Fayetteville finance pros file Chapter 7 bankruptcy

Arkansas Business, May 12, 2008 by Worth Sparkman

BANKRUPTCY LAWS MAY BENEFIT most those who need them the least.

That could be the case for two former partners in Land Ventures LLC, Jonny D. Waddle Jr. and Carol Waddle. The couple, married for only a few months, filed for Chapter 7 bankruptcy on March 26.

They and three others were named in a foreclosure suit filed in Washington County on Jan. 14. In that suit, the Bank of Fayetteville is seeking more than $5 million plus interest on a loan it made to the group in October 2005 to develop the Meadows at River Mist subdivision in east Springdale.

The Waddles' bankruptcy stands out from the crowd of almost 650 Chapter 7s filed at Fayetteville's U.S. Bankruptcy Court last year for three reasons: Their fulltime jobs in the financial services industry, their combined incomes and the choice to pursue Chapter 7 liquidation rather than Chapter 13 debt repayment.

Jonny Waddle is a financial adviser at Stephens Inc. in Fayetteville and Carol Waddle is a loan officer for Signature Bank of Arkansas, positions that most reasonably consider as fiscally responsible.

According to their statements of financial affairs, attached to the bankruptcy filing on April 16, the couple has claimed assets of $686,416 and liabilities of more than $5.27 million.

Last year their combined gross income was $222,384, according to the statement, and at one point in 2007 the couple had gains of nearly $30,000 on the sale of "stocks/investments." Jonny Waddle's individual retirement account at Stephens, which is exempt from creditors under bankruptcy law, was valued at $207,501.

They also claim to spend $1,700 per month--$20,400 per year--on recreation, which includes "clubs and entertainment, newspapers, magazines, etc."

The Waddles' bankruptcy freezes the bank's foreclosure on them as former partners in Land Ventures.

The case has lenders all over the state scratching their heads and wondering if they should begin to second-guess themselves when it comes to assessing risk.

"If you have high-income people who can just walk away, that would put a chill on things. That could break things down in a hurry," said Reynie Rutledge, chairman and CEO of First Security Bank of Searcy, which has branches in northwest Arkansas.

Rutledge said he might not always like the finer details of a deal, but that if the borrower has a secondary source of repayment and everything else lines up with his bank's underwriting standards, First Security will typically loan the money.

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But if the Waddles' Chapter 7 goes through?

"I guess that would change my viewpoint of lending and how I would look at a deal," he said.

"Some people are using bankruptcy as a business strategy. If a project doesn't work out, they just file," said another banker, who asked not to be identified.

"It's just too damn easy," he said.

Jonny Waddle declined to talk about the foreclosure or the bankruptcy, but did point out that he and Carol Waddle were no longer members of Land Ventures.

Jill Jacoway, the Waddles' lawyer, did not respond to a request for comment.

Lawyers for the Bank of Fayetteville declined to comment, citing pending litigation.

Bob King, executive vice president and chief lending officer at the Bank of Fayetteville, is named in many of the cross- and counter-claims to the foreclosure. He declined to comment but did issue a statement.

Part of it reads: "I will say, generally, that it is a sad and unfortunate commentary of our new bankruptcy laws when sophisticated and high caliber borrowers, and in this case members of the financial community themselves, can elect to file Chapter 7 bankruptcy instead of reorganizing the payment of debt over time."

Foreclosed Upon Five

The Meadows at River Mist is little more than gravel roads outlined by concrete curbs and waist-high weeds. Piles of rock have yet to be spread and foot-deep valleys the width of car tires are cut into the half-finished streets by excessive spring rains. It's a treacherous journey from one end to the other for anyone who doesn't have four-wheel drive and plenty of clearance.

It is an all-too-common sight in northwest Arkansas these days.

None of the five ex-partners in Land Ventures or their lawyers would talk about the subdivision or about the foreclosure. The five partners were co-borrowers on the loan, which means they are all equally liable for all or part of the note.

Based on documents related to the case, here's how it went down:

In 2005, Scott Miller, Jack Lovin and Gilford Bryant tried to get a loan from Liberty Bank of Arkansas to develop the subdivision. The bank said the three needed more liquidity, so the partners found Jonny Waddle and Carol Waddle (formerly Carol Green).

At the time, Carol Waddle worked at the Bank of Fayetteville, so the group took the project to her employer. They were approved for a little more than $3 million on Oct. 14, 2005.

Land was purchased and improvements were made by Fochtman Enterprises Inc.

The project proved to be more expensive than the original $3 million, so a modification was made to the mortgage on Dec. 22, 2006, which took the available funds to $4.9 million. The note was set to mature on Dec. 22, 2007.