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The Mortgage Graveyard
Failed, closed and a c q u i r e d mortgage-related entities.

Troubles Linger After Firm's Collapse

Silver State closed in February but still owes employee wages

August 2, 2007


A defunct Las Vegas-based lender and its owners face a looming deadline from Nevada's employment commission over $319,413 in unpaid wages. The company, an apparent victim of repurchase requests, also faces a host of lawsuits from its former lenders.

Silver State Mortgage is promising to send checks for back pay that some 800 employees are owed if those former employees first sign releases relinquishing their rights to sue or disparage the company and its owners, according to the subprime lender's attorney.

"I'm sure all the employees will return them," the attorney, R. Glen Woods, told "It's their best chance to get paid.

"Those that have returned it [the release] have been paid. Since then the owners have received thank you letters and cards."

But Nevada Labor Commissioner Michael Tanchek, whose division has moved to collect some $319,413 from Silver State on behalf of 141 employees who filed complaints with the Labor Commission, told that by taking this action, "they kind of went around us."

He described Silver State's use of the form as telling former employees to "drop all your rights, without telling them what your rights are."

But he said that whether to sign or not sign the form was a choice for ex-employees to make. Any of the 141 former employees now represented by the Labor Commission who sign the form would be dropped from the division's action, he said.

Tanchek said he had issued an order against Silver State, which shut down in February, and owners Michael Stoddart and Lynn Woodruff on July 3, asking them to pay into a trust fund in his division the money owed the 141 employees for about two weeks of work for which they had not been paid.

"They have 30 days to respond after receipt, so we're looking at about August 4th," Tanchek said. "If they don't respond by then, we'll take it to court for enforcement."

A judgment against Silver State would then go to the state controller's office, which would then turn the matter over to a "contract collection agency," he explained. The money, when received either directly from Silver State and its owners or from the collection agency, would first go into a trust fund then divided among the former workers after checks have cleared.

Spokesman Brent Boynton said there had never been any investigation of Silver State by Nevada's mortgage lending division. Rather, the agency coincidentally had shown up at Silver State's main office to do its annual routine examination on the same day, February 14, the lender shut down.

"There is no consumer concern with Silver State at this time," he said. "It's primarily a labor concern with the employees being out of money when Silver State closed its doors."

This back pay issue isn't the only legal struggle Silver State and its owners are involved in. They also are defendants in three civil cases filed in U.S. District Courts in Nevada and New York by IndyMac Bank, UBS Real Estate Securities and Terwin Advisors, Terwin Warehouse Management and Terwin Mortgage Warehouse Trust II that are seeking a total of more than $20 million. All are over Silver State's refusal to repurchase mortgage loans with early payment defaults.

"I can't comment on the pending litigation," said Woods, Silver State's attorney.

IndyMac alleges in its suit that 35 of the 36 loans it purchased from Silver State did not make their first payment or failed to make timely payments in the first three months.

IndyMac is seeking reimbursement for losses of at least $1.6 million on 35 loans. UBS is seeking $14.0 million plus interest at 9 percent for its 34 early default loans. And Terwin, in its complaint, is seeking a $5.4 million judgment against Silver State plus attorney fees and other costs.

Silver State was found in default in the UBS suit after it failed to answer the complaint. Silver State also faces a default judgment in the Terwin case. But Silver State has responded to IndyMac's complaint, denying all allegations.

The three suits were filed from March 29 to May 10 of this year. And other suits could follow.

Since it shut down on February 14, Silver State-originated loans have been included in five securitizations -- two by Citigroup Mortgage Loan Trust and three by Nomura Asset Acceptance Corporation Alternative Loan Trust, according to SEC filings.

Silver State, which was founded in 1994, grew quickly and in fall 2005 it was ranked by INC magazine as one of 300 fastest growing private companies in the nation, with three-year growth of 526 percent. Described as operating in seven western and Midwestern states, Inc. said the company was growing because it had expanded from its Las Vegas base to 13 new corporate branches in "six lucrative markets, including California and Arizona."

But less than 15 months later Silver State had gone the way of many other subprime lenders, into oblivion. However, it has not filed for bankruptcy, according to SEC records.

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]
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