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Tousa’s Lenders Don’t Have to Return $450 Million

Tousa Inc.’s lenders don’t have to hand over $450 million they received before the home developer sought bankruptcy protection, a federal judge said.

U.S. District Judge Alan S. Gold in Miami threw out a bankruptcy judge’s ruling that $450 million in loan payments made to the Transeastern Properties Inc. lenders group more than five months before Tousa’s Chapter 11 filing could be recovered by unsecured creditors. The group’s more than 20 lenders include units of Bank of America Corp., Deutsche Bank AG and Goldman Sachs Group Inc., according to court filings.

“If the bankruptcy court’s ruling were to stand, it would pose an unfair burden on creditors to investigate all aspects of their debtors and the affiliates of those debtors before agreeing to accept payments for valid debts owed,” Gold wrote in a 113-page ruling.

Tousa, based in Hollywood, Florida, sought protection from creditors in January 2008 citing a downturn in the state’s housing market tied to problems with subprime mortgages. The company’s unsecured creditors last July filed a liquidation plan, which is on hold while creditors appeal rulings in the case, according to a court filing.

Patricia Redmond, a lawyer for the unsecured creditors’ committee, declined to comment on Gold’s ruling.

The dispute stems from Tousa creditors’ lawsuit over the company’s 2005 purchase of Transeastern’s homebuilding business. Tousa was the primary guarantor on $675 million in bank financing for the deal.

Fraudulent Transfers

In July 2007, Tousa borrowed another $500 million to bail out and refinance the Transeastern joint venture. The creditors’ committee argued the new debt and granting of liens were fraudulent transfers because the units that pledged their properties as collateral didn’t benefit from the loans.

U.S. Bankruptcy Judge John K. Olson in Fort Lauderdale, Florida, agreed with the creditors’ position, saying lenders had to return the $450 million, plus another $30 million in interest, because they constituted fraudulent transfers of Tousa’s assets.

Gold said Olson erred in finding there was no benefit from the loans. By repaying the debt, the units avoided a default on more than $1 billion in bond debt, Gold concluded. That amounted to enough of a benefit to justify the repayment, he found.

Federal Judges

Under U.S. law, federal district judges serve as the first step in the appeals process in bankruptcy court cases.

Tousa listed assets of $2.3 billion and debt of $2.2 billion in its 2008 bankruptcy filing. Unsecured creditors said the distribution plan they are proposing will allow company officials to “liquidate their remaining assets and maximize distributable value,” according to court filings.

The bankruptcy case is In re Tousa Inc., 08-10928, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale). The district court case is In re Tousa, 10-60017, U.S. District Court, Southern District of Florida (Fort Lauderdale.)

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