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NCUA granted stay in HeritageWest lawsuit
SALT LAKE CITY (7/22/10)--A U.S. District judge in Utah has granted a 90-day stay to the National Credit Union Administration (NCUA) in a lawsuit filed last year by 32 investors in a Castle Stone Homes real estate development project for which the now defunct HeritageWest FCU, Toole, Utah, provided financing. In his ruling Monday, U.S. District Judge Ted Stewart for the District of Utah (Central) said, "The court finds that there is no time limit for the liquidating agent to request such a stay and that upon such a request a court shall grant it as to all parties." As liquidating agent of the credit union, NCUA earlier had received permission to become a substitute for the defunct credit union in the case on March 19, a year after the suit was filed against HeritageWest. Plaintiffs opposed the stay because the request had been brought six months after NCUA assumed control of the credit union on Dec. 31, and because "it is inappropriate" because NCUA "is pursuing litigation." NCUA argued that it has not pursued litigation although a party who purchased assets has, that the Federal Credit Union Act does not provide a time limit for invoking the stay provision, and that the stay should apply to all parties although it would not object to the ruling on pending motions before the stay is imposed. Several suits have been filed over the troubled Castle Stone Homes development in the Salt Lake City area. Plaintiffs allege the development was a get-rich-quick investment scheme financed by the HeritageWest. According to the complaint filed by the investors on March 19, 2009, Castle Stone solicited investors between 2005 and 2007, promising low risk investments secured by tangible property. Castle Stone partnered with the credit union to extend a financial package for constructing houses built, marketed and sold by Castle Stone. However, 14 to 24 months after construction began, the scheme unraveled, said the complaint document. Castle Stone exhausted the construction loans on most of the homes that were only 50% to 75% completed. The credit union and Castle Home negotiated a deal to offer additional loans to investors to finish the homes without reliable appraisals showing the value of the homes supported the loan amounts. The suit claims that the developers and the credit union pressured investors into additional losses of $100,000 to $150,000 per home. The credit union foreclosed on some homes, with some borrowers repurchasing the homes at significant discounts during the short sales. NCUA has challenged the short sales in court. The credit union lost more than $29.3 million during the two years before its liquidation.


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