In re Charter First Mortg., Inc.
|27 November 1985
|Adv. No. 683-6195.,Bankruptcy No. 683-07420
|56 BR 838
|In re CHARTER FIRST MORTGAGE, INC., Debtor-in-possession. CHARTER FIRST MORTGAGE, INC., Plaintiff, v. The OREGON BANK, a national banking association, and William E. Brock, Defendants.
|U.S. Bankruptcy Court — District of Oregon
William R. Turnbow and Michael C. Arola, Hershner, Hunter, Miller, Moulton & Andrews, Eugene, Or., for plaintiff.
Don H. Marmaduke, Tonkon, Torp, Galen, Marmaduke & Booth, Portland, Or., for defendants.
The plaintiff, Charter First Mortgage, Inc. (hereinafter CFM), having filed its chapter 11 proceeding on April 20, 1983, brought this action seeking a declaration of rights in certain of its deposit accounts, and an order requiring the defendants The Oregon Bank (hereinafter TOB) and William E. Brock to turn over to it all accounts wrongfully held. In addition, it has requested the court order TOB to pay interest on all deposit accounts in its possession which the court finds were wrongfully withheld. William E. Brock is in default and did not appear at trial.
The facts are quite complex due both to the nature of the debtor-in-possession's business and the myriad business transactions which were effected during the relevant time period. The following are facts to which the parties have stipulated:
1. Prior to the entry of the order for relief in this proceeding, plaintiff was engaged in various business activities, including the following:
a. Originating loans and reselling them to institutional investors. Most loans were either construction loans or loans made to finance the purchase of personal residences.
b. Servicing loans owned by others.
c. Holding and servicing loans owned by plaintiff.
2. Plaintiff was authorized to and did conduct business in the states of Oregon, Washington, Montana and Idaho. Plaintiff operated branch offices in the cities of Puyallup and Everett, Washington, Boise, Idaho and Missoula, Montana.
3. During the one-year period prior to entry of the order for relief in this proceeding, plaintiff serviced loans for various investors, including the Montana Board of Housing, the State of Oregon Housing Division and the Federal National Mortgage Association (FNMA).
4. When servicing loans, plaintiff performed the following activities:
a. Collected periodic principal and interest payments made by individual borrowers and remitted those payments to the owners of the obligations. Plaintiff retained a portion of the payments as a "servicing fee."
b. Collected payments made by individual borrowers for real estate taxes, hazard insurance premiums and mortgage insurance premiums, held those funds in deposit accounts, and paid the individual borrowers' real estate taxes, hazard insurance premiums and mortgage insurance premiums at the proper times.
c. Performed other related administrative functions.
5. When originating loans, plaintiff received deposits known as "application fees" from each individual borrower. These deposits were used to pay expenses of credit reports and real property appraisals. The portions of each "application fee" remaining after payment of such expenses were typically refunded to the applicant or credited to the applicant's account at the time each loan was closed.
6. Plaintiff obtained funds to make most of the loans it originated by borrowing from various institutions, including TOB. Among other loans, TOB provided financing for 101 growing equity mortgage loans (GEM loans).
7. When originating non-construction loans, plaintiff normally followed the following basic procedures:
a. Plaintiff obtained advance commitments from an institutional investor to purchase loans.
b. Upon receipt of an application, plaintiff obtained a credit report, an appraisal and other information necessary to evaluate the proposed loan.
c. Upon its approval of the loan, plaintiff prepared documents for the loan transaction, including a promissory note payable to plaintiff (the Individual Borrower's Note) and a trust deed or mortgage to be executed by the individual borrower.
d. Plaintiff also prepared certain standardized documents for its financing of funds to make the loans. Included among those documents were a promissory note made by plaintiff and payable to TOB (The Warehousing Note) for the amount to be financed by TOB, an assignment of the individual borrower's note and trust deed/mortgage, and a trust receipt.
e. Upon closing of the loan transaction, TOB would provide plaintiff with funds necessary to make the individual loan. Those funds would be disbursed to the individual borrower. The Warehousing Note would be delivered to TOB. The Individual Borrower's Note was normally held by plaintiff pursuant to a trust receipt pending the plaintiff's resale of the obligation.
8. After closing a number of individual loans, plaintiff compiled the Individual Borrower's Notes and other documents into "loan packages," and sold them to institutional investors. Upon the sale of the loans, plaintiff delivered the Individual Borrower's Notes to the purchaser and normally applied the sale proceeds to repayment of the corresponding Warehousing Notes to TOB.
9. To secure the loans plaintiff obtained from TOB, plaintiff executed certain security agreements dated October 29, 1981 and June 17, 1982 and a financing statement encumbering all of plaintiff's "accounts, chattel paper, documents, instruments and general intangibles, now existing or hereafter arising, and in all proceeds thereof," including plaintiff's rights under any mortgage servicing agreements. The financing statement was properly filed on or about November 2, 1981.
10. The Individual Borrower's Notes in all of the GEM loans were held by plaintiff pursuant to trust receipts. On or after October 7, 1982, TOB obtained from plaintiff physical possession of 100 of the 101 original Individual Borrower's Notes securing the GEM loans.
11. TOB filed an action to foreclose its security interests in the Circuit Court of the State of Oregon for Jackson County on November 5, 1982.
12. In connection with TOB's foreclosure action and pursuant to a stipulation between the parties, defendant William E. Brock was appointed receiver of all the assets of plaintiff by the state court on November 5, 1982.
13. For a time after his appointment, the receiver continued to operate the business of plaintiff.
14. Prior to the appointment of a receiver, plaintiff had numerous accounts at TOB, including the following:
Account Name Account Number General or Operating XX-XXX-XXX Savings XX-XXXXX-X Bancontrol Warehouse XX-XXX-XXX FNMA Custodial XX-XXX-XXX General Custodial XX-XXX-XXX Construction Trust XX-XXX-XXX Medford Special XX-XXX-XXX Eugene Special XX-XXX-XXX Payroll XX-XXX-XXX
15. On or about October 13, 1982, TOB set off accounts described above as plaintiff's "General" and "Savings" accounts against obligations owing to TOB from plaintiff. A total of $273,221.84 was set off and $260,856.37 of that amount was applied to outstanding loans. The balance, $12,365.37, was transferred into account No. XX-XXX-XXX and designated by TOB as a "suspense account."
16. On or about November 19, 1982, the receiver transferred all or most of the funds in the accounts described in paragraph 14 above to new accounts, with different account numbers, at TOB in the receiver's name.
17. TOB now holds the following amounts in the "suspense account" and accounts of the receiver:
Account Number Account Name Amount 01 236 700 Suspense $ 12,365.37 12 631 700 Medford Special Trust Account (Receivership) $ 46,391.00 12 631 689 General Custodial (Receivership) $ 1,279.68 12 631 733 FNMA Custodial (Receivership) $ 65,343.18
18. There has been no activity in the accounts described in admitted fact 17 since April 20, 1983, the date the bankruptcy petition was filed. No interest has been credited on those accounts since they were opened.
19. During the year prior to the order for relief in this proceeding, plaintiff had the following accounts at other banks:
Bank Account Name Jefferson State Bank Payroll Jefferson State Bank Medford Special Oregon Mutual Savings Bank Savings Medford State Bank Corporate Old National Bank Auburn Warehouse Old National Bank Everett Warehouse Old National Bank Auburn Special Old National Bank Everett Special First Interstate Bank Montana Board of Housing First Interstate Bank Boise Special
20. The receiver continued to use the accounts in his name at TOB and some of the other banks' accounts after his appointment and prior to the order for relief in this proceeding, making deposits and/or withdrawals into the accounts.
21. On or about October 28, 1982, plaintiff made a loan to Mr. David Hansen in the approximate principal amount of $50,000 to finance the purchase of real property located in Montana. Plaintiff is now and has been at all material times the owner and holder of Mr. Hansen's obligation. Mr. Hansen has made monthly payments of principal, interest, taxes and insurance on that loan to plaintiff since the loan was made.
On August 1, 1983, TOB filed a proof of claim in the bankruptcy case alleging a claim in an approximate amount of $1,000,000 plus interest. It alleged further that this claim is secured by collateral which includes, but is not limited to, the items mentioned in stipulated fact number nine.
At trial the evidence indicated that after his appointment the receiver, having no significant...
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