Lender Taylor Bean Blames Bankruptcy On Regulation

By Mike Cherney

Law360, New York (August 24, 2009) -- Taylor Bean & Whitaker Mortgage Corp. has filed for Chapter 11 bankruptcy protection, saying in a statement Monday that actions by government regulators in the past few weeks have "crippled the company's business operation."

The case was filed Monday in the U.S. Bankruptcy Court for the Middle District of Florida. It comes several weeks after the Federal Housing Authority suspended the company's ability to issue FHA-insured loans and the failure of Colonial Bank, the company's primary bank for years.

The company listed more than $1 billion in both assets and liabilities and between 1,000 and 5,000 creditors. Major secured creditors include Colonial Bank with $16 million in claims, Sovereign Bank with $152 million, Natixis with $46 million, Henley Holdings LLC with $77.5 million and Plainfield Specialty Holdings II Inc. with $20.5 million.

Under Chapter 11, Taylor Bean will operate on a scaled-down basis and begin the work of recovering, restructuring and possibly liquidating its assets, the company said.

"This is a very complicated business, and the speed of its collapse has been stunning," said Neil Luria, the firm's newly appointed chief restructuring officer. "We are very appreciative of the efforts of the members of management and other company employees, along with a large team of professionals, who have worked tirelessly under very stressful circumstances to make today’s filing possible."

The FHA suspended Taylor Bean on Aug. 3 after the company failed to submit a required annual report. Taylor Bean also declined to disclose that there were still unresolved issues with an independent audit, which discovered there were irregular transactions that could have been fraudulent, the FHA said in a statement.

Shortly after the suspension, the Government National Mortgage Association, or Ginnie Mae, terminated Taylor Bean as an issuer of its mortgage-backed securities program, the FHA said. As a result, Ginnie Mae took control of Taylor Bean's nearly $25 billion Ginnie Mae portfolio, the FHA said.

Taylor Bean plans to appeal Ginnie Mae's termination and the FHA's suspension, the company said. It has also already appealed a similar mortgage-backed securities termination by the Federal Home Loan Mortgage Corp., or Freddie Mac, the company said.

"Although Taylor Bean has rights of appeal, the suspension and terminations by these agencies dealt a death blow to [Taylor Bean's] business operation," the company said in court filings.

Taylor Bean had also been negotiating a $300 million equity investment into Colonial BancGroup Inc., the parent company of Colonial Bank. Taylor Bean was unaware that Colonial was the subject of several civil and criminal investigations, and federal agents executed a search warrant earlier this month at Taylor Bean's head offices in Ocala, Fla., court documents say.

About 100 Taylor Bean bank accounts were then frozen by Colonial Bank, just days before the bank was closed by government regulators on Aug. 14. That bank's deposits were transferred to BB&T, but the frozen accounts made it difficult for Taylor Bean to process borrower payments, the company said.

The financial troubles forced Taylor Bean to lay off about 2,000 workers nationwide on Aug. 5, the company said. The company used to be the country's third-largest direct-endorsement lender of FHA-insured loans, managed a portfolio of $80 billion and serviced 488,000 mortgage loans.

Gross revenues for the fiscal year that ended March 31, 2009, were nearly $640 million. The company still employs about 400 people, it said.

Taylor Bean is being represented by Stichter Riedel Blain & Prosser PA.

The case is In re: Taylor Bean & Whitaker Mortgatge Corp., bankruptcy case number 09-07047, in the U.S. Bankruptcy Court for the Middle District of Florida.