Sewer services for parts of Tuscaloosa County that rely upon anAlabama One financed sewage treatment plant moved a bit closer tostability on May 11 when the U.S. bankruptcy court formallyappointed a trustee to oversee the facility.

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The $613 million Tuscaloosa, Ala., based credit union has beenpartially responsible for managing the sewage treatment plant ever since October 2014when its owner and one of the cooperative's largest debtors, DannyRay Butler, filed for bankruptcy after going to prison for fraudand check kiting.

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According to court records, AlabamaOne holds a $7.1 million note for the facility.

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U.S. Bankruptcy Judge Jennifer Henderson made it clear in theorder that she had already appointed Peter Colmer of the Atlantabased corporate advisory firm of Finley, Colmer and Company to bethe trustee over the facility. That was official on March 26through an oral order at Alabama One's request so that Colmer couldstart work immediately. However, the court never received thewritten order from the cooperative, so Henderson filed a writtenorder on May 11.

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Henderson's order cleared the way for the credit union to applyto regulators for permission to make a loan to the company to covernecessary fees, turn the power back on and begin making repairs tobring the facility back online. However, the counsel for the U.S.Bankruptcy Administrator, Joe Bulgarella, filed a motion to dismissthe bankruptcy proceeding because Alabama One has not fundedColmer's work as trustee.

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Ray Ward, an attorney with Ray, Oliver and Ward in Tuscaloosaand the attorney for the Tuscaloosa County School Board, stressedthat the school board is not a party to the bankruptcy proceedingbut remains highly interested.

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“I have a client who is being really damaged by the lack ofprogress in this proceeding,” Ward said. “They have to pay to havethe waste water trucked away at quite a considerable expense.”

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Meanwhile, Ward said, the schools have students and teachers inthem until May 22.

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Neither Mike Hall, Alabama One's bankruptcy attorney, nor anyoneat the credit union said when the cooperative might pay Colmer'sfees or whether the ACUA will approve an additional $125,000loan.

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Robert Reynolds, a lawyer with the Tuscaloosa firm of Reynolds,Reynolds and Little and outside counsel to the ACUA, suggested theagency would be open to approving such a loan as long as a trusteewas in place and the money was not going to Butler. But otherlegal sources questioned whether such a loan wouldn't still violatethe agency's cease and desist order that currently bars Alabama Onefrom making further loans to Butler.

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Read more: Alabama One's eight-year history with the sewageplant …

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Alabama One and the water treatment facility have a history thatgoes back to beyond the facility's founding in 2008, according tocounty court records.

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The records show Butler purchased the property that would oneday host the facility in 2005 from FALPECK LLC, a property holdingcompany formed by Charles “Tab” Swann, an executive with WestAlabama Bank and Trust, and another West Alabama executive, KarlKeller. Swann would later play a key role in the fraudulent SBAloan on the Foster's Grocery Store project that would later sendButler to prison.

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The transactions were a good deal for Swann and Keller.According to county records, FALPECK purchased the property fromits previous owners for $1,000 per acre, or roughly $175,000, inNovember 2002. FALPECK took out a mortgage on it for $200,000 withMerchants and Farmers Bank, the predecessor to West Alabama Bankand Trust, where Swann and Keller worked at the time. Thepartnership sold it to Butler in 2004 for roughly $3,400 an acrefor a total of $650,000.

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Butler financed the initial purchase himself, but then AlabamaOne rolled the land into a mortgage package with Butler's homeproperty in 2005 for a total of $2.6 million. Then, beginning in2005, the credit union refinanced the loan or added additionalloans 10 times until 2009, when the total indebtedness stood atmore than $10.5 million.

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County records show that none of the subsequent refinances oradditional loans to Butler on the property ever satisfied theoriginal FALPECK loan, which was not repaid in full until 2012.

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According to county records, the bulk of loan modifications toincrease the loan limit began in 2008, when Butler formed theFosters Water Treatment LLC.

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An appraisal conducted at the request of Alabama One's (then theCredit Union of Alabama) Tammy Ewing estimated the worth ofthe property with a sewage treatment plant on it (although therewas no sewage treatment plant yet built) at $9.125million.

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The March 31, 2009 appraisal, conducted by Mary Jane Watson ofTuscaloosa firm Green and Company, carried the conditions that theplant be built with two sewer lines and that a 50-acre commercialpark and 162 acre residential development would also be added.

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Neither the commercial nor the residential development ever madeit to the planning stages, according to Paige Howard, Butler'sfiancé, who holds his power of attorney while he isincarcerated.

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“It's essentially an appraisal of $9.125 million on a bunch ofthen largely empty acres,” Howard observed.

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Watson also estimated the cost of building the plant at roughly$4.1 million. Howard said that figure could be accurate becauseButler told her it took about $5 million to complete the plant oncethe company added an 11-mile pipe to the high school.

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“It's not like this was a proper business loan,” Howardreported. “There weren't regular draws that Danny made or anybodyasked how he was spending the money. They made him the loan andsaid go build the plant.”

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