Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Hurry up and wait: How much will LandAmerica’s 1031 customers recover?
May 13, 2009 by Aaron Kremer
The saga keeps getting worse for 450 former LandAmerica customers who last fall tried to complete a simple real estate deal and now can’t get funds they thought would be safely held for a few months by the formerly Richmond-based Fortune 1,000 company.
With every passing month, legal expenses are gobbling up millions of a possible final settlement figure. Of course, the settlement could be greater if various lawsuits against a bank and former executives prove fruitful.
The exchangers, who placed money with LandAmerica’s1031 division to avoid paying a tax penalty on the purchase of a new property, are trying to recover $420 million plus possible damages.
But in a ruling that surprised many local attorneys, U.S. Bankruptcy Court Judge Kevin R. Huennekens ruled last week that the funds customers parked with the exchange were property of the bankruptcy estate and need not be returned ASAP.
“People thought they were getting into a paper-shuffling transaction, filling out some paperwork and deferring for a tax benefit,” said Ronald Page, an attorney with Cantor Arkema who represented one of the 1031 exchangers. His firm represents 49 other exchangers. “Instead they were putting at hazard in some cases millions.”
Local lawyers who are following the case unanimously say they have no idea how much the exchangers might eventually recover, but it will likely be months and maybe years until they see their money.
In his ruling, Huennekens said LandAmerica’s 1031 contracts were clearly written to state that the 1031 exchange offered neither escrow nor trust accounts. He also said that treating the exchangers as unsecured creditors would be the cheapest and fastest way of getting them any money back.
“The bankruptcy process is designed to address and resolve this very kind of collective action problem. … This can be best accomplished through the plan confirmation process,” he wrote in his opinion. “While it may not be the perfect remedy, it does offer the most inexpensive and expeditious method for distributing these funds on a ratable basis to those who deserve to receive them.”
And even if he had not ruled that the 450 customers of LandAmerica’s 1031 Exchange business are creditors that must get in line for the bankrupt company’s assets, it would have been hard for them to get their funds.
That’s because LandAmerica’s 1031 Exchange division poured money in formerly obscure kind of investment called an auction-rate security, which is now very difficult to value. It’s those investments, which are bundles of student loans, that have caused so much trouble. Auctions for the bundles of securities ground to a halt early last year. Now nobody seems to know what they are worth, even though the underlying student loans continue to pay interest. The company hired by LandAmerica to value the securities did not return a call seeking explanation. r
At the end of February, LandAmerica’s Exchange company had $141.3 million in its bank account, according to the balance sheet submitted to the court. That does not include the $290 million in auction-rate securities. [That figure dates to February 2008. Richmond BizSense was unable to determine the dollar figure if liquidated today or whether any of those securities had been sold.]
Now that they have been ruled unsecured creditors, exchangers will battle with other creditors, including the LandAmerica parent company, which wants back $65 million that it lent its subsidiary when the auction rate securities went sour.
The exchange customers range from individuals who lost $50,000 to businesses doing million-dollar transactions.
“I was under the impression that this money would be safer than putting it in a personal bank account that was insured by the FDIC. … In other words, I though there was zero risk here,” Eric Gordon said in a deposition. Gordon sold a property in Christiansburg and parked the funds with LES until he was to close on another property. He is represented by Cantor Arkema.
Lawyers Fees Adding Up
And the pot of money is dwindling as lawyers’ fees gobble up millions. A quick overview of charges so far (and please note, there is no insinuation that any of the rates are unreasonable or unwarranted):
• Law firm Bingham McCutchen has billed $1.8 million for work Dec. 3 through Feb. 28, including meals at $35 a person. The hourly rate is about $600 an hour, which blends fees of attorneys and paralegals. One lawyer, Neil W. Townsend, charges $880 an hour. Lawyer Anthony Carbone charges $945 an hour. The itemized bill included a $600 dinner downtown on Cary Street in December for seven people.
• The law firm Willkie Farr & Gallagher billed $1.4 million for December, about $1 million for January and $1 million for February. One lawyer, Marc Abrams, charges $994 an hour. A legal assistant bills $235 an hour.
• McGuire Woods, which is representing both LFG and LES, billed $2.8 million for Nov. 26 through Feb. 28.
The ruling might also hammer the nation’s 1031 businesses, because customers can also set up accounts at banks rather than use intermediaries like LandAmerica did. Consumers can look at the ruling and determine it’s not worth the risk.
“Everyone in the industry assumed that based on the documents, the money was held in escrow,” said Richard Chess, a partner in American Realty Capital Markets who has sold exchange accounts for many years. “The judge has turned the whole 1031 business on its ear.”
Chess said he would guess that 1031 customers might get back 10 or 20 cents on the dollar, if they’re lucky.
Who knew What When?
In January, we asked, “Was LandAmerica’s 1031 exchange a Ponzi scheme?”
That has not been answered, at least according to interviews with lawyers familiar with the case. Some former executives have been deposed, but it’s not clear if any of them knew that they were going to declare bankruptcy and still allowed new clients to park funds in the 1031 Exchange, knowing full well they would not get their money back. Lawsuits have also named executives, which could lead to upward of $75 million in awards by triggering officer and director insurance.
It’s also not yet clear who authorized the purchase of auction-rate securities.
U.S. trying to take over LandAmerica pensions
May 12, 2009 (Richmond Times-Dispatch - McClatchy-Tribune Information Services via COMTEX) -- LandAmerica Financial Group Inc. said its pension plan has enough money, but a federal agency yesterday took steps to relieve the Henrico County-based company from overseeing the fund.
The Pension Benefit Guaranty Corp. said the plan is underfunded by 15 percent, or $36 million, and sent notice to LandAmerica of its intent to take over administration of the retirement fund.
About 9,600 employees and retirees have a retirement plan with LandAmerica or a subsidiary. If the request is approved, a federal cap on payments will be imposed.
For a person who retired at age 65, the maximum benefit would be $51,750 per year.
In a news release, the pension agency said it estimated the plan has assets of $210 million and liabilities of $246 million.
LandAmerica took issue with the federal agency's claim.
"Based on the most recent information from the plan's actuary, the plan is appropriately funded in accordance with applicable laws, and there is no basis for it to be terminated" by the Pension Benefit Guaranty Corp., LandAmerica spokeswoman Carol Gentry said in a statement.
"The PBGC," she said, "has not provided any information to us that supports the statements in their press release."
For the year ending 2008, LandAmerica said the pension plan was funded nearly 97 percent, though that valuation was calculated in January 2008 before the company hit financial trouble.
In late November, the company filed for bankruptcy protection and announced plans to sell its primary title insurance subsidiaries. The company also cut healthand life-insurance benefits for retirees.
"Anything that makes our pension more stable, I'm all for," said Shirley Grant, who retired from LandAmerica in December after 49 years with the company.
"Too many things have happened," she said. "We've already lost too much. So many of us now worry day to day, 'Will I get anything next month?'"
On Thursday, the company will be in U.S. Bankruptcy Court in Richmond for approval to sell off stock in four other subsidiaries.
The Pension Benefit Guaranty Corp. filed the notice to take over the pension fund before the sale so that all the subsidiaries, as well as the parent company, will be liable for the unfunded pension amount, spokesman Gary Pastorius said.
If the subsidiaries are sold, it could mean there is less money in the estate to divide among creditors. The agency has filed a claim of $35.7 million against LandAmerica.
The Pension Benefit Guaranty Corp. is funded by investments and insurance premiums paid by companies that offer pension plans.
"We have determined that . . . we can and should do this to protect the [pension] participants and the insurance program," Pastorius said.
The pension corporation will have to file a request in U.S. District Court to take over the plan, he said.
Gentry could not say whether any employees would lose pension money because of the federal cap.
"It doesn't affect the normal working people," Grant said. "Who it really affects is the executives."
About 16 percent of pension-plan participants see a decrease in their monthly payments when the PBGC takes over and the decrease averages about 28 percent, according to a September report from the federal agency.
"Most of the employees will still get their pensions," said Nancy Hwa, communications director for the Pension Rights Center in Washington.
The PBGC guarantees about 44 million employees and retirees enrolled in more than 29,000 pension plans nationwide.
In fiscal 2008, which ended Sept. 30, the corporation took over 67 pension funds. This year, the agency has assumed control of 53 funds, Pastorius said.
Plan of Liquidation for LES
I was just reading into the latest docket and i stumbled upon this so called plan it seems of what to do with LES
Phase One – The Inter-Estate Protocol
Phase Two – Mediation of Lead Case Litigation and Plan of Liquidation for LES
Docket 1368
Short interest update!
May 11, 2009 604,980 -18.81
great improvement. go LFGRQ!!!
good buy volume today
lets hope this goes off for good and we can all enjoy summer with very very nice checks.
Judge rules customer funds belong to LandAmerica
EMILY C. DOOLEY TIMES-DISPATCH STAFF WRITER
Published: May 8, 2009
Money placed with LandAmerica 1031 Exchange Services Inc. belongs to the estate and not the customers who entrusted their funds to the now-bankrupt company.
U.S. Bankruptcy Court Judge Kevin R. Huennekens ruled yesterday that customers who gave their money to the company to hold temporarily as a way to defer capital-gains taxes have no ownership over the funds.
The ruling, which could have a negative effect on the 1031 exchange industry, essentially turns about 450 exchange customers into creditors who must vie for a portion of the company's remaining assets.
"I'm appalled," said Goochland County resident Kellie Lineberry, an exchange customer of the firm, which is a subsidiary of Henrico County-based LandAmerica Financial Group Inc.
"We contend -- and we will always contend -- the money was in trust."
The exchange company held proceeds from the sale of investment property as a way for investors to defer capital-gains taxes. The investors had 180 days to buy a similar property in which to reinvest.
Customers argued they had put their money in trust.
LandAmerica disagreed, as did Huennekens.
The judge said the words "trust" and "escrow" were missing from exchange agreements and that those same contracts awarded control of the money to LandAmerica's exchange company.
"If the parties had wanted to create a trust or if they had wanted to create an escrow, they certainly were capable of doing so," Huennekens wrote in his ruling. "They did not."
The decision was supported by Dallas attorney Charles R. Gibbs, lawyer to the committee representing unsecured creditors including exchange customers.
"It's our belief that the bankruptcy code broadly defines what is property of the estate," Gibbs said. "We always believed [exchange customer money] belonged to the debtor."
The exchange company and its parent filed for Chapter 11 protection in late November.
At the time of the bankruptcy filing, LandAmerica 1031 Exchange Services owed $419.2 million to about 450 customers.
Huennekens ordered that test trials be held representing the different types of exchange agreements. The theory was that one test case would set precedent for similar claims.
His ruling yesterday related to three test cases -- those of clients whose money was lumped in one account rather than segregated. Last month, Huennekens ruled that money from separate accounts, or segregated, also belonged to the estate.
"This was expected," said Ronald A. Page Jr. with the Richmond firm Cantor Arkema, which represents more than 50 exchange customers.
Kevin J. Funk, another Cantor Arkema attorney, said the firm was reviewing options, including an appeal.
The law firm's clients hold about $40 million in claims against the exchange company.
All the customers will have to pay taxes on the money they haven't received unless they found other financing to complete their exchanges.
"They now owe capital gains on the property they sold," Funk said. "It's like a double-whammy."
Only a presidentially declared disaster can excuse them from taxes.
The ruling's effect on the exchange industry, which is required in the IRS code to defer taxes but is not regulated, could extend beyond Richmond.
"I think you're going to see a chilling effect on 1031 exchanges," Funk said. "If the reasoning catches on, [exchange customers] will be giving up any right to their money."
Mary B. Foster, past president of the trade organization Federation of Exchange Accommodators, agreed.
The judge's ruling that money belongs to the 1031 company goes against the widespread belief in the industry that exchange companies hold money as agents for taxpayers but have no rights to the funds.
"It's bad for our industry, and it's a bad decision," Foster said. "As far as the industry goes, we'd certainly like to see the decision reversed."
We all know him..... He is just a typical basher who wont let investors do their own DD and invest their own money.
Renee,
how soon do you see this paying out in your opinion and how much do you realistically think?
lol can you believe this guy? Anyways, everyone should do their own DD.
manipulation at its best.
Why do you say that grum? I hope your right
I really wish everything would settle in court so we get our payoff before summer's over :( .
lol everyone on the board is going to have an ulcer after anxiously waiting for the pay out
its a waiting game really so we just have to toughen it out till the end.
what in god's name is happening to the PPS?
dont know if anyone saw that or not
LandAmerica Gets OK To Auction Loan-Servicing, Warranty Units
Thursday 04/23/2009 4:34 PM ET - Dow Jones News
By Eric Morath
Of DOW JONES DAILY BANKRUPTCY REVIEW
LandAmerica Financial Group Inc. (LFGRQ) received bankruptcy court permission to auction off two of its businesses, having already lined up bidders willing to pay a total of $16.5 million for the units.
Alpine Equity L.P. offered $6.5 million for LandAmerica's LoanCare Servicing Center Inc. Alpine will serve as the lead bidder for the loan-servicing business at an auction scheduled for May 12, according to papers filed Tuesday with the U.S. Bankruptcy Court in Richmond.
LandAmerica separately reached a deal to sell four other subsidiaries, including LandAmerica Home Warranty Co., to Buyers Protection Group Inc. That company, which offered $10 million, will serve as the lead bidder for the assets at an auction scheduled for May 11.
LoanCare is a Virginia Beach, Va., company that administers loans for mortgage lenders, banks and credit unions nationwide.
LandAmerica attorneys said they need to quickly sell the unit because LandAmerica's Nov. 26, 2008, bankruptcy filing caused bond rating agencies to downgrade LoanCare, leading clients to move their business elsewhere.
LoanCare serviced more than 100,000 loans carrying a balance of $13.1 billion as of Nov. 30.
A sale would help LoanCare keep its existing customers and remain compliant with state and federal licensing requirements, according to court papers.
The deadline for bids is May 8. Alpine would be paid a $350,000 breakup fee if it's bested at auction.
LandAmerica Home Warranty sells policies in 45 states that cover home owners for unexpected repair and replacements of major home appliances and systems, such as refrigerators, central air and plumbing.
Buyers Protection Group, a company formed to purchase LandAmerica's home warranty assets, would be owned by Stephens Group LLC and Revell Fraser, a senior vice president at LandAmerica.
LandAmerica is seeking to sell the home warranty business because its bankruptcy is causing partners and vendors, such as CRES Insurance Services Inc., Sears Holdings Corp. (SHLD) and Whirlpool Corp. (WHR), to walk away.
Other interested buyers have until May 7 to submit bids. Buyers Protection Group would receive a $300,000 breakup fee if it's bested at auction.
The bankruptcy court will review the results from both auctions at a May 14 hearing.
LandAmerica, based in Glen Allen, Va., filed for bankruptcy protection after one of its other subsidiaries collapsed. The company operated a qualified intermediary business under section 1031 of the U.S. tax code. Such exchanges help taxpayers to defer gains from the sale of real estate.
LandAmerica 1031 Exchange Services shut down prior to LandAmerica's bankruptcy filing amid liquidity constraints as a result of the collapse of the auction-rate securities market.
After LandAmerica filed for Chapter 11 protection last year, it sold its title insurance businesses - Lawyers Title Insurance Corp., Commonwealth Land Title Insurance Co. and United Capital Title Insurance Co. - to Fidelity National Financial Inc. (FNF) for $298 million.
Those businesses accounted for more than 85% of the company's revenue. Since their sale, LandAmerica has been seeking buyers for, or shutting down, its remaining business units.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
-By Eric Morath, Dow Jones Daily Bankruptcy Review; 202-862-9279; eric.morath@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/nae/al?rnd=GkIz17osQJufzhTfqirNCw%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
04-23-09 1634ET
Copyright (c) 2009 Dow Jones & Company, Inc.
So many new faces on this board now and days. Someone is finally believing the DD. lol
what is happening with the PPS?
Judge weighs LandAmerica exchange company case
By CAROL HAZARD
Published: April 17, 2009
Customers of LandAmerica 1031 Exchanges Services Inc. probably will become creditors of the bankrupt company, although the judge did not rule definitively yesterday.
Attorneys for three customers argued yesterday in U.S. Bankruptcy Court in Richmond that their clients had temporarily parked money with the exchange firm and the money was essentially held in trust and should be separate from the estate.
Judge Kevin R. Huennekens said that what troubles him is a reference in the exchange agreements that gave the exchange company the sole use, possession and control of the money.
The exchange company and its parent, Henrico County-based LandAmerica Financial Group Inc., filed for bankruptcy protection Nov. 26.
An exchange company holds proceeds from the sale of investment properties as a way for investors to defer capital gains taxes. Investors have 180 days to buy similar properties.
Records show that the exchange firm owes $419.2 million to about 450 customers. Five test cases were set up to streamline claims of fraud and breach of contract.
Huennekens said he would not rule yesterday. However, he said he expected that his decision would be consistent with what he has decided already.
Late Wednesday, he ruled that Nebraska-based Millard Refrigerated Services Inc. did not have a trust or escrow agreement with the exchange firm and the exchange funds were property of the estate.
The Millard case was considered key to the other three test cases before the court, because the $28 million in that account was held separately.
It was not held in commingled accounts, as were the three cases before the judge yesterday. In commingled accounts, money from any number of exchange customers is mixed with company money.
"I would hope that he would consider our arguments that the money was held in an escrow arrangement," said attorney Kevin J. Funk with Cantor Arkema. Funk represents Frontier Pepper's Ferry, a developer in Miami with $800,000 at stake.
He argued that the only purpose for the transaction was to do a 1041 exchange according to Internal Revenue Service regulations. Huennekens said that when he looks at the agreement he doesn't see any reference to a trust or beneficiary use.
hm it looks like all of their professional help is looking for some money out of them per the dockets. big money it looks like
IHub prolly owns quarter or more of LFGRQ. That is probably true Grumm.
For some reason I think it wont go past .085. I dont know if its ready too
I couldnt agree more arnold
It seems we lost the steam.
Wait till after lunch time and I believe it will fly past resistance
LandAmerica Financial Group, Inc. Gets $10 Million Offer For Home Warranty Units-DJ
Thursday, 9 Apr 2009 03:41pm EDT
Dow Jones reported that LandAmerica Financial Group, Inc. is seeking court permission to sell off its home warranty and property inspection subsidiaries for $10 million. The Glen Allen, Va., company, reached a deal to sell four subsidiaries, including LandAmerica Home Warranty Co., to Buyers Protection Group Inc., pending a bankruptcy auction.
I agree. this is not staying at .078 much longer
Bust through .08 and were in business!!!!!!
Ask at .078
I feel sorry for people who sold....
I agree! Great buy volume!
Short Interest Mar 31, 2009 739,631 +0.08%
All I can say is GO LFGRQ!!!
What's the buy volume Arnold ? Something has to be going on that we don't k ow about or grumm is trying to buy all of them haha
strong buy volume
LFGRQ Subsidary Home Warranty Stock shall total $10,000,000 in cash (the “Purchase Price”) subject to adjustment as set forth
below.
Yes, I meant your estimated payout date Grumm?
How long do you estimate till a decision is made?