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Audio recording of hearing last Friday. If audio doesn't work, try this link.

A hearing was held in the Evans case last week to determine the fate of several motions, responses, and other actions filed in U.S. Bankruptcy Court. The room was awash in gray and black waves of suits as bankers and lawyers once again flooded the courtroom. The main focus of the hearing was the intent of the bankruptcy trustee to sell the properties owned by Chris Evans and divide up the proceeds among the lien-holders. Chris Evans has stated in court filings he owned properties worth approximately $82 million in Madison County MS, Desoto County MS, Collin County TX, Harrison County MS, and Denton County TX.

Derek Henderson, the bankruptcy trustee, filed a notice with the court stating his intent to sell the subject properties due to the dispute between various parties as to who had proper claim to each property. The true ownership of the property is extremely difficult to determine thanks to the actions of Chris and Charles Evans. Chris Evans operated a multitude of LLC's. Company A would buy a large tract of commercial real estate in a prime location. Company B, another Evans company, would obtain a loan from a bank a smaller portion of the tract. The bank provided the loan to Company B because Charles Evans, the brother of Chris Evans, was an "approved attorney" for Mississippi Valley Title Insurance Company and would issue a title certificate stating Company B owned the land.

The only problem with this little transaction was the title certificate was phony as Company A never actually transferred title of the property to Company B. Thus the bank lent money to a company that did possess title to the subject property. Company C would then obtain a loan on a smaller tract adjacent to Company B's tract with another phony title certificate, then Company D and the rest of the Evans-owned companies. Several smaller tracts overlapped each other or a company would get multiple loans on the same tract of land from different banks. The title descriptions for the smaller tracts were literally drawn up out of thin air with no thought given to the other tracts within the parent tract. Unfortunately for those banks, the combined loans were more than the fair market value of the subject property. Even more unfortunate was Mississippi Valley Title issued title policies to the affected banks due to the actions of their "approved attorney".

The end result was that multiple banks issued loans to Chris Evans for larger tracts of properties and no portions of those large tracts were transferred to the companies that obtained loans on the smaller tracts. Thus many banks (over 30 in Mississippi) issued loans to phony properties and are demanding the Court makes them whole. Some banks actually do have valid title but most are empty-handed having lost their money and collateral. Needless to say, they are demanding either the Evans estate in bankruptcy court or MVT repay them as over $41 million in claims have been filed against the title insurance company. It should be noted the Evans case is alleged to be the largest real estate fraud in Mississippi history.

MVT initially discovered the fraud and filed several emergency actions against the Evans brothers and their companies in Madison County Chancery Court. Judge Harvey-Goree granted their motions and set a hearing date for the Evans brothers to defend their interests. The day before a hearing was held, Chris Evans filed for Chapter 7 bankruptcy. His companies filed bankruptcy petitions at later dates. The Chancellor granted a preliminary injunction to MVT and froze the assets of Charles Evans and ordered a full accounting of his finances as well. What was key for MVT was Judge Harvey-Goree ruled "all defendants shall execute deeds and/or modification agreements, as directed by Mississippi Valley Title, to correct and/or cure title problems." Copy of preliminary injunction

This order was very important to Mississippi Valley Title as it allowed them to pick and choose winners and losers among the victims. The average loan in Mississippi was $620,000. Some were as small as $200,000, others were as large as $3 million. MVT gained from the ruling the right cure a title in favor of a preferred customer and thus give it the land as collateral and avoid paying that client its claim. Most, if not all, of the policies state coverage is based on what the land is worth, not the actual loan amount. One could easily see how MVT could hand over the Evans properties to a handful of big banks such as Regions and Bancorpsouth while eventually paying claims to the smaller banks that would still lose money if the payment was based on a property that was reduced in value.

Mississippi Valley Title discovered Judge Olack and Mr. Henderson apparently have other ideas on what should be done with the properties. Mr. Henderson acknowledged the ownership of all properties but argued that bankruptcy law allowed him to sell such properties and divide up the proceeds among the creditors at a later date if there was a bona fide dispute as to the ownership of the properties. However, Mr. Henderson admitted he needed to create "a long-range plan" and that he didn't want to "flood the market" with these properties and artificially depress the sales prices. He then stated he would be able to maximize the sales value if he could sell the smaller tracts as part of larger tracts. Judge Olack said in an earlier hearing he had used this method in similar cases and was inclined to apply it to this one as well.

Judge Olack stated there were thirty objections to the trustee's motion to sell and that they fell into five categories (25-minute mark on the audio). The Court specifically called out Mississippi Valley Title's objection to the sale. The judge said they all ignored Rule 363(f)(4) of the code that gave the trustee the power to sell the properties if in dispute without the creditors' consent and that the trustee definitely had the power to make the sale.

Judge Olack stated he only wanted to hear the objections of Mississippi Valley Title. MVT's attorney Richard Carmody argued MVT had obtained orders in the Madison County Chancery Court directing the Evans-owned company to transfer title of each property to a bank of MVT's choosing and that such orders should be respected. Upon Olack's direct question, Carmody admitted the transfers had not occurred. Olack also pointed out the order was part of a preliminary injunction, not a final court order. It should be noted the banks were not parties in the original state court action and thus lack the rights they have as creditors in bankruptcy. MVT wanted to preserve the Chancellor's order's and argued there was not a "bona fide dispute". MVT argued the banks had no rights and were not in the chain of title. The chancery court lawsuit has been removed to federal court and is the subject of another action to move into the bankruptcy court.

Judge Olack ruled all parties had until April to file answers and ninety days would be given for discovery at that time. He then set a trial date on October 25 and made it quite clear he was not going to extend any deadlines. The judge said a public auction would be "problematic." Olack directed Henderson to obtain the services of a realtor with expertise on a national scale and the trustee could generate "discreet sales" and avoid the problem of flooding the market. Judge Olack then encouraged the trustee to sell the properties as part of a larger group and that once it was "reduced to cash", they could then figure out how to divide up the proceeds among the creditors and that the goal was to "convert some dirt to dollars."

Recap: Judge wants the properties sold, he's going to have a trial in October, and threw out the window Mississippi Valley Title's serious attempt to control the case by picking the ownership of each property which would have canceled out quite a few of the pending claims against MVT.

Stay tuned.