|GMAC Stung by Bankruptcy
Loan Giant bankruptcy result of controversial refinances
October 24, 2005
|A controversial loan program that presented purchase mortgages as refinances has landed a Michigan mortgage company in bankruptcy court — leaving GMAC as its biggest unsecured creditor.Michigan-based World Wide Financial Services, which does business as mortgage lender LoanGiant.com, recently filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Detroit. The company is facing some giant debt and was accused of fraud last year by state regulators.
In its bankruptcy filing, LoanGiant reported assets of $1 million to $10 million and debts of $10 million to $50 million. The company’s list of unsecured creditors includes $21.7 million owed to GMAC/Residential Funding, which is embroiled in a legal battle with LoanGiant.
The amount owed to the company 20 largest unsecured lenders totals $28.5 million, according to the court filing.
LoanGiant could not be reached for comment. It’s Web site has basically gone dark to the public with only employees and affiliates able to log on with a company-provided access code.
Chapter 11 bankruptcy allows a company to reorganize itself and restructure its debts.
“A bankrupt company…might use Chapter 11 of the Bankruptcy Code to ‘reorganize’ its business and try to become profitable again,” according to the U.S. Securities and Exchange Commission Web site. “Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court.”
LoanGiant was stung last year when the Michigan Office of Financial and Insurance Services accused the company of fraud. According to a statement from regulators LoanGiant falsely submitted purchase transactions as refinances, used fraudulent documents in loan packages and failed to maintain adequate records so that the state could confirm compliance.
The state issued a Cease and Desist order against the company in September 2004, claiming that CEO Jack Wolfe authorized “phantom loans” with the intention of not funding the transactions.
LoanGiant was also accused of deleting some application information “in an attempt to avoid regulatory scrutiny of the improper actions,” according to the statement.
Wolfe signed the bankruptcy filing.
GMAC filed suit against the company in Minnesota. LoanGiant allegedly used phony information and inflated property values on loans it sold to GMAC. In the bankruptcy filing LoanGiant indicates the $21.7 million it owes to GMAC is for a “claim for loan repurchase.”
GMAC is the largest unsecured creditor. Other creditors, and the amount each is owed, include IndyMac Bank ($1.5 million), Washington Mutual Bank ($1.3 million), First Collateral Services Inc. ($975,325), Universal Property Development & Acquisition ($300,000), GE Commercial Finance Business ($250,000), and Carlton Financial Corp. ($219,711).
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