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Local News

November 27, 2012

Judge stalls on decision in Anderson church bankruptcy case

‘Life Legacy’ financing plan at center of dispute

INDIANAPOLIS — Members of an Anderson church who’ve been praying for relief from a complicated bankruptcy case that threatens both the church and its affiliated school will have to wait awhile longer.

After hearing hours of testimony in the case Tuesday, U.S. Bankruptcy Judge Frank Otte delayed making a decision on how to resolve the legal dispute between Lindberg Road Church of Christ, 2625 Lindberg Road, and the bank it blames for its failed finances.

In a moment of candor from the bench, Otte told church members who crowded his courtroom that he didn’t know if he had the power to prevent the Fort Wayne-based Star Financial Bank from shutting down their church through foreclosure.

“I haven’t decided,” Otte said. “But it’s a tough one.”

The 75-year-old judge’s comments came late in the day, hours after he decided to deny Star Financial Bank’s request to toss out evidence that the church’s attorney described as “very damning.”

That evidence included confidential emails, culled from more than 17,000 documents that the bank was compelled to turn over, that showed some senior bank officials had serious doubts about a financing plan it promoted to the church as a way to cover a major construction and renovation project in 2006.

That financing plan required church leaders to take out life insurance policies on some of their older church members and then use the death benefits, or the sale of the policies on a secondary market, to pay off a $2.5 million loan.

“I have a very unusual case in front of me,” Otte told the bank’s attorney, Tom Scherer, after denying his request to block the emails. “And a story that needs to be told and it’s going to be told.”

What that story was varied dramatically, depending on who told it.

In court, Scherer portrayed Star Financial Bank as the victim of a bad debtor that refused to pay back its loan. David Kleiman, an Indianapolis attorney representing the church, said church elders who agreed to the unusual financing plan were duped by the bank into agreeing to what he called a “dangerous” financial scheme.

Jerry Ancel, attorney for the church-affiliated Anderson Christian School, likened the bank and the church to angry, arguing adults in a “school bus of children careening down the road.”

Ancel pleaded with Otte to find a way to end the legal battle to save the church and the school. “This court has the power to end the argument ...,” Ancel said, “and to save the children.”

The heart of the dispute involves the bank’s “Life Legacy” financing plan that the church signed up for when it wanted to expand its child care center and remodel the affiliated Anderson Christian School.

The Life Legacy plan, created by the Carmel-based Total Financial Group, required the church to take out life insurance policies on some of its older church members.

Evidence introduced in court Tuesday showed the church took out $4.35 million in life insurance policies on 11 members, after church elders were told either the death benefits on those policies, or their sale on a secondary market, would back their line of credit.

In court, the bank’s attorney argued that church elders knew the plan was risky and that the bank never relied on the Life Legacy plan to cover the loan. The bank’s attorney, meanwhile, pointed to internal bank documents that showed senior bank officials had grown wary of the Life Legacy plan before the bank sealed the deal with the church.

Among the confidential emails and documents introduced in court Tuesday was an email from an Old National Bank official to a Star Financial official that cast doubt on the viability of the Life Legacy financing plan. Both testimony in court and the documents introduced Tuesday showed that no other bank that Star Financial approached was willing to offer the Life Legacy financing plan.

Kleiman said the plan fell apart for Lindberg Road Church of Christ when the elderly church members covered by policies did not pass away as early as expected, and when Star Financial Bank discovered there was no secondary market to buy the insurance policies.

For the bank, Scherer argued that the loan went bad like many other loans did after the 2007 financial crisis that caused banks to severely tighten their credit and caused multiple loan defaults across the banking industry.

No word on when Otte will make his decision. He ended the court hearing saying he’d initially favored the church in the dispute, but questioned whether he had the power to grant their request to change conditions of the loan, to allow them to pay back only a portion of their outstanding debt.

“I usually know what I’m going to do pretty quick, whether right or wrong,” Otte said, before adding that he was taking the matter under advisement. “I’m not sure what I’m going to do.”

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