Banking

LendingTree embroiled in legal dispute with a subsidiary over $40 million dividend

A LendingTree subsidiary that’s in bankruptcy court is accusing LendingTree CEO Doug Lebda of authorizing the “fraudulent transfer” of a $40 million dividend while he served as the only member of the subsidiary’s board, court records show.

The mortgage lending subsidiary, Home Loan Center Inc., filed for Chapter 11 bankruptcy protection last week. It made the claim about Lebda in a motion filed in U.S. Bankruptcy Court in California.

That dividend was issued to LendingTree’s operating subsidiary, LendingTree, LLC, the only shareholder of Home Loan Center, the motion says. LendingTree, Inc., the publicly-traded corporation, does business through LendingTree, LLC.

In its motion, Home Loan Center said Lebda breached his fiduciary duty by authorizing the dividend while Home Loan Center was essentially dissolving itself, and still had debts and liabilities to meet.

LendingTree does not comment on pending litigation, spokeswoman Megan Greuling said in an email. But in a securities filing, Charlotte-based LendingTree said it does not believe HLC’s claims about the dividend have merit.

Lebda resigned from the HLC board of directors last February, according to the Home Loan Center motion.

LendingTree, LLC then appointed Kyle Everett of Development Specialists, Inc. as the sole director of the firm, the motion said. Everett has experience as a fiduciary, a forensic accountant and in advising clients on restructuring businesses, according to his profile on Development Specialists’ website.

Claims of fraudulent transfers often come up in bankruptcy cases, but it’s not the same as a typical fraud case, said Thomas Lee Hazen, a UNC School of Law professor who studies corporate law. In bankruptcy cases, he said, if a court determines a financial transfer was fraudulent, the company can be required to refund the money.

LendingTree cited the dividend dispute in its most recent quarterly filing last Friday.

The company said it has begun settlement talks with Home Loan Center over the declaration of the dividend, but if a settlement can’t be reached, it would “vigorously contest” the claims about the dividend.

LendingTree is an online service that lets consumers comparison-shop for financial products, such as mortgages, personal loans and credit cards. Lebda earned $42 million in 2018, making him the highest-paid CEO in Charlotte, according to an Observer review of local CEO salaries. He is also a co-chair of the Charlotte 2020 Host Committee for the Republican National Convention.

Original lawsuit

Home Loan Center originated around 234,000 mortgage loans, bankruptcy filings indicate. It also processed consumer mortgage loans and sold them to other investors, including Citibank, Bank of America and Wells Fargo, according to the motion filed in bankruptcy court.

Another company that bought those loans was Residential Funding Company, LLC, which packaged them into mortgage-backed securities then sold them to investors.

In 2012, LendingTree sold “substantially all of the operating” assets of Home Loan Center, Inc. to Discover Financial Services. But Home Loan Center remains a wholly-owned, non-operating subsidiary of LendingTree, LLC, according to a LendingTree securities filing.

In 2013, Residential Funding Company sued Home Loan Center, alleging it sold them mortgage loans where consumers eventually defaulted or became delinquent. That was one of a series of lawsuits it filed against mortgage lenders over “defective loans.”

Partially as a result of the losses Residential Funding incurred from lawsuits over the loans it purchased from HLC and others, Residential Funding said in its lawsuit that it had to file for bankruptcy.

In June 2019, following a jury trial, a U.S. District Court judge in Minnesota ordered Home Loan Center to pay $68 million so Residential Funding creditors could recover some of its assets.

Into bankruptcy

Home Loan Center appealed that $68 million judgment, then filed for Chapter 11 bankruptcy.

LendingTree.JPG
LendingTree CEO Doug Lebda, left, with NC Secretary of Commerce Tony Copeland, at a 2018 announcement that LendingTree would add over 400 high-paying jobs to Charlotte. Lebda and LendingTree are facing contentious claims from a subsidiary in bankruptcy court. Diedra Laird dlaird@charlotteobserver.com

And it was in bankruptcy court where the $40 million dividend loomed large, because Home Loan Center said it comprised a large part of its assets. In its bankruptcy filing it claimed $11 million in assets, not including the $40 million, and $111.8 million in liabilities.

The dividend transfer was made in 2016, the Home Loan Center bankruptcy court motion says, while the company was being sued by Residential Funding Company.

By that point, the motion says, Home Loan Center was winding down its operations and financial affairs, and mainly addressing claims and litigation.

On Wednesday, ResCap Liquidating Trust, the entity formed by Residential Funding Company creditors, filed a motion in bankruptcy court alleging that the Home Loan Center bankruptcy case was a “scheme” orchestrated by Lebda and Home Loan Center’s parent company, LendingTree, LLC. ResCap is also a Home Loan Center creditor.

“Together, LendingTree and Mr. Lebda siphoned at least $40 million out of the debtor, and caused HLC to spend millions more on professionals, all in an effort to delay paying creditors for as long as possible,” the ResCap motion said.

In its motion, ResCap requested that the Home Loan Center bankruptcy case be converted from Chapter 11 reorganization to Chapter 7 liquidation. Doing so, the motion said, would allow an independent trustee to investigate the claims over the dividend.

LendingTree did not make anyone immediately available for comment Thursday regarding the claims in the new motion from ResCap.

LendingTree impact

Lebda launched LendingTree in Charlotte in 1996. After struggling during the financial crisis, the firm has had a comeback: in 2017, it was named to Fortune’s list of the 100 fastest-growing companies.

Last December, LendingTree announced plans to nearly double its Charlotte-area footprint after receiving state incentives in exchange for keeping its headquarters in Charlotte.

Last week, the company reported second quarter revenue of $278 million, a 51% increase from the same period last year, although its revenue from mortgage products declined 18%. Also last week, LendingTree broke ground on its new headquarters in South End.

Though the company sold most of Home Loan Center’s assets to Discover, in its 2018 annual report, LendingTree said it remains liable for some of Home Loan Center’s obligations.

In the quarterly filing from last Friday, LendingTree said the HLC bankruptcy could lead other HLC creditors to make claims against LendingTree or one of its subsidiaries.

“Any such assertions of claims by HLC creditors may require significant effort (including management time), resources and money to defend and could result in losses to us,” LendingTree said in its filing.

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Danielle Chemtob covers economic growth and development for the Observer. She’s a 2018 graduate of the journalism school at UNC-Chapel Hill and a California transplant.
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