NorthWesternFinancialReview.com Blog

I know someone who recently sold their home. Everything was going great until four days before the closing when they got a call from their closer that there was an unsatisfied lien on the property. The homeowners were shocked. Turns out a mortgage they had in the early 1990s had not been properly recognized as closed. County records had not been updated to show the loan had been paid off in 1995. Fortunately, the homeowners had the loan origination documents, and a bank statement from 1995 showing the loan was paid off.

The bank that lent the money had been purchased by a larger bank about a decade ago. When the homeowners called, the acquiring bank referred the homeowners to a toll-free number that put them in touch with a customer service person in a town some 400 miles away. The customer service person there told the homeowners that they would need three to five business days to research the situation. But she warned that given the situation involved something that happened 15 years ago and banks are only required to keep records seven years, she was not hopeful the situation could be resolved.

The homeowners were disappointed that the bank statement from 1995 showing the loan payoff was not sufficient to satisfy the title company. They were further disappointed that the bank seemed so indifferent about resolving the problem. And the homeowners were particularly disappointed that it looked like their closing would be pushed back; it seemed there was no way they were going to get a satisfaction letter before the originally scheduled closing.

The homeowners’ realtor, however, took matters into his own hands and contacted someone else at the bank. It was a local contact who had helped the realtor on another matter a year or so ago. That bank employee was able to go to the bank’s archives and found the loan documents from the early 1990s. With the documents located, it was no problem for the bank to produce a mortgage satisfaction letter that met the title company’s requirements. The bank agreed to immediately notify the county so they could get their records up to date.

It remains unclear why the county records were out of date. Did the bank neglect to inform the county 15 years ago? Were the borrowers responsible for notifying the county? Did the county fail to record the info even after being informed? No one knows.

I share this story because there have been many, many bank acquisitions in the last one or two decades, and the acquiring bank assumes responsibility for mortgages made by the acquired bank, even mortgages that have long since closed. I wonder how many of them were not properly recorded by their respective counties? How many will show us as a problem that threatens to delay future real estate transactions? Maybe it is a minor problem in the scheme of things, but it certainly doesn’t seem minor to anyone who is planning to close on the sale or purchase of their home.

I am fascinated by the process by which healthy banks work through the FDIC to purchase banks that have been closed by the OCC or their state regulator. In our January edition of NorthWestern Financial Review, we write about Central Bank of Stillwater, Minn., acquiring four failed banks in 2009.

The subcommittee hearing last week in Washington D.C. hosted by U.S. Rep. Luis Gutierrez gave us insight into the details of U.S. Bank’s acquisition of nine failed banks that made up the FBOP Corp.Rep. Gutierrez of Illinois heads the subcommittee on financial institutions and consumer credit. The Jan. 21 hearing focused on the Oct. 30, 2009 failure of FBOP Corp., a $19 billion holding company based in Oak Park, Ill., just outside of Chicago.

Richard C. Hartnack, vice chairman in charge of consumer and small business banking at U.S. Bank, testified offering the following synopsis of the events that constituted the acquisition:

We had previously registered our interest in reviewing franchise sales with the FDIC. As is typical, our Director of Corporate Development received an email, that presumably was sent simultaneously to other interested parties, informing us that this institution was potentially going to be sold by the FDIC.

The process then proceeds along these lines. We are presented and execute a confidentiality agreement covering the potential transaction. We are given access to a “data room” on a secured web site where a limited number of registered users from our company are able to perform the typical acquisition “due diligence” process. Following that we are granted a limited and tightly controlled opportunity to visit with management of the subject bank. We then perform a valuation exercise that leads to our developing a bid that conforms to the specific bidding conditions on the property in question.

The bid is submitted to the FDIC. Once the final decision is reached by the regulator of record to take control of the failed institution, the FDIC is named receiver and then the receiver completes the sale to the winning bidder.

We have actively engage in the bidding process on seven occasions. We have declined to bid on numerous other occasions because our investigation suggested that the offered franchise was not a good fit with our organization. We have been the successful bidder on 4 of the 7 occasions on which we bid.

Read about the factors that led to FBOP Corp’s closure in our Feb. 1 edition of NorthWestern Financial Review.

TIB — The Independent BankersBank of Irving, Texas — has purchased the bridge bank set up by the FDIC in the wake of the failure of Independent Bankers Bank in Springfield, Ill., on Dec. 18. Here is the TIB press release, and here is the press release from the FDIC. Although TIB President Michael G. O’Rourke says TIB already has about 100 customers in the region, TIB would generally be considered a new player in the bankers’ bank arena serving customers in the Upper Midwest.

Gayle Earls, hired by the FDIC to run the bridge bank, predicted on Jan. 5 that a buyer for the bridge bank would soon be found. Earls was chief operating officer of TIB for 19 years. After he left TIB, he served as CEO of the bridge bank the FDIC set up after the failure of Atlanta-based Silverton Bank last May. No buyer was ever found for the Silverton Bridge Bank and it was closed down after about four months of operation.

The FDIC says TIB is paying a premium of 0.32 percent to assume all of the bridge bank’s deposits; TIB also is  purchasing $111.8 million of its assets, although TIB says it is not acquiring any of the bridge bank’s loans, distressed assets or trust services. In a separate transaction, the FDIC announced Empire Advisory Group, Inc., Springfield, Ill., has agreed to purchase the corporate trust department of the failed bank for $119,000.

TIB already has been approved to open a branch in Illinois. It is estimated that IBB Bridge Bank was serving about 450 of IBB’s former customers.

“We are very pleased to be able to step into this role and provide a stabilizing influence for the community bankers of Illinois, Indiana, Michigan, Iowa and the rest of the region,” said O’Rourke.

Looking to serve the former IBB customers, Bankers Bank of Madison, Wis., announced earlier this month that it would open two new offices in Illinois and a new office in Indianapolis. In addition, Bankers’ Bank announced it had hired four former IBB staff members: Catherine Bryant as first vice president, and Matthew Coppola, Marlene Luther and Mark Wade as vice presidents.