Mortage Loan Acquisition ( Southwestern States )

In the fall of 2007, a large mortgage loan originator based in the Southwestern United States failed abruptly as a result of their lender’s refusal to continue to fund the business (pulling their warehouse lines of credit). Initially, Summit partnered with a national bank to provide Debtor in Possession (DIP) financing to the company. Together, Summit and its lending partner proposed a $15 million credit facility to be secured by two pools of assets—16 residential construction loans in various stages of completion and a pool of 33 REO (real estate owned) homes—as well as several other unencumbered pools of loans. Despite having the support of all constituencies, the bankruptcy court rejected the DIP offer. Faced with the prospect of Chapter 7 liquidation, the debtor ultimately agreed to sell to Summit the pool of 16 residential construction loans totaling $9.6 million and the pool of 33 residential homes totaling $6 million through a bankruptcy section 363 sale. As of September 2008, Summit had resolved or refinanced 60% of the acquired assets.