Another Big CU Failure Tied to RE Speculation Scheme

The National Credit Union Administration, as liquidating agent for the failed Heritage West Federal Credit Union, has filed suit against several member/borrowers of the defunct Salt Lake City CU, claiming they defaulted on millions of dollars in speculative real estate loans only to buy the properties back at steep discounts in foreclosure sales. The suits, removed to a federal court, are the latest in a variety of legal actions surrounding a troubled Salt Lake City residential development called Castle Stone Homes that was tied closely to the one-time $330 million credit union. Dozens of the project's borrowers, who were promised high returns, obtained loans through the credit union, which was acquired by Virginia's Chartway Federal Credit Union in a December supervisory merger engineered by NCUA. The case is reminiscent of those involving two big credit union failures: Norlarco Credit Union, and Huron River Area Credit Union, that financed speculative real estate projects in Florida's Gulf Coast. In the Salt Lake City case, the members claim that HeritageWest engaged in a variety of schemes to make loans readily available for the residential development. According to various courts documents, between 2005 and 2007 Castle Stone solicited individual investors with high credit scores to participate in their residential development designed to appeal to first-time investors that would provide big profits. After one of the initial lenders for the project, America First CU backed out, HeritageWest agreed to provide capital for the investors. Lawyers for Castle Stone did not return phone calls. NCUA declined to comment, saying it does not discuss cases in litigation.