Last December, SouthTrust Bank of Pinellas County let Jimmy R. Caldwell walk away from a large mortgage on a rundown apartment complex in exchange for the deed and $5,000. The bank took a loss of about $70,000 on the deal.
SouthTrust President L. Eugene Oliver Jr. says it's not unusual to let a customer off the hook when the bank seems unlikely to recoup its money through legal action.
However, Caldwell wasn't just another customer. As director of the Resolution Trust Corp.'s (RTC) regional office in Tampa, Caldwell is supervising the disposal of about $13-billion in assets belonging to failed savings and loans in Florida, Puerto Rico and the Virgin Islands.
SouthTrust is a potential buyer of RTC assets.
In fact, three months after releasing Caldwell from his obligation, SouthTrust bought from the RTC a St. Petersburg branch office that had belonged to a failed thrift. Oliver said the two events were not related and that the SouthTrust officials working on the negotiations didn't know Caldwell had been a customer.
"It may have been a smart thing for the bank to do," said Ronald Goff, a bank analyst for Allen C. Ewing & Co. in Tampa. However, he said Caldwell's actions raise questions for the RTC.
"If I were a regulator, and an employee of mine became in a default position on a loan to a regulated company, it would raise some eyebrows," he said.
Caldwell, 38, has been on vacation and has not returned messages left with his office. He recently announced he intends to leave the RTC to help set up a private consulting firm, but he has not set a date for his departure.
According to RTC rules, employees should meet all their "just financial obligations." They also should avoid "direct or indirect financial interest or obligation that conflicts or appears to conflict with the employee's RTC duties and responsibilities."
They are allowed to accept loans from financial institutions "on the customary terms and conditions offered to the general public." But a pattern of default on obligations to financial institutions may become grounds for dismissal.
"We ask all our employees to keep their debts current," said Mel Edmondson, the RTC's regional ethics officer. He said Caldwell's dealings with SouthTrust do not appear to be a conflict of interest because they took place before SouthTrust bought any RTC property. "I don't see it as being a problem unless we thought there was some fraud related to us," he said. When a bank becomes an RTC customer, employees are prohibited from borrowing from it for one year, Edmondson said.
The business deal between SouthTrust and Caldwell involves a run-down, boarded-up, 18-unit apartment complex at 2185 16th Ave. S, St. Petersburg. The property, built in 1956, is carried on Pinellas County tax rolls at an assessed value of $270,700. Bank officials think it is worth considerably less and have marked down its value to $130,000 in bank records.
SouthTrust became involved with the property in 1982 when it loaned $285,000 to a buyer, ABTC Inc., a St. Petersburg corporation controlled by Matteo Apone.
The complex was one of many Apone repaired and rented to low-income tenants under a federal program that guaranteed participating landlords tenants and subsidized rents for 15 years. However, Apone was dropped from the program after being convicted of bribing a former St. Petersburg Housing Authority official.
The bank took back the property about five years ago, but without the federal program, its value was greatly diminished, Oliver said. The bank spent about $50,000 fixing up the property and rented out most of the units, he said.
Oliver said Caldwell approached SouthTrust about buying the property. In 1988, the bank agreed to sell it to him for $225,000, taking back a $202,500 mortgage. Oliver said Caldwell put down $22,500 in cash. Most of the transactions were in the name of Central Pinellas Homes Inc., a SouthTrust subsidiary.
At the time Caldwell bought the property, the RTC had not been created. He was working, as he had since 1974, for the Federal Deposit Insurance Corp. (FDIC), which insures bank deposits. Although SouthTrust deposits are covered by the FDIC, Caldwell's assignment was not related to the bank. He was a liquidation specialist, supervising liquidation of real estate acquired from failed commercial banks in six states.
"What we had was a piece of property that we wanted to sell, and here was a person with a good job and a desire to purchase it who thought he could make it pay," Oliver said. "He wanted to buy it, and we were anxious to sell it. It's that simple."
Congress created the RTC in 1989 to manage the rapidly growing thrift crisis. In September of that year, the agency hired Caldwell to head its Tampa office.
The office now has 310 employees and is considered one of the better-run offices in an agency widely criticized for poor management. Last year, the Tampa office collected $3-billion from asset sales and had the best cost-to-collection ratio of any RTC district, according to RTC officials.
Managing his own property proved difficult for Caldwell. He renamed the building "Caldwell Arms," but was not successful in retaining existing tenants or attracting new ones.
"We had problems with some of the tenants he inherited with the building," said Lou Brown, whose St. Petersburg real-estate firm was the property's rental agent. "We had to go through the expense and hassle of getting them out and then try to rent it out to more decent tenants."
Brown said some tenants' drug problems gave the building a bad reputation it couldn't shake. "Once that happens, it's difficult to remove that stigma long after the problem is cleaned up," he said.
The building was eligible for a rent-assistance program allowing low-income tenants to choose their own apartments. But program participants preferred to live elsewhere, said Edward White Jr., director of the St. Petersburg Housing Authority. "We have a wide choice of really nice locations, so why would anyone go there?" he asked.
Caldwell made some mortgage payments _ enough to reduce the loan principal by $1,754. He also paid the property taxes on the complex _ about $7,000 a year _ for both 1989 and 1990. However, he fell behind on his mortgage payments, and SouthTrust officials began talking to him about reclaiming the property.
Oliver said that to avoid foreclosure, the bank proposed that Caldwell hand over the deed, pay $2,500 in cash and another $2,500 by last Jan. 31. Caldwell objected but eventually agreed to the deal, which was completed Dec. 13, 1990. The bank valued the property at $130,000 in the transaction, taking a loss on its books of about $70,000.
Oliver said the bank chose not to pursue Caldwell in court for the difference between the amount of the mortgage and the value of the property because "we just made the assessment that it wouldn't be cost efficient to do that."
Three months later, on March 8, the RTC announced that SouthTrust had submitted the winning bid to acquire a north St. Petersburg branch of the failed Commonwealth Federal Savings and Loan Association of Fort Lauderdale. SouthTrust, part of Birmingham-based SouthTrust Corp., paid a $10,000 premium for the branch. The only other bid came from Barnett Banks Inc.
Two weeks after acquiring the Commonwealth branch from the RTC, SouthTrust sued Caldwell for failing to make good on his $2,500 promissory note. Last month, Hillsborough County Judge Dick Greco ordered Caldwell to pay $3,140, including interest and attorney fees. Oliver said SouthTrust has not received the money.
A property transfer like the one between SouthTrust and Caldwell is known as a "deed in lieu of foreclosure" and is relatively common in commercial real-estate lending, said Tampa lawyer Ron Weaver, a specialist in real-estate law and former chairman of a real-estate financing committee of the American Bar Association.
"You get the title quickly, and you can sell it to someone else and get on with your business," he said. On the other hand, foreclosure can take five months to a year, is very expensive and is not always successful, he said. In addition, a bank has to consider whether it will be able to collect any judgment it might obtain by going through foreclosure, he said.
However, foreclosure does have its advantages for a lender. It allows a bank to wipe out secondary claims against the property, such as second mortgages and liens. It also allows the bank to go after the borrower to make up any "deficiency," should the property sell for less than the mortgage.
Caldwell said in a statement distributed last week that he will become executive vice president of a new asset-management and financial-advisory firm. The firm, Saturn Financial Resources Group, wants to advise large institutions, investors, pension funds and insurance companies. Caldwell said he will help set up offices in Atlanta, Chicago and Washington, D.C.