Spokane Journal of Business

Last Metropolitan Mortgage payments could come this year

Court ruling strikes blow to remaining asset value

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Investors who lost tens of millions of dollars when Spokane-based Metropolitan Mortgage & Securities Co. and affiliate Summit Securities Inc. shut down about 14 years ago could receive a final distribution late this year from trusts set up to recoup some of that money.

Maggie Lyons, trustee for the Metropolitan Creditors’ Trust and Summit Creditors’ Trust, which were established to liquidate the companies’ numerous and widely scattered assets, says she hopes to make the final cash disbursements by then.

“It’s just tragic. It makes me sick,” Lyons says, referring to the large number of elderly investors who have died waiting to recover some of their lost money, leaving heirs as the recipients of the final payments.

“It needs to come to an end,” she says.

Lyons informed investors in an update letter sent last month that a final payment could be coming late this year. She also told them that the last distribution unfortunately could be much smaller than she had hoped due to an adverse ruling involving a 367-acre proposed residential development property in Brea, Calif.

That property, which former Metropolitan affiliate Old Standard Life Insurance Co. had owned, has been the single largest remaining real estate asset for the beneficiaries of both trusts. Its potential recovery value was estimated at one time to be more than $40 million.

To date, seven distributions totaling $110.9 million have been made to Metropolitan investors, and six distributions totaling $25 million have been made to Summit investors. 

That equates to an overall recovery of about 30.7 percent for each dollar of allowed claim filed in the Metropolitan bankruptcy and 16.6 percent for each dollar of claim filed in the Summit bankruptcy, Lyons says.

In her latest letter to investors, she estimates final distribution payments will be equal to an additional 5 percent for Metropolitan beneficiaries and 1 percent for Summit beneficiaries, although some real estate liquidations remain in flux.

In several interviews with the Journal over the years, she has expressed sadness about the amount of time it has taken to liquidate the companies’ assets. She said the creditor pool has grown in size as heirs have inherited ownership positions in the trusts. In all, the two trusts have disbursed money to more than 12,000 beneficiaries.

Lyons has noted in the past that the distributions don’t include tens of millions of dollars’ worth of preferred stock that was wiped out when the companies collapsed.

The trusts made their most recent distributions to investors in September 2016. Those distributions included a total of $9.6 million for Metropolitan beneficiaries and $800,000 for Summit beneficiaries.

Lyons said most of the proceeds for that distribution came from the sale in 2015 of properties held by OSLIC Holdings LLC, a company created and owned by the trusts. The assets and liabilities of former Metropolitan affiliate Old Standard Life Insurance Co. were transferred to OSLIC Holdings in November 2014. OSLIC Holdings, on behalf of the trusts, also is the appellant in the Brea, Calif., legal battle.

In 2015, a U.S. Bankruptcy Court judge here approved a second five-year extension of the two trusts based on the potential for recovering what then was estimated at close to an additional $60 million through remaining property sales.

Liquidation of the big property in California has been stymied by legal wrangling, also involving OSLIC Holdings, acting on behalf of the trusts. Four years ago, several environmental groups filed a lawsuit seeking to block the executive-home residential development there that the city of Brea had approved. Opponents of the project prevailed in a 2015 trial court ruling, stalling the project and the trusts’ liquidation of the land, but OSLIC Holdings appealed the ruling.

In Lyons’ latest letter to investors, she said, “We are greatly disappointed to report that the Court of Appeals found that the City of Brea abused its discretion in approving the development because of conflicts with the city’s General Plan’s woodlands policy.”

She added, “In doing so, the Court relied on a single issue—the development’s conflict with the woodlands policy—and ruled that the native oak and walnut trees to be cut down during construction of the homes could not be adequately replaced, even though the replanting and replacement of the native specimen trees was clearly provided for in the development plan.”

The California Supreme Court recently denied a petition by the trusts to review the appellate court decision.

“The value of the Brea Property (as development property) was critical for enhancing further investor recoveries,” she wrote in the letter to investors, adding, “The Trusts will need to market and sell the Brea Property to private individuals or as conservation property with an expected value that will be substantially less than we had hoped.”

On the brighter side, she said in an interview earlier this month, the strength of the real estate market in recent years has been a relief.

“We’ve had a lot of success because the market has gone so much better. We’ve had some really good recoveries,” she says.

The trusts are continuing to liquidate a handful of other, smaller real estate assets at favorable prices compared to a few years ago, she says, but that shouldn’t interfere with the final distribution.

Many investors had their life savings slashed and hundreds of employees lost their jobs when the estimated $2 billion-plus Metropolitan conglomerate, widely regarded here for many years as a safe and conservative investment overseer, collapsed.

Its demise, which included vacating its 178,000-square-foot, 18-story flagship building at 601 W. First, was a precursor to the subprime mortgage-kindled financial industry crisis that swept the country soon thereafter in the new century’s first decade.

A lot of investors laid the heaviest blame for the corporate failure on former Chairman and CEO C. Paul Sandifur Jr., who spearheaded a sizable expansion of the company that his father founded here in the 1950s.

The numerous scattered real estate holdings of Metropolitan, Summit, and affiliate companies ranged at one time from 23 acres of light-industrial-zoned land in Airway Heights and early 100 acres of commercial land in Everett, Wash., to a ranch in Montana, a castle in Phoenix, prime development property in Hawaii, and 10 acres of freeway frontage in Granbury, Texas, near Fort Worth.

It also formerly owned and hoped to develop the 78-acre Kendall Yards property northeast of downtown Spokane, which it referred to as the Summit site.

The Metropolitan and Summit trusts were established following a bankruptcy plan confirmation in early 2006. 

The trusts originally were scheduled to be terminated in February 2011, but that was based on the assumption that all significant assets would be liquidated by then, which proved to be overly optimistic.

Kim Crompton
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