A New York-based mortgage banking firm that just two years ago handled nearly $2 billion in loans annually has closed and filed for bankruptcy.
Southern Star Mortgage filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in New York City, according to a filing reviewed by MortgageDaily.com.
In the filing — signed by company president and CEO Gary Shusterhoff — Southern Star listed assets of $1 million to $10 million, debts of $10 million to $50 million and up to 999 creditors.
“Southern Star has ceased originating loans, has surrendered its license in New York and is in the process of surrendering all of its licenses to operate in other states,” the company said in the filing. “This [bankruptcy] proceeding has been filed to assure an orderly wind down of Southern Star’s business and provide the best possible return to its creditors.”
Management of the company, which is located in the New York City suburb of East Meadow, N.Y., did not return phones calls to comment. Phones at many of the company’s branches have been disconnected, but employees who answered phones this week and last week at offices in New York and Florida confirmed the company had closed.
Its main Internet Web site has also gone dark.
The company said a downturn in business and a cash crunch put it under.
In the filing Shusterhoff said that during the past several months his company “experienced financial difficulties resulting from the general downturn in the real estate market, the decline in mortgage lending, the subprime loan crises and its inability to raise additional capital.”
“Southern Star’s net worth has dropped to a dangerous level and the bonding company issuing bonds necessary for Southern Star to retain its licenses to originate loans required full cash collateral which was not available,” according to the filing.
On Sept. 19, for instance, The California Department of Corporations ordered the company to cease making loans because it had not complied with the state’s bonding requirements.
At the time, regulators said Southern Star was “conducting business in such an unsafe and injurious manner as to render further operations hazardous to the public or to customers,” according to a copy of the California order.
In 2005, Southern Star processed $1.7 billion in loans, according to information filed with the U.S. Department of Housing and Urban Development and compiled by AllMortgageDetail.com.
In 2004 the figure was about $1.4 billion, according to the same sources.
On a job recruitment Web site, the company said it had 100 branches in 27 states “with the ability to broker loans, bank loans or fund loans in-house.”
The company said in the bankruptcy filing that it faces about a dozen lawsuits. Its largest secured creditor was Preferred Ban of Houston, Texas, which holds liens on $8.5 million in mortgages.
Unsecured creditors include Countrywide Home Loans, which says it is owed about $0.6 million in loans it bought from Southern Star that are now in default. Other unsecured creditors include IndyMac Federal Savings Bank for $0.1 million and U.S. Bank Home Mortgage for $1.6 million.
