Monday, December 28, 2009

Evans Update: Chris Evans compelled to testify, Banks file joinders against MVT

For a collection of all posts about the Evans case, see sidebar at the right. Synopsis of case is at bottom of post.

Update: Copiah Bank, Cadence Bank, and Bank of Yazoo City all filed joinders on December 22, 2009 on the motion filed by Merchants and Farmer's Bank against Mississippi Valley Title Insurance Company (See original post for discussion of the motion.). Meanwhile, Mason Lowe and David Clark of Bradley Arant law firm have entered notices of appearance as counsel for Mississippi Valley and its parent, Old Republic.

Mississippi Valley Title filed a motion on December 23, 2009 requesting a 2004 examination on Charles Evans, Jr. even though he is not in bankrutpcy (See original post for definition of 2004 examination). MVT asked Judge Olack to compel Charles Evans to "appear and testify" about the assets and liabilities of Chris Evans, his business dealings with Chris Evans, and "all financial dealings involving any of the creditors" of Chris Evans. The motion also asked for copies of all communications between the two brothers and copies of all transactions on Charles Evans' lawyer trust account. MVT asked the Court to set the exam for January 14, 2010 at 10:00 AM at the office of their attorneys, Adams & Reese. Copy of motion

Judge Olack granted MVT's request for a 2004 exam of Chris Evans. Order The Court also decreed Chris Evans "is hereby compelled to appear and testify and respond to questions of any creditor or party of interest in to his bankruptcy". The motion then lists various types of information that Mr. Evans is to provide in the examination.

Original post
As the Evans case winds its way through the bankruptcy court, several banks and Mississippi Valley Title Insurance Company continue to disagree over MVT's conducting a 2004 examination of the estate of Chris Evans.

A 2004 Examination is an examination of a debtor's estate by a creditor under Rule 2004 of the U.S. Bankruptcy Code. A creditor sometimes prefers a 2004 Exam as the creditor can investigate the assets and liabilities more thoroughly than is normally possible under the required meeting of the creditors that occurs in bankruptcy cases. The 2004 exam is essentially a deposition. The information gained in such an examination is immensely valuable to an insurance company such as Mississippi Valley Title if it is able to keep the results of the exam to itself for a period of time as the other creditors have filed more than $41 million in claims with MVT.

Consequently, Merchants & Farmers filed a motion on November 24, 2009 requesting Mississippi Valley Title turn over to M&F all records obtained from any 2004 Exam of Chris Evans. The bank also asked for any "surveys, plats, maps, diagrams, reports, title reports, or documents relating in any way to the ownership of any of the properties at issue in the lawsuit."

However, the bank went further than asking just for documents obtained through a 2004 exam and asked for "(g) Any manuals, guidelines, procedures, recommendations or other documents or things relating in any way the monitoring or auditing of approved attorneys for Mississippi Valley Title Insurance Company or Old Republic National Title Insurance Company..... and
(h) Any manuals, guidelines, procedures, recommendations or other documents or things relating in any way the internal controls and procedures of Mississippi Valley Title Insurance Company or Old Republic National Title Insurance Company as to title policies issued by approved attorneys from January, 2003 to date." Copy of motion

Bank of Forest, First State Bank, and State Bank & Trust also filed a Limited Joinder for Merchants & Farmers' motion yesterday. Motion for Joinder

Mississippi Valley Title didn't like this motion one bit as it made clear in its response. It called M&F's motion "inappropriate, improper, and overbroad for numerous reasons..." MVT further objected to the request for documents regarding internal controls and procedures: ""Rule 2004(b) limits the scope to matters regarding property of the debtor or matters that affect the administration of the debtor's estate. The request for manuals and internal analysis of claims made by Old Republic, for example, is a request for confidential and proprietary information that is beyond the scope of the 2004 examination. The same is true for information "relating in any way to any investigation' as requested in the motion." Copy of response

Many have suspected that the Evans brothers could not have perpetuated their (allegedly) fraudulent scheme without the assistance of others. An obvious question to ask is did anyone at MVT look the other way or collude with Charles or Chris Evans to carry out the plan? Other questions must be asked (These questions are not accusatory in nature but are a hypothesis of what the banks are likely seeking):
1. Were any appraisers accomplices in the plan to obtain so many fraudulent loans?
2. Was Old Republic and MVT's quality control departments adequately staffed?
3. How come no one noticed more than a few deeds of trusts were signed by both Charles and Chris Evans? Underwriting and auditing 101 calls for red flags to be raised when loan officers, title attorneys, appraisers, sellers, and buyers have the same last name. Did anyone notice the Evans' names and if not, why not? This question should be asked of the banks as well.
4. Did MVT audit the files of Charles Evans, Jr. since it could be liable for policies based upon his title certificates? This of course leads to a question of whether MVT was guilty of gross negligence if the audit procedures were lax or not performed in a diligent manner.
5. How many times a year were files audited? Was it random? How many files were audited? Were audits unannounced or scheduled?

Given the language of the motion filed by Merchants & Farmers, its clear the banks are asking these questions and more as they want to determine exactly how the Evans brothers were able to perpetuate the alleged fraud for over five years. The amount of claims filed by banks with MVT are roughly the same amount as its claims reserves. While its parent company, Old Republic, can easily cover these claims, the question remains whether Old Republic will keep MVT afloat if most or all of these claims are paid to the banks. Such a scenario alone is enough to probably ensure MVT will fight requests such as the one filed by M&F for internal controls tooth and nail.

Stay tuned.

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.

2 comments:

Anonymous said...

I do not see how this fraud could have been perpetrated without either collusion or extreme negligence of at least an appraiser and possibly somebody at MVT.

The land and tax records in Madison County are online and are very good, having even once been acclaimed by the American Land Title Association on its website.

ANYBODY working on this at the time could have cross-checked the tax parcel and deed info and looked at the tax maps online and realized that something was bad wrong.

I don't really know how the general public feels about this fiasco but people I've talked to in the title business (abstractors, attorneys, agents) all believe it either had to be the work of a group of people, or either gross negligence to the point of wrecklessness.

About 13 or 14 years ago, I attended a CLE seminar in Gulfport 13 or 14 years ago put on by the Dixie Land Title Association and the speaker was the senior underwriter at MVT. The subject was banks in the title insurance business. I remember one comment during his presentation that pretty well summed up the gist of his remarks, "We are the Gatekeeper - how will the banks know if they have a good loan or not unless we tell them they do."

Needless to say, I find real irony in the Gatekeeper's actions now in handling this Evans fraud situation. It is my personal hope that the banks will be made whole but it is also my personal belief that they will get burned.

Anonymous said...

well said anaon @9:04 a.m.

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