space warehouse in Hillsborough County, Florida. Kearney and Harris signed limited personal guaranties of payment and performance and injected in excess of 2 million dollars of cash/equity into the venture. This subject loan was one of several loans made by Colonial Bank to Kearney and Harris and related entities with multiple other guarantors, but the subject loan was not tied to or related to any other such loans.

The terms of the subject loan provided for payment of interest only for the first twentyfour (24) months. Plaintiff was required to provide written notice of the change from interest-only payments to principal-and-interest payment, but, for whatever reason, Plaintiff never provided such notice. Colonial, due to its own internal financial distress, and while Defendants were current on all payments, began improperly demanding that Defendants make curtailment payments on the loan. Colonial improperly based such curtailment demands on the status of other, unrelated loans (which happened to have a variety of principals, obligators, guarantors, etc.).

Colonial was shut down by the Alabama State Banking Department and the FDIC was appointed its Receiver. The FDIC then assigned and sold the assets of Colonial to Plaintiff through a Purchase and Assumption Agreement (“PSA”), which makes Plaintiff the lawful owner and holder of the subject loan documents.

The evidence adduced at trial and considered by the court demonstrated that Plaintiff breached it duties of good faith and fair dealing in its contractual relationship with Defendants. The evidence also demonstrated that Plaintiff was motivated to behave in such as manner as a direct result of the PSA; that is, Plaintiff stood to profit by declaring a fraudulent default under the subject loan, collecting from the FDIC under the PSA for such default, and then enforcing the subject loan against Defendants, and retaining the property until such time as a real estate turnaround occurred in hopes to dispose of the property at the peak of the market. In fact, Mr. Bruni testified that Plaintiff may have already applied to the FDIC for a loss share payment on this loan. And Defendants’ expert, Jim Howard, explained that it was possible Plaintiff could have already applied for and received a payment from the FDIC on this loan, perhaps in an amount as high as $1,800,000.00. Notably, Plaintiff nowhere credited such potential payment from the FDIC against the amounts sought in the instant litigation; thereby giving the impression that Plaintiff might be “double dipping”, and possibly “triple dipping” if market conditions favorably change and the property likewise increases in value.


The evidence was clear that there was a long and unblemished record of good faith timely monthly payments by Defendants. The evidence is also clear that, both on legal and equitable grounds, a bona fide default never occurred, and the resulting loan acceleration and lawsuit were improvidently initiated by Plaintiff for purposes of trying to maximize collection simultaneously from the FDIC pursuant to the PSA and from Defendants pursuant to the loan documents, and from the future sale of the property after favorable stabilization occurred. The evidence is clear that Plaintiff committed significant wrongdoing and breached the implied duty of good faith and fair dealing of a financial institution, such that the instant cause of action should be denied in its entirety.

It is therefore ORDERED AND ADJUDGED that the loan and all loan documents be reinstated nunc pro tunc to June 30, 2009 (i.e., pre-“default”). The terms of the loan and the loan documents shall remain in effect as they would have as of that date. The maturity of the loan is extended fourteen months from the effective date of this order. As there was no “default,” there are no accrued principal and interest payments due from Defendants. Rather, Defendants will pick up payments where such payments left off in June 2009 (after such principal is credited with all such amounts as detailed below).

It is further ORDERED AND ADJUDGED that the court retains jurisdiction to determine the matters of awards of attorneys’ fees, costs, and damages to Defendants. It is further ORDERED AND ADJUDGED that the Receiver is discharged as of the entry of this Final Judgment. Within thirty (30) days after the date this judgment is signed, all funds held by the Receiver shall be paid over to Defendant Kraz’s business operating account; and all books, records, contracts, leases, and other documents relating to this project in the possession of the Receiver shall be delivered to Defendants. Within forty (40) days of the date of the Final Judgment, Plaintiff is to provide to this court an accounting of all payments received by Plaintiff since the appointment of the Receiver PLUS the sum of (i) the amounts paid to the Receiver for his efforts, (ii) the Receiver’s attorney’s fees, and any costs, (iii) any costs of the litigation paid out of the income from the property, including those paid to Plaintiff’s attorneys, and (iv) the amount and costs of improperly moving offsite the sign which the Defendants’ paid for (and any lease payments and all sign relocation costs made for having the sign improperly relocated on the adjacent property) and (v) all other such funds received by the Bank from the FDIC for the Kraz property. This court retains jurisdiction to determine any additional matters concerning the Receiver and the respective bond that was posted by Plaintiff.

It is further ORDERED AND ADJUDGED that Plaintiff shall, within thirty (30) days of the entry of this Final Judgment, credit the principal of the Note with all payments received by Plaintiff from the FDIC concerning this loan per Mr. Bruni’s and Mr. Howard’s testimony, as well as with any and all amounts referred to in the immediately preceding paragraph. No payments shall be due from Defendants until Plaintiff credits all such payments it has received against the principal, and until the parties concur on the resulting new payment schedule, which plaintiff agrees to timely create, or until further order of this court.

It is further ORDERED AND ADJUDGED that the court retains jurisdiction to consider and rule upon any such other collateral issues that might arise in connection with the foregoing.

Let the parties go forth without delay.

DONE AND ORDERED at Tampa, Florida, on May 18, 2012.


Download the order here:


Author: dmedstrom

Reverse Engineering and Failure Analysis - Reverse Engineering Wall Street

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