At a bankruptcy hearing Feb. 19 in Jackson regarding the Evans commercial real estate fraud case, Judge Neil Olack ruled that land would be sold to generate money and federal proceedings would continue despite Mississippi Valley Title’s request to hold off until its chancery court suit could be transferred to Olack’s court.
Olack also said that the case would be tried for one week beginning Oct. 25.
Debtor Chris Evans and his brother, Charles H. Evans Jr., are accused of being partners in what may be the largest commercial real estate fraud in Mississippi history. In the Evans brothers alleged loan-stacking Ponzi scheme, commercial real estate was used as the investment and banks were used as investors. Charles H. Evans Jr. was an approved attorney for Madison-based Mississippi Valley Title Insurance Company (MVT), which filed the first lawsuit in Madison County Chancery Court in September. Proceedings were moved to federal bankruptcy court in October when Chris Evans filed for bankruptcy, which stayed state chancery actions.
Trustee Derek Henderson filed a motion to sell tracts of land free and clear of lien. MVT and Banks, which are in dispute over who has first lien position over various divided tracts, objected.
Henderson said he was “between the chicken and the egg” on what he ought to be first in the process of selling the land, or collateral.
He gave the example of a 38-acre tract on Highland Colony Parkway in Madison purchased by Chris Evans in 2003 through his company Old Agency Business Park Inc. The large tract was divided into “slivers,” all of which do not have access to the parkway. Selling them individually might negatively affect the value of the property, he said.
Henderson said he also wasn’t sure if the court should determine which companies have equitable liens on properties in dispute before he sold them. He gave the example of a sliver of property for which a bank had a valid deed of trust and $200,000 or $300,000 of equity in its loan. Yet for the same property, two other banks had deeds of trust without title and were competing equitable lien claim holders. Henderson asked if he could sell the property without the consent of the other two lien holders.
Olack gave a summary of the objections to Henderson’s motion to sell so the court wouldn’t have to listen to “30 different lawyers say basically variations of the same thing.”
Banks objected to land sales based on Henderson’s suggested sale method, concerns that dumping large amounts of property into a down market would be detrimental to sales prices, desires to first determine lien positions, various legal arguments and the idea that the trustee could not sell foreclosed property. Much of the property in discussion is in Madison County.
Olack said Mississippi “code is clear: A trustee may sell property free and clear of any interest in such property if such interest is in bona fide dispute.” In light of multiple adversary suits and hundreds of pleadings filed, Olack said, “If this is not an example of a bona fide dispute, I do not know what is.”
“Yes, the trustee can sell without your consent, can sell regardless of whether down the road we find that the property — the liens were not paid in full,” Olack said.
Olack then said MVT’s objection to the motion to sell was not clear and gave MVT attorney Richard Carmody a chance to explain.
Carmody said Henderson and MVT were working to get their state lawsuit that would sort out multiple title claim situations moved to bankruptcy court. Land sales should be put on hold until the case is moved, Carmody said. He also questioned whether the case was in a bona fide dispute.
An attorney representing two banks quickly affirmed that the case was the subject of a bona fide dispute.
The federal proceedings in this case are favorable to banks, since creditors have a more structured means to recover debts in bankruptcy court. MVT is one of 60 creditors, including several banks in Texas.
Olack said state law allowing sale of properties in bona fide dispute also applied in MVT’s case and that federal court proceedings would not be held up based on the state case.
Olack then recommended Henderson hire a real estate professional with experience on a “national scale” to sell the property and avoid a public auction. Olack also recommended that many of the properties be marketed as a group, since selling some tracts in “multiple slivers” would negatively impact the value of the property.
“It’s not as though we’re going to be selling these properties without an idea as to when the disputes will be solved, because we have a trial date,” Olack said. “Meanwhile, let’s convert some dirt into dollars, and then when lien priority disputes are resolved, then we’ll be dividing up money.”
Regarding MVT’s chancery lawsuit, Olack said, “We’re going to move forward with what we have and figure out what to do with the other case when we get it – if we get it.”
Answers from parties are due by April and no extensions will be granted, Olack said. In the week beginning Oct. 25 “we will try as many of these issues as we can,” he said. “Now exactly how we go about trying this case, I’m not quite sure. But we have the week of Oct. 25th to do it.”
MVT filed its original lawsuit against Charles Evans Jr. and his brother Chris Evans in Sept. 2009 in Madison County Chancery Court. Numerous bank lawsuits followed.
The Evans brothers were partners in an alleged loan-stacking scheme in which Chris Evans obtained commercial property loans from Mississippi banks through his various limited liability companies and other entities. Charles Evans Jr. issued title insurance certificates for the loans. Land title for numerous commercial properties was never conveyed to the entities through which Chris Evans obtained the loans. As Evans’ companies defaulted on loans, banks realized the scheme and also realized they would be competing with other banks for the properties, or collateral.
Banks have been seeking to recover their claims through MVT, which has $30 million in claims reserves, not enough to pay the 65 claims made by more than 30 banks totaling more than $40 million. The company’s parent, Old Republic National Title Insurance Company (ORNT), jointly issued all of the company’s policies. ORNT has several hundred million in claims reserves.
Chris Evans filed for bankruptcy in Oct. 2009.
Click here to view a pdf that includes 17 maps resembling jigsaw puzzles that depict the tracts for which the Evans brothers obtained commercial real estate loans. Source: U.S. Bankruptcy Court filing.
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