Banks and Local Government and Greenwood and Banking & Finance and Johnson County and Regional News and Government & Economic Development and Government

Greenwood sues bank to collect $917,000 letter of credit

May 18, 2012

The City of Greenwood says a Minnesota bank owes it more than $900,000 to pay for street and sewer improvements left undone by the bankrupt developer of a mobile home park along U.S. 31.

But TCF Bank N.A. has refused for the past nine months to pay out on the letter of credit it gave to the developer of Southwood Estates mobile home park. So, Greenwood took the bank to court last month.

“We’re kind of perplexed that we ended up in court,” said Sam Hodson, an attorney at Indianapolis law firm Benech Dann Pecar, who is representing Greenwood. “I’ve been practicing for 25 years, and this is the first time I have ever had to sue a bank for not paying a letter of credit.”

Vincent Borst, a Chicago attorney representing TCF Bank, declined to comment. TCA Bank has not filed a response to Greenwood’s lawsuit.

The case began in Johnson County courts but was removed to federal court in Indianapolis on Monday.

TCF Bank issued the letter of credit for $916,788 in October 2003 to Southwood Estates LLC, which was controlled by Chicago-based Capital First Realty Inc.

But Richard Klarchek, the owner of Capital First, filed for Chapter 11 bankruptcy protection in October 2010, declaring $12.2 million in assets and $53 million in liabilities, according to filings in the U.S. Bankruptcy Court in Chicago.

That left undone the construction of sanitary sewers, streets, sidewalks, signs, monuments and storm sewers, according to a letter sent by Greenwood City Attorney Shawna Koons to TCF Bank in August 2011. Koons at that point demanded payment of the letter of credit in order to fund that work.

But TCF ignored the demand for five months, Hodson said. In January, city and bank officials opened settlement discussions during which Greenwood officials proposed a payment at a “substantial discount” to the full amount of the letter of credit, Hodson said.

When TCF asked for an even bigger discount, Greenwood decided to go to court. TCF has not stated any “plausible” reason for its failure to pay, Hodson said.

“I’m going to be interested to see what it is,” Hodson said.

Greenwood is funding construction of a new entrance and exit, as well as stormwater drains at Stop 18 Road, Hodson said. Other improvements will be made only as remaining units in the park are sold, he said.

“The city could certainly use the money,” Hodson said, but the improvement work, “It’ll get done one way or the other.”

 

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