UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
In re Chapter 11
STEARNS HOLDINGS, LLC, et al., Case No. 19-12226 (____)
Debtors.1 (Joint Administration Pending)
DECLARATION OF STEPHEN SMITH IN SUPPORT OF DEBTORS’ EMERGENCY MOTION FOR AN ORDER AUTHORIZING MODIFICATION OF
THE AUTOMATIC STAY, TO THE EXTENT APPLICABLE, WITH RESPECT TO NON-DEBTOR BANK ACCOUNTS
I, Stephen Smith, hereby declare, pursuant to 28 U.S.C. § 1746, under penalty of perjury:
1. I am President and Chief Financial Officer of Stearns Lending, LLC (collectively with its above-captioned debtor (“Debtor”) and it non-debtor affiliates, “Stearns”). I have served as Chief Financial Officer at Stearns since May 2016 and as President since February 2019. Before joining Stearns, I previously was the Chief Financial Officer at Caliber Home Loans, Inc. for three years. I have more than 30 years of experience in the mortgage lending industry. I have held various executive positions at Bank of America Home Loans, including National Servicing Executive and National Sales Executive.
2. I have a Bachelor of Applied Science in Accounting from the University of Maryland, College Park.
1 The Debtors and the last four digits of their taxpayer identification numbers are: Stearns Holdings, LLC (8219); Stearns Co-Issuer Inc. (7096); Stearns Lending, LLC (1773); Stearns Ventures, LLC (2386); Protos Acquisition LLC (4941); bSNAP, LLC (2498); and Private Mortgage Advisors, LLC (7493). The address of Protos
Acquisition LLC is 345 Park Avenue, New York, NY 10154. The address of the other Debtors is c/o Stearns Lending, LLC, 750 East Highway, 121 Bypass, Suite 150, Lewisville, TX 75067.
3. In my role as President and Chief Financial Officer at Stearns, I am familiar with the Debtors’ day-to-day operations, businesses, financial affairs, and books and records. I submit this declaration (the “Declaration”) in support of the Debtors’ Emergency Motion for an
Order Pursuant to 11 U.S.C. §§ 105 and 362, Fed. Bankr. P. 4001, and Local Bankruptcy Rule 4001-1 Authorizing Modification of the Automatic Stay, to the Extent Applicable, With Respect to Non-Debtor Bank Accounts (the “Emergency Motion”).2 I am duly authorized to make this Declaration on behalf of the Debtors in the above-captioned cases.
4. I am familiar with the Debtors’ business operations and, in particular, the
Debtors’ joint venture and “preferred partner” channels (“JVs/PPs”). During my tenure with the Debtors, I have participated in numerous in-person meetings and phone calls with members of the Debtors’ JVs/PPs, and I have spent considerable time engaged in business discussions regarding their overarching business structures.
5. Except as otherwise indicated herein, all facts set forth in this declaration are based on (i) my personal knowledge, (ii) my discussions with the Debtors, their representatives and advisors, and other interested parties, (iii) my review of relevant documents, or (iv) my opinion based upon my experience, knowledge, and information concerning the Debtors’ financial affairs. If I were called to testify, I would testify competently to the facts set forth herein.
A. The Debtors’ Joint Venture and Preferred Partners
6. The Debtors, who are mortgage loan originators, maintain a joint venture business channel that is comprised of nine (9) joint ventures. The Debtors own 47.5% of the interests in
2 Information regarding the Debtors’ business, capital structure, and the circumstances leading to the
commencement of these chapter 11 cases is further set forth in the Declaration of Stephen Smith, President and Chief Financial Officer of Stearns Lending, LLC, in Support of Chapter 11 Petitions and First Day Pleadings (the “First Day Declaration”).
one of them and own 50% of the interests in the remaining joint ventures. These joint ventures include real estate companies, builders, relocation service providers, and financial service companies. The joint ventures are not Debtors in these chapter 11 cases.
7. The Debtors similarly maintain a preferred partner business channel, which consists of two independent mortgage companies – Certainty Home Loans, LLC (“Certainty”) and Citywide Home Loans, LLC (“Citywide”). The Debtors own 50.8% of the interests in Certainty and 51% of the interests in Citywide. The preferred partners are not Debtors in these chapter 11 cases.
8. The JVs/PPs represent an integral component to the Debtors’ restructuring. Indeed, the JVs/PPs channels contribute to over one quarter—roughly 28% in the aggregate—of the Debtors’ business.
B. The Debtors’ Joint Venture and Preferred Partners’ Bank Accounts 9. As of the Petition Date, six of the joint ventures (Compass Home Loans, LLC; Gibraltar Mortgage Services, LLC; Home Mortgage Alliance, LLC; KBHS Home Loans, LLC; Premia Mortgage, LLC; SoFi Mortgage, LLC) and both preferred partners (Certainty and Citywide) hold various bank accounts (collectively, the “Non-Debtor Bank Accounts”) with Wells Fargo Bank N.A. (“Wells Fargo”).
10. Non-Debtor Bank Accounts are used by these JVs/PPs in all facets of their businesses. The Non-Debtor Bank Accounts include concentration accounts, warehouse accounts, payroll accounts, escrow accounts, and impound accounts.
11. On July 5, through communications with Wells Fargo, the Debtors learned that the Non-Debtor Bank Accounts held by Wells Fargo are titled “for the benefit of” (“f/b/o”) Stearns Ventures, LLC (“Stearns Ventures”). Stearns Ventures is a Debtor. Notwithstanding the
fact that the Non-Debtor Bank Accounts at issue were, continue to be, and have always been used exclusively by such JVs/PPs and not the Debtors, Wells Fargo’s internal operations require any account titled as f/b/o of a debtor entity, such as Stearns Ventures, to be frozen to comply with the automatic stay (to the extent it applies) pending further direction from the court. The Debtors were also informed that there was insufficient time prior to the filing of these chapter 11 cases to re-title the Non-Debtor Bank Accounts in a manner that could avoid freezing.
12. As discussed in the Emergency Motion, the First Day Declaration, and the Debtors’ Motion For Entry Of Interim And Final Orders (I) Authorizing The Debtors To
Continue Supporting Their Joint Ventures And Preferred Partners In the Ordinary Course And (II) Scheduling A Final Hearing, the JVs/PPs are critical to the Debtors’ businesses. It is,
therefore, critical that the JVs/PPs continue to have access to the Non-Debtor Bank Accounts and are able to operate in the ordinary course.
C. The Emergency Motion
13. The Debtors request entry of an order (I) authorizing Wells Fargo to (i) continue to maintain, service, and administer the Debtor Bank Accounts and (ii) debit the Non-Debtor Bank Accounts in the ordinary course of business on account of electronic transfers (including wire transfers, bank transfers, and automated clearinghouse (“ACH”) transfers) or checks drawn on the Non-Debtor Bank Accounts and (II) modifying the automatic stay pursuant to sections 105(a) and 362(d)(1) of the Bankruptcy Code, Rule 4001 of the Bankruptcy Rules, and Rule 4001-1 of the Local Rules, to the extent such stay applies, to permit the foregoing. The Debtors further request that the Court waive the requirements of Bankruptcy Rule 4001(a)(3) and direct that the order granting the requested relief be effective immediately.
14. Wells Fargo has indicated that it requires an order of this Court to provide sufficient comfort that Wells Fargo will not be in violation of the automatic stay by (i)
continuing to maintain, service, and administer the Non-Debtor Bank Accounts and (ii) debiting the Non-Debtor Bank Accounts in the ordinary course of business on account of electronic transfers (including wire transfers, bank transfers, and ACH transfers) or checks drawn on the bank accounts. Absent such order, Wells Fargo has indicated that it will freeze the Non-Debtor Bank Accounts promptly following the filing of the Debtors’ chapter 11 petitions.
15. As noted above and in the Emergency Motion, the JVs/PPs account for a
substantial portion of the Debtors’ business. Absent this emergency relief, the Non-Debtor Bank Accounts will be frozen – for an indeterminate period of time – and the JVs/PPs will have no access to liquidity. Indeed, they will be unable to conduct their businesses at all. I believe that any interruption in the JVs/PPs businesses risks crippling the JVs/PPs’ operations, thereby destroying two of the Debtors’ four business channels. Such an outcome would have a
detrimental impact on the Debtors’ ability to consummate any going concern restructuring. It is, therefore, critical to the Debtors’ businesses that the JVs/PPs continue to have access to the Non-Debtor Bank Accounts and are able to operate in the ordinary course.
16. Based upon my knowledge of and experience with the Debtors, including their JVs/PPs, and against the backdrop of my extensive history in the mortgage lending industry, I believe the relief contained in the Emergency Motion is necessary, appropriate, and reasonable, under the circumstances.
17. Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge, information, and belief.
Dated: July 9, 2019
New York, New York
/s/ Stephen Smith Stephen Smith