Court Says BB&T May Try to Boost Recovery on Failed Bank Loans

By Chris Bruce

A BB&T Corp. unit can try to boost its recovery on real estate loans by as much as $9.5 million after property sales failed to recoup the full amounts, under a Sept. 11 federal appeals court ruling ( Branch Banking and Trust Co. v. D.M.S.I., LLC , 9th Cir., 15-cv-16933, 9/11/17 ).

The ruling by a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit also gives other banks confidence. It means a Nevada statute repealed in 2015 but still affecting various cases won’t block efforts to recover deficiencies on failed bank loans in that state purchased from the Federal Deposit Insurance Corp. as receiver for failed banks.

Although the Nevada Supreme Court ruling made that clear in 2015, the Ninth Circuit adopted the reasoning of the Nevada court, saying it furthers the FDIC’s mission by ensuring that failed bank assets are worth buying.

“It would be more difficult for the FDIC to dispose of the assets of failed banks if the transferee could not turn a profit on those assets,” said Judge A. Wallace Tashima, who wrote the opinion. Tashima also said BB&T has standing, saying loans in all three cases were covered under the terms of BB&T’s transaction with the FDIC.

Debtors in three cases combined before the Ninth Circuit raised a series of defenses. Debtors in all three cases said the Winston-Salem, N.C.-based bank lacked standing to collect on the loans. Among other points, debtors in two cases said the Nevada statute — Nev. Rev. Stat. § 40.459(1)(c) — limits the ability of third parties like BB&T to buy loans at a discount and then foreclose at the full purchase price. Meanwhile, debtors in the third case said a previous Nevada court ruling barred BB&T from suing them.

A three-judge panel ruled for BB&T in each case. Tashima, who wrote the opinion, said the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 preempts the Nevada limiting law, at least with respect to parties that buy failed bank loans from the Federal Deposit Insurance Corp. in its role as receiver for failed banks.

Otherwise, according to Tashima, the Nevada law would complicate the FDIC’s task. Tashima also said BB&T has standing, saying loans in all three cases were covered under the terms of BB&T’s transaction with the FDIC.

The original lender was Colonial Bank, N. A. of Montgomery, Ala., which was later succeeded by Colonial Bank, also of Montgomery. When Colonial Bank failed in 2009, the FDIC, as Colonial Bank’s receiver, sold the bank’s assets to BB&T.

The debtors also said the bank had a duty to schedule the foreclosures in a manner that would minimize damages to be paid by the debtors, but the court disagreed. “BB&T owed no duty to mitigate Defendants’ deficiency by the timing of its foreclosure proceedings; the mitigation of damages defense therefore fails,” Tashima said.

BB&T is represented by Frank Z. LaForge and Jeremy Nork of Holland & Hart in Reno. The debtors are represented by Randolph L. Howard and Bart K. Larsen of Kolesar & Leatham in Las Vegas.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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