Branch Banking & Trust Co. v. Kraz, LLC

• Decision Date: 03 June 2013
• Docket Number: No. 2D12–3051.,2D12–3051.
• Citation: 114 So.3d 273
• Court: Florida District Court of Appeals
• Parties: BRANCH BANKING AND TRUST COMPANY, successor in interest to Colonial Bank by asset acquisition from the FDIC as receiver for Colonial Bank, Appellant, v. KRAZ, LLC; Bing Charles Kearney, Jr.; Tracy L. Harris, Jr.; and Unknown Tenants # 1–25, Appellees.

114 So.3d 273

BRANCH BANKING AND TRUST COMPANY, successor in interest to Colonial Bank by asset acquisition from the FDIC as receiver for Colonial Bank, Appellant,

v.KRAZ, LLC; Bing Charles Kearney, Jr.; Tracy L. Harris, Jr.; and Unknown Tenants # 1–25, Appellees.

No. 2D12–3051.

District Court of Appeal of Florida, Second District.

April 17, 2013.

Rehearing Denied June 3, 2013.

John A. Anthony, Kristi Neher Davisson, Frank A. LaFalce, J. Wade Stidham, and Cheryl Thompson of Anthony & Partners, LLC, Tampa, for Appellant.

Jesse L. Ray of Jesse Lee Ray Attorney at Law, P.A., Tampa; and

Steven L. Brannock of Brannock & Humphries, Tampa, for Appellees.

VILLANTI, Judge.

Branch Banking & Trust Co. (BB & T) seeks review of the final judgment entered in favor of Kraz, LLC, Bing Charles Kearney, Jr., and Tracy L. Harris, Jr., (collectively Kraz) in this commercial foreclosure case. Of the twelve issues raised by BB & T, only one has merit, and we reverse the final judgment solely to the extent that it awarded a credit against Kraz's loan principal for amounts BB & T may have received during the pendency of the foreclosure proceedings pursuant to a Commercial Shared Loss Agreement with the Federal Deposit Insurance Corporation (FDIC). In all other respects, we affirm.

This case comes to us with a lengthy record. However, for purposes of this opinion, the relevant facts are fairly straightforward. BB & T purchased Kraz's $5,182,128 commercial construction loan, along with numerous other assets, from the FDIC after Colonial Bank, which originated the loan, was closed by the FDIC. The purchase agreement between BB & T and the FDIC included a provision called a Commercial Shared Loss Agreement, which set forth the means by which BB & T and the FDIC would share in any losses that arose from the Colonial loans ¹ that BB & T purchased. Under the Commercial Shared Loss Agreement, BB & T was required to submit a quarterly report listing the losses it had sustained during that quarter due to charge-offs taken on the entire pool of Colonial loans, and the Commercial Shared Loss Agreement required the FDIC to pay BB & T a stated percentage of those losses. BB & T was also required to submit a second report detailing any “recoveries,” which were defined as collections received during the quarter on the entire pool of shared loss loans that had been previously charged off. If the amount of net recoveries was positive, BB & T was required to pay a stated percentage of those recoveries to the FDIC.² Thus, if BB & T charged off a loan in one quarter, it could include that loan in the charge-off pool for the quarter and it would be paid a portion of that loss by the FDIC. However, if BB & T made a recovery on that charged-off loan in a subsequent quarter, BB & T would essentially have to reimburse the FDIC for the earlier payment by including that recovery on its quarterly report and paying a portion of the recovery to the FDIC.

Shortly after BB & T purchased Colonial's assets, it declared the Kraz loan to be in default and it filed a foreclosure action against Kraz. During the foreclosure proceedings, a court-appointed receiver collected tenant rents, paid certain expenses, and managed the property in consultation with BB & T. The receiver transmitted the net collected rents to BB & T after the receiver himself was paid, and presumably BB & T applied these funds to reduce Kraz's indebtedness.

At the trial on the foreclosure complaint, BB & T's corporate representative, Oscar Bruni, admitted that BB & T “may have” received payment under the Commercial Shared Loss Agreement as a result of the default declared on the Kraz loan. Bruni testified that he would have to make a telephone call to BB & T's accounting department to determine for sure whether any such payment had been received and the exact amount of the payment; however, no one asked Bruni to make this call. Kraz's banking expert, James Howard, testified that BB & T's shared loss payment on the loan could be “as much as $1.8 million.” However, neither Bruni nor any other witness testified as to whether, in fact, BB & T had received such a payment and, if so, what the exact amount of the payment was.

At the conclusion of the foreclosure trial, the trial court found that Kraz had not been in default under the terms of the loan when BB & T declared the default. Having reached this conclusion, the trial court denied BB & T's request to foreclose on the property, and it set about creating an equitable remedy that would return the parties to the financial positions they would have been in had the improper default not been declared. As part of that remedy, the trial court reinstated the loan, ordered BB & T to write off the default interest and late fees it had charged, and ordered an accounting of the funds turned over to BB & T by the receiver during the course of the foreclosure proceedings. In addition, the court ordered BB & T to credit the principal of the Kraz loan with the shared loss payment that BB & T had allegedly received on this loan pursuant to the Commercial Shared Loss Agreement. Specifically, the trial court ordered

that [BB & T] shall, within thirty (30) days of the entry of this Final Judgment, credit the principal of the Note with all payments received by [BB & T] from the FDIC concerning this loan per Mr. Bruni's and Mr. Howard's testimony.... No payments shall be due from [Kraz] until [BB & T] credits all such payments it has received against the...