Friday, November 27, 2009

Evans scrum update: Judge will remove case to federal court, says he will probably order properties sold

See sidebar on right for a collection of all posts on Evans case

Synopsis of Evans case (This feature will be included with future posts on Evans case): Charles Evans, Jr. was an attorney approved by Mississippi Valley Title Insurance Company to provide title certificates to MVT and lenders showing a borrower had clear title to property. MVT filed a lawsuit in September accusing his brother of using over 30 LLC's to obtain fraudulent loans from over 30 banks in Mississippi. Chris Evans would allegedly use one company to purchase a large tract of prime commercial real estate in Madison and Desoto Counties. Another company owned by Evans would obtain a commercial real estate mortgage on a smaller section of the tract yet that borrowing company never obtained a deed showing ownership of the land from the other company. Thus the smaller tract was actually non-existed as the larger tract was never actually subdivided. Charles would allegedly provide a title certificate however showing the borrowing company owned the land even though it didn't. Over 80 loans for nearly $50 million were issued by Mississippi banks to companies owned by Chris Evans for lands those companies either did not own. MVT has testified federal authorities are currently investigating the case. Chris Evans filed Chapter 7 bankruptcy on October 26, which stopped the Mississippi Valley Title's lawsuit against him as federal bankruptcy law stays most state civil court proceedings once a bankruptcy petition is filed. Mississippi Valley Title testified 65 title insurance claims for approximately $41 million have been filed by banks affected by the Evans case.


A hearing was held in U.S. Bankruptcy Court Monday on the bankruptcy petition for Chris Evans. Chris Evans has been accused by Mississippi Valley Title and several banks of conducting a massive scheme of real estate and mortgage fraud to obtain tens of millions of dollars in loans. JJ estimates 32 banks issued nearly $75 million in commercial real estate loans to Chris Evans.

A tidal wave of gray suits crashed upon the shores of the courtroom as bankers and lawyers wore the required uniforms. The only exception was Mr. Renfroe, an attorney representing Merchants & Planters, who borrowed from Alex the tweed blazer with elbow patches he wore in Family Ties. The courtroom was a stark contrast from the hearing in Yazoo held by Chancellor Harvey-Goree. That hearing was held on the same day as the day the Chancellor conducts her regular child-support hearings. The courtroom that day was Mississippi in a nutshell and surreal in nature: the first three rows were filled with grayed-up bankers and lawyers that looked like they came straight from the lily-white Country Club of Jackson while the last two rows were made up of poor blacks dressed in Walmart clothes seeking help just so they could take care of their kids that were in most cases, sitting right next to them. They looked bewildered as they sat in the courtroom for three hours while attorneys fought over the largest "alleged" real estate fraud ever in Mississippi.

The Court will likely order all properties sold.
Judge Olak made several rulings and recommendations in the hearing. One main issue in this entire case has been the title to the properties. Due to the (allegedly) fraudulent nature of the title certificates issued by Charles Evans, Jr., it has been very difficult for banks to determine who the actual owners of their collateral is because often the loans were given for tracts of land that did not actually exist.

Bankruptcy Trustee Derek Henderson said "it is so convoluted, it will be easier to sell the large tract than allow the bank to foreclose" as several banks have filed either requests to foreclose with the court or actions in chancery court to give them first lien position". Judge Olak agreed with the trustee and said he will probably order the commercial real estate owned by Chris Evans sold and then determine how the proceeds should be divided among the banks that have a claim on the property.

Judge Olak said he used this method in a similar case and that it was "successful" and that the "creditors needs to coordinate their efforts in order to maximize the value" of the property and that he "wanted to sell the property then worry about the proceeds later." Such a ruling will mean several prime pieces of commercial real estate in Madison and Desoto counties will be available for sale. Several tracts are on Highland Colony Parkway, Hwy 683, and Goodman Road.
Judge Olak said since many properties were worth less as separate tracts because they did not have access and that selling the larger "parent" tract would yield more money for the creditors.

The Court also ruled any creditor filing a claim on the property or proceeds from its sale, should provide evidence such as an appraisal or loan officer's testimony to support what it claims the value of the property is (Several banks complained about the cost of ordering appraisals as commercial real estate appraisals aren't cheap. This correspondent thinks the Court should have allowed Mr. Henderson to select an appraiser that would have independently determined a value without any potential conflict of interest that would have existed if he was selected by a bank.)

One of the more comedic moments was once again provided by Renfroe, who started to object to such a sale. The attorney said his bank had second lien on a tract of land and the value of the property was not even enough to cover either the first or second loan. It was comedic in that he wanted to foreclose on the property even though the tract was divided by a gas line, had no access, and his bank had second lien. The Court ordered Mr. Renfroe to work with the other banks.

The Evans case will be removed to Bankruptcy Court
Mr. Henderson told the Court he was going to remove the entire case to the bankruptcy court from the Madison County Chancery Court in the next few days. Judge Olak told Mr. Henderson he agreed with him and wanted to avoid "unnecessary duplication". Mississippi Valley Title had filed a request in the Chancery Court for the Chancellor to appoint a special master and asked for permission from Judge Olak to allow them to do so.

Such an appointment was objected to by the banks as it would have taken away some of their rights as creditors. The Special Master would have been the equivalent of a bankruptcy trustee at the state court level but for several differences. The trustee has more independence as well as more powers. He looks after the creditors' interest. He can conduct an independent investigation. He can audit and sell assets or discharge liabilities. The trustee can also investigate bankruptcy fraud and make criminal referrals directly to the justice department. A Special Master can make no such referral. A special master also can only rule on what the plaintiff's and defendants file in his court, something a trustee is not bound by under bankruptcy law. Theoretically, Mississippi Valley could more heavily influence the direction of the case if it was under the jurisdiction of a Special Master instead of a Bankruptcy Trustee unless the banks intervened in the case. Note: A more complete definition of a bankruptcy trustee is at the bottom of this post in an endnote.

Mississippi Valley caves in to the banks.
In addition to fighting Mississippi Valley on the issue of appointing a Special Master in state court, Cadence Banks and several banks represented by attorney Kristi Johnson of Watkins Ludlam filed several objections to motions filed by Mississippi Valley Title Insurance Company. These banks had extended nearly $10 million in loans to Chris Evans.

MVT sought an emergency 2004 examination of Chris Evans. Such an examination is a complete auditing of Mr. Evans' financial affairs. If the emergency request was approved, Mississippi Valley would be able to gain crucial information about the case before any other party could conduct its own examination. Such information is extremely valuable in determining strategy and getting a leg up on the banks in regards to filing motions and claims with the Court. The banks thus requested all interested parties be allowed to attend the examination. See earlier post on Banks v. MVT scrum

Mr. Henderson had objected to the Emergency examination as well and said that the banks should be able to participate. He told the Court Mississippi Valley Title agreed with their position that morning and that an omnibus exam should be held. The Court agreed and ruled an examination would be held on December 9, 2009 at 2:30 PM and another one the next day. He also ruled that parties that could not attend could participate via conference call.

The Court also granted requests made by several banks to foreclose on a home on Brecon Drive in Jackson. The home was renovated by Chris Evans and appraised for approximately $190,000. The banks however, issued loans for over $300,000 on the home as Mr. Evans obtained multiple mortgages on the same home and Charles Evans, Jr. once again provided the title certificate. The Court also ruled Bankfirst could claim a $100,000 cd belonging to Chris Evans it currently held.

Note: For those not familiar with bankruptcy law, here is the definition of a bankruptcy trustee according to Lawyers.com:
"In the course of administering or overseeing the debtor's estate (the debtor's property or assets), the trustee first investigates the assets of the estate, which typically includes holding the meeting of creditors and questioning the debtor at that meeting.
If there are assets of the estate that are neither exempt nor abandoned, the trustee must:

  • Collect that property from the debtor or any other entity holding the property
  • Convert it into cash, usually by sale of the property
  • Be accountable for that property
..Once the estate's property has been liquidated i.e., converted to cash, the trustee must preserve the assets and then distribute them to creditors. To do so, the trustee is required to review the proofs of claim that are filed by creditors and object to those that are improper. The trustee must then make distributions to creditors whose claims are proper, in the order specified in the Bankruptcy Code."

8 comments:

Anonymous said...

Not to be picky, but it is Olack, not Olak.

The paragraph contrasting the people in the courtroom is an excellent observation.

Anonymous said...

In Mr. Renfroe's defense, he actually presented a motion to lift the stay on two different pieces of property. One, a house that was a 2nd lien position with no equity, and two, a commercial property on Highland Colony Parkway that was a 1st lien position but had the possible issue with the gas line easement and access.

Kingfish said...

True. I was focusing on the commercial property. From what I saw in court that day, another bank also had a claim on the same property that was divided by the gas line. It made no sense for Alex to try to foreclose on that property when he wouldn't be able to sell it by itself for a great price and could get more money if sold as part of the parent tract. Several attorneys and bankers said the same thing to me.

Anonymous said...

I'm at a loss as to how the judge can order the banks to "work together." From a perspective of loss minimization, it's best for a given bank to have an incurable title for the real estate parcel pledged, as this puts MVT on the hook. By judicial loss sharing, won't the court endanger the rights of the individual banks under their respective title insurance policies?

Kingfish said...

He hadn't ordered that yet. The trustee said the tracts and titles are almost impossible to figure out and its easier just to sell land and divide up the proceeds.

Anonymous said...

While that may be logistically true, contractually MVT has to pay the insurance amount plus 10% in certain policies, should they not be able to cure the title for the beneficiary. The best position for any bank is to have a policy, which can't have the title problem cured (which appears to be all of them.) Would you want to have the title cured, so you could foreclose on the parcel, only to find it has declined in value by 50%, with no interested parties to buy it? Now you have a nonearning asset upon which to pay taxes.

Anonymous said...

MVT vs Banks "scrum"?????.......but, but, but, but the Banks are MVT's own INSUREDS under title policies issued by none other than MVT ITSELF? How can this be?

Anonymous said...

Has anything come out about what appraiser(s) were involved? Just curious, but a bank requires an appraisal of the land/property being used to secure a loan before approving it... This would have nothing to do with MVT, but would spread some of the blame and liability I would think.

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