The $390 million Nassau Financial Federal Credit Union is suing the National Credit Union Administration for nearly $1 million for allegedly violating an agreement to settle defaulted taxi medallion loans for a mere fraction of what they were worth.
The NCUA said it plans to ask a federal judge to dismiss the lawsuit, saying the court lacks jurisdiction to adjudicate the dispute because breach of contract claims are only subject to judicial review. under the Administrative Procedures Act. Although Nassau Financial, based in East Meadows, New York, filed an administrative appeal, it was denied by the NCUA board last November.
According to the credit union’s lawsuit in the U.S. District Court for the Eastern District of New York in Brooklyn, it signed a loan participation agreement with LOMTO Federal Credit Union and received a 90% equity interest in five of the 19 loans LOMTO made to real estate investor and borrower Adrian Tudor. The loans were secured by taxi medallions from the city of Chicago. However, the value of the taxi medallions has dropped significantly due to ride-sharing competitors resulting in millions in losses for the $156 million FCU LOMTO, which was liquidated by the NCUA in 2018.
Starting in 2015, Tudor missed loan repayments. That year, LOMTO posted losses of over $13 million and continued to post losses of $18 million in 2016, $51 million in 2017 and $16 million in 2018, according to reports. financial performance of NCUA.
Following extensive litigation, all LOMTO loan participants agreed in May 2019 to restructure the Tudor loans with additional commercial property collateral. But when Tudor defaulted on the restructured loans, the NCUA, as liquidating agent, began foreclosure proceedings on the commercial properties. In December 2020, the NCUA, which was also acting as loan agent, agreed to a negotiated settlement.
According to Nassau’s lawsuit, the NCUA accepted a payment of “just $3.5 million,” an amount representing what the credit union described as a “mere fraction” of the $30.6 million of the outstanding debt of Tudor loans. Additionally, according to Nassau Financial, the NCUA allowed the Tudors’ new lender, which was funding the settlement, to keep $1 million as a purported interest reserve rather than requiring that $1 million be paid to the NCUA and to loan participants.
Nassau Financial alleges that the NCUA violated the terms of the loan participation agreement by failing to provide the credit union with critical financial information and analysis and obtain its consent required to finalize the settlement agreement reached by Nassau Financial. the federal agency with Tudor. Further, the NCUA did not provide Nassau with a copy of the settlement agreement until one month after its consummation and execution and only after a request for a settlement agreement was made by Nassau’s attorney. Financial.
However, in November 2020, a month before the NCUA would accept the settlement, the federal agency forwarded its proposed terms to Nassau Financial, which it objected to in part because previous efforts to market the real estate portion of the guarantee of the Tudors were insufficient. Additionally, the proposed terms of the agreement did not assign any value to the portion of the guarantee that included 105 taxi medallions. The credit union also alleges that the federal agency “wrongfully abandoned” the previously initiated foreclosure sale process regarding the medallions.
The NCUA countered in its court papers that despite aggressive public marketing, offers received for guaranteed Tudor properties in mid-2020 were well below previous projections and valuations.
“On December 2, 2020, rather than risk further losses from the economic collapse during the pandemic, the liquidating agent (NCUA) as lending agent, finally agreed to the negotiated settlement with Tudor which generated higher recoveries for all participants, including Nassau. , than any other then feasible alternative,” wrote an attorney for the U.S. Attorney’s Office for the Eastern District of New York, which represents the NCUA.
Although the NCUA acknowledged Nassau Financial’s objections to the settlement agreement, the federal agency noted that the credit union offered no viable alternative. The majority of the other loan participants have accepted the terms of the agreement, according to the NCUA.
The NCUA presented a check to Nassau Financial for $680,666, representing approximately 20% of the credit union’s stake in the $3.5 million settlement, less Nassau’s alleged share of expenses which was $712,123 $, depending on the lawsuit.
Nassau Financial, which wants its case heard by a jury, said it suffered damages of more than $968,000, which is the difference between the reasonable value of the credit union’s stake in the Tudor loans and in the guarantee of at least $1.68 million. , minus the expense share of $712,123.
U.S. District Court Judge Rachel P. Kovner has asked the NCUA to file its motion to dismiss the case in May, at which time Nassau Financial will have an opportunity to respond to that motion by June.