Investors In Charge of Revamped Valley Lender

5.22.09

by J. Craig Anderson
The Arizona Republic

The investors who stand to lose millions of dollars in failed commercial real-estate lending venture Mortgages Ltd. now are in control of the company as it emerges from bankruptcy proceedings.

U.S. Bankruptcy Court Judge Randolph J. Haines on Wednesday approved the formation of a five-member committee of investors to oversee the resolution of nearly 70 real-estate loans issued by the company, which filed for Chapter 11 reorganization last June.

Phoenix-based Mortgages Ltd. financed a number of high-profile developments in the Valley, including the now-bankrupt Centerpoint condo project in downtown Tempe and Hotel Monroe in downtown Phoenix.

All but a handful of the company's borrowers are now in default, attorneys in the case said Thursday.

The good news, they said, is that Mortgages Ltd. management, lead investor Radical Bunny LLC and the vast majority of individual investors now have agreed on a plan to manage the company's remaining assets and seek ways to generate cash flow.

Those ways are likely to include restructuring loans for borrowers who agree to the committee's terms, foreclosure of land assets in cases where borrowers no longer have a foreseeable payoff plan, and filing lawsuits against individuals and organizations accused of contributing to the lender's demise.

Nearly 90 percent of the company's more than 1,500 investors approved the plan.

Still, attorneys representing the company's former managers and investors, who until this week were locked in a struggle for control, said the prospects for recovering a significant portion of investors' money are as uncertain as the country's economic future.

"It could be anywhere from zero to a very large number," said Phoenix lawyer Cathy Reece, who represents some of the company's biggest investors.

Mortgages Ltd. lead attorney Carolyn Johnsen said emerging from reorganization in the midst of an economic recession is far from ideal, and she expressed concern that investors would be expecting more than the new leadership could deliver.

"There's going to be a lot of waiting before there's really a recovery," Johnsen said.

Under the investors' plan approved by the court, Mortgages Ltd. would borrow $20 million from two private-equity lenders that already have agreed to loan the money, Reece said.

The five-member management committee consists of local economist and real-estate analyst Elliott Pollack, National Bank of Arizona Executive Vice President Scott Summers, retired title insurance veteran Bruce Buckley, independent real-estate developer Bill Hawkins and Radical Bunny bankruptcy trustee Grant Lyon, a certified public accountant.

The committee will create a separate limited liability trust to manage each loan or foreclosed asset, with the investors in that loan or asset as members of the trust.

Operational expenses will be financed by the new loan, Reece said.

Mortgages Ltd. will not conduct any new business, such as issuing new loans, the attorneys said.

The company filed for reorganization just two weeks after its chairman and chief executive, Scott Coles, committed suicide at his Phoenix estate in June. At the time, the lender's loan portfolio was worth about $925 million.