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Business Observer Thursday, May 21, 2009 11 years ago

FIghting Back

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One of the largest Gulf Coast-based banks is taking a parade of developers to court in an effort to get back millions of dollars in unpaid loans. The moves have become an essential recession survival strategy.
by: Mark Gordon Managing Editor

One of the largest Gulf Coast-based banks is taking a parade of developers to court in an effort to get back millions of dollars in unpaid loans. The moves have become an essential recession survival strategy.


The Gulf Coast development boom-and-bust cycle is spinning into the court phase.

And Mike Miller, a Venice-based developer who's company rode the boom to more than $120 million in annual revenues through 2006, is witnessing that up close and personal: Miller and his firm, the Waterford Cos., were on the losing end of a $25 million mortgage foreclosure judgment handed down by a Sarasota County judge May 14.

The $19.1 million loan, plus more than $5 million in interest and fees, was for a Wal Mart-anchored project in Venice that failed to come together. Naples-based Orion Bank won the foreclosure suit against Miller.

Miller and his attorney argued that the judgment should have been denied — partially because Waterford and Miller were victims of the souring national and regional economy and partially because the city of Venice took too long to approve the project, according to court records. Miller's Venice-based attorney, Jon Preiksat, declined to elaborate on the defense he presented in court filings.

Besides the ramifications to Miller and his company, the judgment brings to the forefront a strategy undertaken by Orion, the second largest Gulf Coast bank in assets with $2.86 billion in 2008. The bank is using its moxie, heft and resources to go after borrowers that haven't been paying back loans.

Bank officials declined to categorize its strategy as unusually aggressive, instead calling it a case-specific response to getting back the money it has loaned.

“Taking a case to legal action is the least desirable course of resolution,” says Jon Smith, an Orion senior vice president. “However, occasionally it takes a judge's ruling to remind a small percentage of borrowers to live up to their agreement to repay.”

Smith commented on the bank's strategy in written answers to Review questions, but he and other Orion officials declined to comment on specific borrowers or court cases, citing bank policy.

Orion isn't the only Gulf Coast bank heading to the courts to recover non-paid loans and assets as the recession lingers. Dockets from Hillsborough to Collier are littered with similar cases of potential defaults. The mortgage default caseload in the 12th
Judicial Circuit in Sarasota and Manatee counties, for instance, contains a broad mix of community banks and national powers that are going after borrowers.

But Orion, partially because of its size and geographic scope — it has 22 branches from Sarasota to the East Coast to the Keys — is especially getting tough, some area community bankers say. Founded in 1977, the bank's rise to prominence has long been considered one of the best success stories in community banking.

There is also another reason Orion could be pursing an aggressive loan recouping strategy: Like most banks, the firm's financials leave little room for error.

Orion's noncurrent loans on the books grew 116% last year, from $91.6 million in 2007 to $197.9 million in 2008, according to Federal Deposit Insurance Corp. data. Plus, its noncurrent loans to current loans ratio more than doubled, from 4.48% in 2007 to 9.74% last year.

The bank's strategy, therefore, goes beyond getting back the land borrowers put up as collateral in some of these deals. Orion is also targeting the full repayment of the loan. Other Gulf Coast and national banks seem to be taking that approach to failed projects as well.

“Simply put, Orion is in the banking business, as opposed to the real estate businesses,” says Smith. “Like any bank, Orion relies on the repayment of loans in order to continue to make new loans.”

Orion hired Miami-based attorney Paul Friedman to pursue the Miller case and at least one other large alleged mortgage default. Friedman declined to comment on the Miller judgment or any others he is arguing in court for Orion.

Miller, however, deflected some of the responsibility in his case. He says blame should fall on the Venice City Commission, which he called “pitiful” for its 10-month delay in approving the Wal-Mart project. That delay, from November 2007 to August 2008, caused Wal-Mart to drop out. The recession took care of the rest.

“We got left holding the bag,” says Miller, a one-time runner up for the Review's Entrepreneur of the Year award. “The bank couldn't sit on us and wait forever.”
While Miller says he has no plans to appeal the judgment, he might not be on the hook for the total $25 million. The land is scheduled to be sold at an auction next month and the proceeds Orion takes in from that sale could cushion Miller's ultimate payment.

Up next for Orion: It's going after a consortium of borrowers that includes several well-known Sarasota attorneys, doctors and businessmen that have allegedly failed to repay the bank on a $32 million loan. The note is for a 1,500-acre home development in South Sarasota County.

The crux of those allegations, against an LLC listed in court records as the Villages of Manasota Beach and more than 20 co-defendants, are similar to the ones alleged against Miller: Borrowers who haven't paid back loans on a project that, so far, has been done in by the recession.

The suit is currently in the discovery phase and a judgment could be handed down by next month.

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