Opinion ID: 11670
Heading Depth: 2
Heading Rank: 1

Heading: The Couch Transactions

Text: 2 The story underlying this bond coverage dispute begins in 1966. In that year, USAT began entering into certain real estate transactions, known as swaps, with O. Dean Couch, Jr., and two entities related to Mr. Couch, Security General Investment Company and Associated Properties, Inc. (Mr. Couch and the entities will be collectively referred to as Couch.). The swaps entailed USAT's cash purchase of pools of mortgage loans from Couch. The swaps relevant to this case took place between August 5, 1985, and April 1, 1986, and had an aggregate value of over $40 million. In each pertinent transaction, USAT presented Couch with a check at closing pursuant to the relevant Sales Agreement and Sales Certificate. 3 Under these Sales Agreements, Couch represented that he was selling certain first mortgage loans on real estate. Additionally, Couch personally guaranteed each loan and agreed to buy back or provide a substitute of equal value for any defaulting loan. USAT retained Couch to service the purchased loans. Couch held the original loan files and policies and was to make periodic guaranteed payments to USAT, regardless of whether the mortgagors made their payments on time to Couch. 4 Couch ceased to make the required payments to USAT in April 1986. In September 1986, USAT discovered that Couch had defrauded it regarding the nature of the mortgages sold in the swaps. The majority of the mortgages were subject to conflicting liens created by Couch and were secured by subordinate liens, rather than first liens as provided for in the Sales Agreements. USAT was left with over $17 million in loans that were secured by second or later-in-time mortgages. 5 Couch unsuccessfully filed for Chapter 11 bankruptcy in October 1996. His discharge was denied for failure to satisfactorily explain his loss of assets. Couch was convicted of sixteen counts of criminal fraud in April 1992. His conviction was upheld on appeal.