FDIC as Receiver for City Bank vs. Conrad D. Hanson and ...

Case 2:13-cv-00671 Document 1 Filed 04/15/13 Page 32 of 97
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Policy stressed the importance of liquidity in the composition of net worth.
The Loan Memo showed that City Bank's loan commitments to Borrower
B, including the Borrower B (II) Loan, plus Guarantor B's personal
liabilities totaled $17,830,400. The Loan Memo listed two different cash
amounts for Guarantor B—$724,388 and $155,842. Even if Guarantor B
had a cash balance of $724,388, that amount plus Borrower B's cash was
only 6.5 percent of the guarantor's liabilities plus City Bank's total loan
commitments to Borrower B. When Defendants approved the Borrower B
(II) Loan, the Real Estate Bubble had burst, and the guarantor had
insufficient liquid assets to repay the Borrower B (II) Loan.
d. Failed to consider or knew of and disregarded the LTV ratio limit
violation of the Borrower B (II) Loan. The Bank's January 9, 2008 Loan
Policy provided that, for purposes of the LTV ratio, "Value shall be
defined as the lesser of appraised value or purchase price (cost)." The
Loan Policy further provided that the LTV ratio limit for SFR construction
loans was 80 percent, which was less than the supervisory LTV ratio limit
for single-family residential construction loans of 85 percent. Given the
loan amount of $5,928,800 and the estimated aggregate cost of the
construction project of $5,583,421, the LTV ratio of the Borrower B (II)
Loan was 106.2 percent. This LTV ratio violated the Loan Policy's limit
and the supervisory limit.
94. In or about March 2009, Borrower B defaulted on the loan.
95. Hanson's and Sheehan's acts and omissions with respect to the Borrower B (II)
Loan caused City Bank to incur damages in an amount to be proved at trial. When Hanson and
Sheehan approved this loan, the Bank had initiated foreclosure proceedings against at least three
construction loan borrowers, and the Real Estate Bubble had burst about 20 months earlier.
Because of these negative indicators and because repayment of the Borrower B (II) Loan
COMPLAINT - Page 32
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