N.Y. Credit Union Sues NCUA Over Taxi Medallion Loan Participation Dispute

The $390 million Nassau Financial Federal Credit Union is suing the NCUA for nearly $1 million for allegedly breaching an agreement to settle defaulted taxi medallion loans for a mere fraction of what they were worth.

The NCUA said it plans to ask a federal judge to dismiss the lawsuit claiming the court has no authority to rule on the dispute because the breach of contract claims is subject to judicial review only under the Administrative Procedures Act. Though the East Meadows, N.Y.-based Nassau Financial filed an administrative appeal, it was disallowed by the NCUA board last November.

According to the credit union’s lawsuit filed in the U.S. District Court for the Eastern District of New York in Brooklyn, it signed a loan participation agreement with LOMTO Federal Credit Union and received 90% participation interest in five of the 19 loans LOMTO made to real estate investor and borrower Adrian Tudor. The loans were secured by City of Chicago taxi medallions. However, the value of the taxi medallions dramatically dropped in value because of ridesharing competitors, whose popularity led to millions in losses for the $156 Million LOMTO, which was liquidated by the NCUA in 2018.

Beginning in 2015, Tudor missed loan payments. In that year, LOMTO posted losses of more than $13 million, and continued to show losses of $18 million in 2016, $51 million in 2017 and $16 million in 2018, according to NCUA financial performance reports.

Following extensive litigation, all of the LOMTO loan participants agreed in May 2019 to restructure the Tudor loans with additional collateral of commercial properties. But when Tudor defaulted on the restructured loans, the NCUA, as the liquidating agent, began foreclosure proceedings on the commercial properties. By December 2020, the NCUA, which also acted as the loan servicer, agreed to a negotiated settlement.

According to Nassau Financial’s lawsuit, the NCUA accepted a payment of “just $3.5 million,” an amount representing what the credit union described as a “mere fraction” of the $30.6 million of the Tudor loans’ outstanding indebtedness. What’s more, according to Nassau Financial, the NCUA allowed the Tudors’ obligors’ new lender, which was funding the settlement, to retain $1 million as a purported interest reserve rather than requiring that $1 million to be paid to the NCUA and the loan participants.

Nassau Financial alleged that the NCUA breached terms of the loan participation agreement by failing to provide the credit union with critical financial information and analyses and to obtain its required consent to finalize the settlement agreement the federal agency reached with Tudor. Moreover, the NCUA didn’t provide Nassau with a copy of the settlement agreement until a month after it had been consummated and executed, and only after a request for the settlement agreement had been made by Nassau Financial’s lawyer.

However, in November 2020, a month before the NCUA agreed to the settlement, the federal agency conveyed its proposed terms to Nassau Financial, which it objected to in part because prior efforts to market the real estate portion of the Tudors’ collateral were inadequate. Additionally, the proposed terms of the agreement didn’t attribute any value to the portion of the collateral that included 105 taxi medallions. The credit union also alleged that the federal agency “unjustifiably abandoned” the previously initiated foreclosure sales process respecting the medallions.

The NCUA countered in its court documents that despite aggressive public marketing, the offers received for the collateralized Tudor properties in mid-2020 were well below prior projections and appraisals.

“By December 2, 2020, rather than risk further losses due to the economic collapse during the pandemic, the Liquidating Agent, (the NCUA) as loan servicer, ultimately agreed to the settlement negotiated with Tudor that generated higher recoveries for all participants, including Nassau, than any other then-feasible alternative,” wrote a lawyer from the U.S. Attorney’s office for the Eastern District of New York, which is representing the NCUA.

Although the NCUA acknowledged Nassau Financial’s objections to the settlement agreement, the federal agency noted the credit union offered no viable alternative. The majority of the other loan participants agreed to the terms of the agreement, according to the NCUA.

The NCUA tendered a check to Nassau Financial for $680,666, representing about 20% of the credit union’s participation interest in the $3.5 million settlement, less Nassau’s purported share of expenses, which was $712,123, according to the lawsuit.

Nassau Financial, which wants its lawsuit to be heard before a jury, said it suffered damages of more than $968,000, which represents the difference between the reasonable value of the credit union’s participation interest in the Tudor loans and in the collateral of at least $1.68 million, less the $712,123 share of expenses.

U.S. District Court Judge Rachel P. Kovner instructed the NCUA to file its motion to dismiss the case in May, to which Nassau Financial will have the opportunity to respond by June.