TierOne, other lenders file involuntary Chapter 11 case against TransLand Financial

By Caroline Salls

Pittsburgh, Aug. 24 - TierOne Bank, Federal Trust Bank and MidCountry Bank filed an involuntary Chapter 11 bankruptcy case against TransLand Financial Services, Inc. Thursday in the U.S. Bankruptcy Court for the Middle District of Florida for alleged failure to remit loan payoffs and periodic payments on residential construction loans.

According to court documents, TierOne Bank holds a $12.94 million claim against the company, Federal Trust Bank has a $2.4 million claim and MidCountry Bank has a $7.6 million claim.

In addition to the more than $22 million owed to the petitioners, some TransLand shareholders have $13 million in claims against the company and other secured creditors have roughly $67 million in claims.

According to an 8-K filed by TierOne with the Securities and Exchange Commission, TransLand serviced residential construction loans and sold them to TierOne Bank.

Because of performance issues associated with this specific set of loans, TierOne said it replaced TransLand as servicer and subsequently uncovered evidence of the alleged fraud.

TierOne Bank has retained an accounting firm to conduct a comprehensive forensic audit.

TierOne has also terminated its servicing contract with TransLand, removed all loan servicing records and is in the process of notifying individual borrowers of the transfer.

In addition to seeking recoveries from TransLand, TierOne said it is also insured for up to $7.5 million of fraudulent losses by loan servicers.

Examiner to be appointed

Also, the court has ordered an examiner be appointed for TransLand's bankruptcy case, and TransLand is required to immediately segregate any receipts collected on behalf of owners of mortgage loans.

The order restricts TransLand from issuing checks, transferring assets and borrowing or incurring any debt without approval of the examiner.

The examiner was ordered to present a report on the investigation into the company's financial affairs on Aug. 31.

The examiner appointment order follows a request by the petitioners for appointment of a Chapter 11 trustee, with the petitioners arguing that TransLand breached its fiduciary duty in failing to pay the petitioners the $22 million it collected for them and that the company does not have enough assets available to pay debts as they become due.

The hearing on the Chapter 11 trustee motion is scheduled for Aug. 31.

TransLand is a Maitland, Fla.-based mortgage brokerage firm. Its Chapter 11 case number is 07-03834.

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