First American Files For Reorganization
Dec. 04, 1985
BALTIMORE (AP) _ Officials of a national mortgage banking and brokerage firm that shut down last month amid fraud charges say they plan to reorganize the company and resume business.
First American Mortgage Co. filed Tuesday for reorganization under Chapter 11 of the Federal Bankrupty Act.
By filing the petition, First American automatically fended off all claims by creditors, including the E.F. Hutton Mortgage Corp. of Little Rock, Ark. and 10 other companies which sued First American and its owner, Michael H. Clott.
In the federal lawsuit, those companies charged that First American and Clott diverted $150,000 a month in payments they were owed and made several other fraudulent transfers of funds. Clott shut down the company and laid off employees the day the suit was filed.
Because of the suit, the assets of the company and Clott's personal assets were frozen by U.S. District Judge Alexander Harvey II.
Clott said in the bankruptcy petition that the board of directors of First American met last Friday and voted in favor of the filing because the firm was ''unable to pay its debts as they matured.''
''This is not a liquidation,'' said Tammy G. Cohen, an attorney representing First American. ''The business will continue after the reorganization.''
She said creditors could not repossess the company's equipment because of the filing and added, ''everything needs to be done through the bankruptcy court.''
The company would file a statement of financial affairs at an unspecified later date, Ms. Cohen said, adding that the list of creditors was incomplete because of the legal dispute with E.F. Hutton. She said E.F. Hutton had seized some of the books and records First American needed to complete that list.
Hutton and 10 other firms bought single-family home mortgages through First American. First American set up the individual mortgages, sold the deals in packages to other institutions and serviced the mortgages, passing on regular payments to the major institutions.
Hutton alleges in the suit that First American fraudulently diverted some of those payments. The extent of the alleged fraud was not determined.