Checks still in the mail for some of company’s creditors

By Sean F. Driscoll

BusinessRockford.com

Although the bankruptcy of Commercial Mortgage & Finance has frozen the investments of more than 1,200 investors, a select few have continued to receive monthly checks from the company.

Three dozen creditors, all of whom bought mortgage participations from the company, have received checks totaling more than $51,000 in the past four months, according to reports filed with the bankruptcy court. Some individuals got checks for as little as $10, while others received more than $2,000 a month.

The mortgage participations are direct investments in loans made by Commercial Mortgage to property owners. When the borrowers made payments, the investors got their share of the payment.

That practice continued after the company filed for bankruptcy Oct. 8, Commercial Mortgage attorney Gregory Jordan said.

“It was a conscious decision,” he said. “In the event we were wrong by paying them, we’d have an opportunity to get the money back. In the event it’s wrong not to pay them, then we’d get sued, and it would cost us more to defend ourselves.”

Brad Koch, attorney for the creditors committee in the bankruptcy case, said he’s unsure why the company continued to make those payments. The mortgage participation agreements used by the company haven’t given him much insight.

“There needs to be some guidance from the bankruptcy court as to the debtor’s obligations under those agreements,” he said. “The document is unique. In some respects, it’s clear as mud.”

The majority of Commercial Mortgage’s creditors bought promissory notes, which were general investments in the company and offered on six- or nine-month terms.

Within the week, Jordan said, he’ll ask the bankruptcy court to determine whether the owners of a mortgage participation are unsecured creditors, like those who bought promissory notes, or whether they have a security interest in the loans and should continue to be paid.

If they’re unsecured creditors, they may have to return the funds they’ve been paid, or it will be credited against their settlement from the company, Jordan said.

Joseph Chastain, who invested in a mortgage participation two years ago, said the monthly check has been giving him and his wife a cushion he wouldn’t have otherwise.

“(The mortgage) was supposed to mature in June, so I don’t know what the situation will be there,” he said. “That’s all we have set aside, and we’re both 80 years old. It’s a concern, but it’s not a life-or-death matter.”

James Larson, president of the committee that’s charged with representing the creditors in the case, said although some people are getting payments while many others wait for their money, it’s not a matter of preferential treatment.

“‘Fair’ is never a good question on this stuff. It’s all legalities,” he said.

Commercial Mortgage & Finance Co. does not own CMF Insurance Agency of Rockford.

Reach staff writer Sean F. Driscoll at 815-987-1346 or sdriscoll@rrstar.com.

Attorney requests liquidation plan extension
Gregory Jordan, the attorney for Commercial Mortgage & Finance, has requested a one-month extension of the deadline for the company to file a liquidation plan with the bankruptcy court.

The plan is due Friday, the same day the creditors committee will meet to review the current draft of the plan and accompanying financial information. Jordan said the meeting’s timing requires a delay, but the committee’s attorney, Brad Koch, said it may be a moot point.

“I expect there will be a plan filed shortly after (Friday),” he said. “There’s been significant progress in the negotiations between the debtor and the creditors committee, and I’m confident the way things stand now that we’ll reach an agreement on liquidation.”

A hearing on the delay request is scheduled for Wednesday.