TransLand Financial Services Inc. has reached a deal with a pair of banks that tried to force it into bankruptcy, paving the way for the embattled Florida mortgage lender to sell off loans and pay back creditors outside of bankruptcy-court protection.
"Since day one, TransLand wanted this involuntary bankruptcy case dismissed. We're glad it finally came to pass," said bankruptcy attorney Roy S. Kobert of Orlando law firm Broad and Cassel. "TransLand can do a better job of addressing the claims of its creditors outside of bankruptcy, especially in light of the current market conditions in TransLand's business."
TierOne Bank and MidCounty Bank asked Judge Arthur B. Briskman of the U.S. Bankruptcy Court in Orlando to dismiss the involuntary bankruptcy case against TransLand after the lender agreed to sell off mortgage loans to pay back the banks.
In August the two banks, along with Federal Trust Bank, filed an involuntary Chapter 11 petition against TransLand for failing to remit loan payoffs. The three banks had charged TransLand's former management of defrauding them of some $22 million.
The deal to dismiss the case came days before Briskman was scheduled to rule whether to place TransLand into Chapter 11. The deal, outlined in court papers filed Tuesday, requires Briskman's approval.
The fate of TransLand is uncertain. Kobert declined to comment when asked if the company will go out of business following the sale of the mortgage loans.
But agreeing to sell its assets outside of bankruptcy, TransLand and the banks avoid a costly court fight over the Chapter 11 case. It also means there will be more money left over for the company's creditors.
The Maitland, Fla., company serviced loans for the banks, including the collection of so-called payoff money, the final payment owed on the loan.
The banks moved against TransLand amid allegations that TransLand's former executives ran an embezzlement scheme to finance their business. Last month, a court-appointed investigator found that TransLand executives used the money to make lucrative construction loans. The company, said investigator Robert Lynch, engaged in a "lapping scheme" where it used money it collected for banks when mortgage loans were paid off to make new loans and pay expenses.
He said the scheme dated back to 2004 and continued until August of this year, when the banks filed an involuntary bankruptcy petition against TransLand. Lynch also said Chief Executive Roger "Roddy" Conner and Chief Operating Officer Ed Credille used TransLand as their own personal piggy-bank, charging purchases from Brooks Brothers and Bass Pro Shops to the company.
Following Lynch's report, Conner resigned and was replaced by mortgage veteran Paul Reich.
Founded in 1995, TransLand was once one of the largest privately owned residential construction lenders in the U.S., according to court filings, with a loan portfolio of almost $500 million and offices in over a dozen states. At its height, the company employed more than 300 people and originated about $60 million in loans a month.
