A small New York bank has paid $65 million to settle warehouse lender litigation over the fraudulent activity of a now defunct mortgage lender.
State Bancorp Inc. announced that it agreed to pay $65 million to warehouse lender HSA Residential Mortgage Services to settle litigation involving Island Mortgage Network.
HSA had accused the New Hyde Park, N.Y.-based company of helping conceal financial problems at Island, a defunct warehouse lender that collapsed due to misappropriation of loan funding proceeds.
State “reluctantly determined that the time, cost, distraction and significant uncertainty in pursuing an appeal necessitated its efforts to settle the dispute in a manner as favorable to the company as the circumstances appeared to allow,” State said in the announcement.
Last June, State acquired $20 million through a line of credit and a private subordinated note offering to improve its capital ratios that were affected by a $74.2 judgment against it after a jury voted in favor of HSA.
Following a fourth quarter review of its alternatives, State initiated settlement discussions in December with HSA and came to the settlement agreement last Wednesday, according to the announcement.
The final settlement resulted in a net credit of $6.2 million in 2006 — compared to Island-related expenses of $82.8 million in the previous year — and helped boost overall annual net income to $11.5 million versus a loss of $36.5 million recorded in 2005.
With the “very successful” recapitalization efforts, the final settlement of the litigation, and the addition of Tom O’Brien as president and chief operating officer, State “is now well positioned to focus its energy and resources on long-term growth and profitability,” said Thomas F. Goldrick Jr., State chairman and chief executive, in the announcement.
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