The Superior, Wis.-based credit union alleged that Norlarco Credit Union of Ft. Collins, Colo., failed to disclose that 45 of the 112 loans it sold to Superior Choice were for the construction of investment properties-rather than owner-occupied-which represented a greater potential financial risk.
The suit was filed last week in U.S. District Court in Denver.
The NCUA already paid Superior almost $700,000, but the credit union is seeking the additional money because it has about $10 million in additional bad loans.
In 2005, Noralco asked Superior Choice to participate in the loans, but Superior Choice alleges that Norlarco failed to disclose the existence of an agreement that would leave Superior holding bad debt if the borrowers defaulted. State and federal regulators seized Norlarco in July 2007 when mortgage defaults on the properties escalated. The NCUA eventually liquidated Norlarco.
There were three credit union failures as a result of bad real estate deals: Norlarco, Huron River Area Credit Union of Ann Arbor, Mich., and New Horizons Community Federal Credit Union in Denver.
Norlarco funded over 1,000 homes in Lee County, Fla., in Lehigh Acres and Cape Coral for a total of $238.4 million.
NCUA declined to comment on the lawsuit.
Rhode Island CU Conversion Proposal Unopposed
Bill White, CEO of the $304 million Coastway Credit Union, said the credit union has faced no organized opposition among its members to its proposed conversion to a mutual bank. The credit union has argued in favor of the change in order to expand its business lending.
White made his comments in March 10 article in The Warwick Beacon. The credit union is headquartered in nearby Cranston, R.I.
The credit union, already a recognized business lender in the community, stands ready to make more business loans, but is currently bound by the 12.25% of its assets, according to White. As of the end of 2008, the credit union's Call Report shows Coastway had 379 business loans, worth roughly $36.4 million.
Members will receive ballots to vote on the conversion in the last round of disclosure notifications and the CU has scheduled the member meeting on the conversion proposal for April 29.
White did not disclose his compensation in the article but denied that it would change under the new corporate structure. He also said the board members, who are already paid $500 per month for their service on the board, would not make any more as board members of the bank.
He also denied that if the credit union became a bank it would issue stock after the conversion.
"[W]e will not sell stock. It is not part of our business plan to the FDIC [that must approve the conversion and will insure deposits up to $250,000]. We will not become a publicly traded company," the paper quoted him as saying.