What in the Hell Happened To LandAmerica?
I guarantee you even a n00b forensic accountant could sniff this one out.
LandAmerica Financial Group (LFG) will hereby be referred to simply as LandAm or LandAmerica. They know who they are, but do you? As September rolls back around, it might be useful to take a look at some of the financial failures that haven't really been getting press. There are bodies buried everywhere, not just beneath Allen Stanford's golden toilet.
I'd love to show you LandAm's news room but sadly it's 404 (webmasters cost money, you know, and when you're in bankruptcy, it's usually not a good idea to keep up those tricky reminders of your "more lucrative" past) so let's see what skeletons lurk around the Google closet, shall we? Remember, if you're going to figure out an implosion, it helps to start from when things were at their best.
September 2003, LandAm acquires a "mortgage credit reporting provider" - well that's a win for them then, isn't it?
LandAmerica Financial Group, Inc. (NYSE:LFG), a leading provider of real estate transaction services, has acquired 100% of the stock of INFO1 Holding Company, Inc. (INFO1), the fourth largest independent mortgage credit reporting provider in the nation. The transaction was effective as of August 31, 2003.
Headquartered in Atlanta, GA, INFO1 employs state-of-the-art technology to deliver credit information products to mortgage lenders, brokers and other businesses in the mortgage industry. INFO1 reported assets in excess of $7.4 million at June 30, 2003 and gross revenues of $30.9 million for the first six months of 2003. INFO1's results are expected to be immediately accretive to LandAmerica. LandAmerica has agreed to pay approximately $47 million in cash to acquire 100% of the outstanding stock of INFO1.
"We are delighted to be joining the LandAmerica team," says Kenneth Goins, president of INFO1. "Backed by LandAmerica's rock-solid financial reputation and many resources, INFO1 can now offer our mortgage customers a top menu of real estate offerings."
Charles H. Foster, Jr., chairman and chief executive officer of LandAmerica, sees the acquisition as good for LandAmerica as well. "This is a great move for LandAmerica and INFO1, but the real winners here are our customers. This acquisition represents a key part of our strategy to expand LandAmerica's service offerings beyond title insurance. Ultimately, our goal is to provide our customers with a turn-key, one stop solution to all of their real estate transaction needs."
In 2004, LandAmerica/Info1 made a great team, bringing easy credit to the ever-expanding housing bubble. I'm sure there are some bloody footprints leading out of there somehow, isn't technology a beautiful thing?
Oh wait, here are the footprints:
LandAmerica Financial Group Inc. here, preparing for the new face of the mortgage banking industry, has made separate deals to acquire INFO1 Holding Co. Inc., an Atlanta-based mortgage credit report provider, and Lereta Corp., a national tax service and flood hazard certification provider, headquartered in Covina, Calif.If it doesn't fit, you must acquit (I learned that in sophomore year of high school, thank you very much) but it looks to me like...
In a teleconference to discuss the transactions, LandAmerica executives said part of the motivation for the deals was the ability to offer bundling of loan origination services.
Earlier that same year, LandAm looked to expand out West to bring financial innovation to a wider audience, I guess.
RICHMOND, Va., Feb. 3 /PRNewswire-FirstCall/ -- LandAmerica Financial Group, Inc. (NYSE: LFG), a leading provider of real estate transaction services, through its subsidiary Info1 Holding Company, Inc. (Info1), announces the purchase of Far West Credit in Salt Lake City, Utah, and CommCo Credit in Orange, California. With this move, LandAmerica Info1, the nation's fourth largest mortgage credit reporting company, further increases its presence in the Western United States.
"We're excited to be part of a company with an incredibly strong service ethic and market presence like LandAmerica," says [Far West Credit founder Barton] Taylor. "It's a great opportunity for Far West Credit and our customers."
Now I'm not calling LandAmerica predatory by introducing this element but it is important to point out here that we still don't know 1% of who to blame for where we are at. As far as I am concerned we are all suspects, including myself. Yeah, I had a 0% introductory balance I didn't need either and no, I didn't read the fine print at the time, I was too amazed that someone would give me credit. *cough* Capital One Financial, I'm talking to you.
Anyway, we haven't gotten to the predatory part, and someone else is going to have to sniff around down that particular bunny trail because that's not what I'm interested in. Point being, everyone is suspicious and there are bloody footprints everywhere.
Steve Sailer on "Liars Loans":
Here are excerpts from an important new paper on the causes of the Mortgage Meltdown, "Liar's Loan?" by three academic economists from Columbia, Indiana, and Yale. They obtained records on 721,767 mortgages handed out from January 2004 to February 2008 (including deliquencies up through January 2009) by a big, very aggressive national mortgage bank. The economists managed to match most of them up with ethnicity info from the Home Mortgage Disclosure Act database.Elizabeth Warren certainly sees a problem with bundling of mortgages, regardless of quality. What the fuck were you people thinking?
They don't say who the bank is (or, more likely, was) but it septupled the number of mortgages it gave out from the first half of 2004 to the second half of 2006. It gave out a lower percentage of subprime loans than the national average, but it did specialize in low-documentation (liar loans) mortgages.
The results aren't terribly surprising. Low-document (i.e., liar loans) have higher delinquency rates than full document loans, and loans originated by local mortgage brokers who sold them to the bank did worse than the loans originated by the bank itself. The model, therefore, is one of predatory securitizing from the ground up.
And can you believe they are at it again with life insurance? Some people may never learn. I don't necessarily agree with her on the implied totalitarianism of the CFPA but we'll just have to disagree on that particular point. As long as she isn't promoting the Fed as ultimate regulator, I'm okay with that.
"Financial Innovation" deserves its moment in the spotlight and as far as I can tell, LandAmerica was no guiltier than anyone else. Everyone is guilty, if you recall.
And then somewhere in the midst of Shangri-la, the shit hit the proverbial fan. (LandAm Q3 2008 results):
Commenting on LandAmerica’s performance, Chairman and Chief Executive Officer Theodore L. Chandler, Jr. said, “This quarter we are taking a market value-driven, non-cash write-down of goodwill, other intangible assets, certain investments and deferred tax assets of $462 million.”
Chandler added, “We are also further strengthening our reserves by approximately $90 million to account for adverse claims development. We continue to aggressively reduce our cost infrastructure to adjust for these exceptionally difficult real estate and credit markets and, as a result, incurred $12 million of exit and
termination charges this quarter.”
“On November 7, 2008, we signed a definitive merger agreement with Fidelity National Financial, Inc. to join the Fidelity family of companies. We believe that this combination is in the best interests of our shareholders, customers and employees and look forward to bringing the strength of our combined capabilities to the marketplace.”
Fidelity backed out (can you blame them?) after a little due diligence and ended up taking only the foie gras of LandAm's carcass; Lawyers Title Insurance Corp., Commonwealth Land Title Insurance Co., and United Capital Title Insurance Co.
In November of 2008, LandAm (with the good stuff already cleanly separated from the hot dog meat remaining) entered Chapter 11. The battle has been raging since, with LandAm executives hoping to make off with what's left hanging off the bone. There is, of course, this burning issue about the LandAmerica 1031 exchangers who lost money they claim was pooled by LandAm and invested in risky, illiquid Citigroup and SunTrust ARSs but we can get to that later.
Virginia Lawyers Group:
Richmond-based LandAmerica Financial Group Inc., the country’s third largest title insurer, is filing for Chapter 11 protection.Sure, blame the market. That's always a classy alibi.
As part of the Chapter 11 plan, the company expects to sell its two principal underwriting subsidiaries, Lawyers Title Insurance Corp. and Commonwealth Land Title Insurance Company, to Fidelity National Title Insurance Company and Chicago Title Insurance Company for $298 million.
In a press release this morning, the company said it hopes that the bankruptcy court and the Nebraska Department of Insurance, which filed petitions for rehabilitation of Lawyers Title and Commonwealth on Monday, will expedite the transaction so that it can close by the end of the year.
Theodore L. Chandler Jr., chairman and CEO of LandAmerica, said he was disappointed over the need to seek bankruptcy protection but called the proposal “the best result available in this brutal real estate, credit and capital market environment.”
Investing from the Right takes on the LandAm/Fidelity clusterfuck a tad differently:
And speaking of shame, LandAmerica, the erstwhile gold-plated Title and Land Exchange company has completely screwed thousands of 1031 tax deferred property escrow account holders waiting to exchange property through their "top rated land exchange program" by selling the profitable portions of LandAmerica to Fidelity and throwing their 1031 tax deferred exchange investors who assumed escrow funds were held in trust for immediate release (so said the company) under the bus by declaring that portion of the company insolvent and throwing it into a Chapter 11 reorganization. Clients were informed in a one page statement that the President of the company was "sorry" this happened, and referred the victims of this incredibly crafty screwing to a phone number, which repeated the letter is [sic] a Stalin-esque manner. If Congress ever wanted to investigate fraud and mismanagement of funds placed in trust, this would be it. Hundreds of millions of dollars placed in LandAmerica's 1031 tax deferred swindle are likely lost. To add insult to injury, any monies returned to the customers will receive a full tax treatment, blowing the 1031 intent.
There should be a special place in hell for politicians who will throw hundreds of billions into corporations, yet do nothing to investigate or remediate comparative injustice to smaller investors in schemes like those above.
So how does LandAm get from mortgage securitization to bankruptcy to lawsuits with SunTrust and accusations of fraud? (I remind dear reader here that SunTrust is regulated by our friends at Atlanta Fed, though I wouldn't expect to see a blog post on why the hell they didn't see a problem with SunTrust coming from a mile away any time soon):
Two class actions – one in California and one in South Carolina – were filed against various defendants, including LandAmerica and SunTrust Banks, “on behalf of individuals and entities that sought to enter into a Section 1031 tax-deferred exchange and entrusted money to facilitate the exchange with the qualified intermediary LandAmerica 1031 Exchange Services, Inc.” but who “lost their investment due to alleged misconduct by various defendants, including SunTrust, where most such funds were deposited.” In re Landamerica 1031 Exchange Serv., Inc., Internal Revenue Service § 1031 Tax Deferred Exch. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. June 12, 2009) [Slip Opn., at 1].(source)
I'm not a lawyer so I can't check that particular body for a heartbeat. Point me at a balance sheet and I'll tell you what we're working with here.
Also, LOLZ, LFG is a SELL (umm...)
Now at this point I suppose it's appropriate to disclose why I give a shit about any of this. In May of this year, Richmond Fed's Chief Legal Officer retired and they hired a former LandAmerica lawyer to replace him. I know what you're thinking. WTF, Richmond?! And Jr Deputy Accountant, shame on you, I thought you told us they were awesome over there!
I know. I haven't figured that part out yet. Richmond hasn't said a peep and I don't expect them to. LandAm is still battling this out in bankruptcy court and as of the last update, the exchangers were taking the DoJ to task over their ridiculous trustee. WTF?!
I have caught myself defending the Bank although I don't know why, somehow something feels off about this though I haven't been able to figure out what. If San Francisco Fed hired someone with Gluck's credentials, that I have reason to believe, but this doesn't make sense.
Anyway, that's where we are at. I still don't know what the hell happened to LandAmerica and I have a feeling we're barely scratching the surface. We know this much as far as official cause of death is concerned:
LandAmerica 1031 Exchange Services discontinued its 1031 exchange operations today and permanently closed it doors due to liquidity problems in its 1031 exchange investment portfolio. LandAmerica 1031 Exchange Services invested in Auction Rate Securities that became completely illiquid earlier this year. LandAmerica was unable to meet the liquidity needs of its 1031 exchange clients and was forced to permanently close its doors. Press release.
As the forum goes on to reveal, it is not the ARSs themselves that caused LandAm's untimely death but the fact that they were holding out for a Fidelity lifeline and ended up making a "poor judgment call" that may or may not go down in history as illegal. The line between a legality and a technicality is drawn, of course, in the quicksand of the financial crisis.
Bill, seems to me that LandAm (Parent-Holding Co) was to be aquired by Fidelity (11-7-08), but then the deal was dropped by Fidelity (11-21-08). Word has it when Fidelity did their due diligence, they saw these ARS investments the LandAm1031 "subsidiary" was investing their clients' Relinquished Funds into. These ARS fund's principal is safe, but their liquidity is the issue. The actual written "Exchange Agreements" LandAm1031 uses states the clients' funds: "...are deposited in an account maintained at SunTrust bank, Richmond, VA, which bears interest...." A cursory view of SunBank shows they are FDIC insured and have $171 billion in assets, which is reassuring. An average investor would think this is prudent and the funds will not be there long in a Section 1031 deal.
HOWEVER, it turns out some if not all of these "Exchange Funds" were placed and managed by the Brokerage Services of SunBank, called: "Sun Trust Robinson Humphrey," and "Smith Barney-Citi-Group." 1031 exchange clients had no control over this decision, have no ownership rights to these, nor can they even access these accounts to terminate the 1031! The question is: how did all this happen? Who made the executive decision to invest exchage funds in illiquid ARS? 1031 exchanges have "tight" identity deadlines, like 45 day ID periods. Yet, a Bankruptcy Court can "recover" or suck back a "done" 1031 deal closed 90 days BEFORE a bankrupty filing! Some clients will actually wind up "paying twice" for the same dirt + capital gains on cash they never got!
NOW, Fidelity and LandAm announce the newest "deal." It sure looks like Fidelity is going to just buy and grab the "cream" of LandAm's operations as $300 million cash cows, and then LandAm files Bankruptcy proceedings on their 1031 subsidiary, saying: "...you 1031 clients of ours are '...going under the wheels of the Bankruptcy bus" because "we" made bad decisions in $290 million ARSs. Wow! a $300 million "wash." A "Back-Door" merger without the "toxic" ARS funds. LandAm1031 clients get hosed! LandAm parent gets big cash infusion and unloads the "toxic" ARSs. This reeks of connivance or fraud! How can LandAm (Holding Co) pull this stunt getting the $300 million if the subsidiaries like LandAm1031 are controlled/owned by LandAm the "Parent?" Should not this $300 million "flow" down to the LandAm 1031 clients?
Well wait a minute now, the IRS may be able to help. It's only right:
Customers of the bankrupt and now-defunct LandAmerica 1031 Exchange Services Inc. could get some tax help from the Internal Revenue Service.
In letters to several congressmen and one senator, the IRS said it was working with the Treasury Department to see if the agency can "provide relief" to customers whose money is locked up in bankruptcy proceedings.
That could mean customers of the defunct LandAmerica company and other failed firms won't be forced to declare capital gains on money they never received.
Well at least there is one bright side.
I don't suppose campaign contributions are a useful variable to introduce to the equation at this point?
Richmond Times-Dispatch has a more thorough timeline of LandAm's implosion. Enjoy.
So, now that it's been summed up, what in the hell do you think happened to LandAmerica? Worse, how many more LandAms are there out there?