Regulators Liquidating S&L;’s Smorgasbord of Assets
As one group of federal regulators refunds a record $1.35 billion to depositors of two closed Orange County savings and loans, another team is being assembled to sell off assets ranging from an ethanol plant in Nebraska to vacant houses in Alaska.
Proceeds from the asset sales will lessen the damage caused by the thrift closings to the Federal Savings and Loan Insurance Corp., the federal fund that insures S&L; deposits. The record pay-out will wipe out 40% of the fund’s $3-billion balance.
The liquidation process could last four years or more as regulators unravel the complicated business dealings of American Diversified Savings Bank and work out collections on slow-paying loans and sell foreclosed real estate at North America Savings & Loan.
The two S&Ls; had been seized by regulators more than a year ago--American Diversified in 1986 and North America in 1987--but they had remained in operation under the supervision of managers installed by the government.
Completing Liquidation
The hired managers decided last summer to start liquidating the S&Ls;, and federal regulators are completing that process following Monday’s closing of the two institutions.
“Our job is to maximize the amount of the assets to return to creditors,” said Don Crocker, director of operations for FSLIC’s Western region.
“Obviously, when you have a large and complicated inventory, you don’t sell everything in the first year at fire sale prices,” Crocker said. “You lease out properties and you fix up properties to enhance the value.”
But some private investors see an unusual opportunity to buy real estate at bargain prices.
“These are fire sales,” said John Kelson, a private Los Angeles investor who said he plans to take a close look at the S&L; assets. “The properties can go for as low as 10% to 30% of real market value.”
Liens Cleared Up
One advantage of buying distressed real estate from a federal agency, he said, is that property liens and other legal problems generally have been cleared up.
Indeed, at American Diversified, managers have devoted most of their time to documenting ownership rights and clearing up title problems on numerous properties, said Thomas J. Haupert, who was hired as president in August, 1986, by regulators.
An army of lawyers from the San Francisco law firm of Pettit & Martin has helped to straighten out records--as well as to battle the S&L;’s ousted chairman, Ranbir S. Sahni, in court.
A series of civil actions both against and by Sahni have helped to boost the S&L;’s legal bills to $11.5 million, Haupert said. Sahni claims the fees are $15 million. Either way, regulators acknowledge that the fees are the highest ever paid to outside law firms representing a failed S&L.;
American Diversified’s complex business operations included investments in more than 120 residential and commercial properties. The thrift also invested in some of the 52 real estate limited partnerships it managed, in energy-related ventures such as wind farms and ethanol plants and in high-technology operations including a national paging network and a cable television system for its apartment complexes in 22 states.
Assets of $509.9 Million
Though the S&L; sold the cable and paging systems and many of the properties, it still had assets totaling $509.9 million when it was closed Monday. Its liabilities were $1.1 billion, regulators said. FSLIC estimates that it will cost the insurance fund $798 million to pay off depositors and liquidate the S&L.;
Haupert and the American Diversified employees who worked with the S&L;’s assets will be hired by FSLIC, Crocker said. Haupert will act as a consultant and join the boards of two American Diversified subsidiaries that own and manage the S&L;’s real estate interests. In addition, S&L; employees working at the sites of various projects, like the wind farm in Northern California, will be retained. Crocker could not say how many employees would be hired.
Employees who solicited certificates of deposits or were otherwise involved in the savings side of the business will be laid off as refunds to depositors are completed in the next few weeks.
The situation at North America is not as certain. FSLIC officials could not say what would happen to the institution, which they relocated last fall to the same Costa Mesa office building that also houses American Diversified.
Much Less Complex
North America’s operations were much less complex. In a federal lawsuit, regulators accuse its former owner, the late Duayne D. Christensen, and others of stealing $43 million from the S&L.; The alleged fraud, combined with inflated real estate values on property it owned and $27 million in delinquent or defaulted mortgages in Alaska, sunk the S&L.;
North America, which was headquartered in Santa Ana before regulators seized it, had only $98 million in assets but $215.6 million in liabilities, regulators said. FSLIC expects North America’s liquidation, including payoffs to depositors, to reach $133 million.
