Capitol Bancorp awarded $44.8 million

Capitol Bancorp's latest quarterly report shows the company is still reeling from bad real-estate loans. But the financial firm scored a victory on a mortgage-fraud case this week.

Capitol, which operates community banks in Arizona and 14 other states, was awarded $14.8 million in compensatory damages and $30 million in punitive damages in Maricopa County Superior Court.

Judge Edward Burke cited "intentional, outrageous and fraudulent conduct" by a mortgage broker, representatives of a title company and others.

The awards are larger than Capitol Bancorp's stock-market capitalization of $26 million.

The company, which is jointly based in Phoenix and Lansing, Mich., has been hit hard by problem loans and has been busy paring and deleveraging its operations. Capitol this week reported a second-quarter loss of $41 million or $1.98 a share.

The lawsuit involved falsifications of loan applications, down payments, loan deposits, incomes and other information that was used to obtain more than 200 residential-construction loans mostly on Arizona properties from 2001 to 2007, with most of those originated by Mesa Bank, which was owned by Capitol.

Burke found that defendants, who included Thomas Alexander, Sandra Stevens, Bobbi Jo Johnson and Capital Title Agency Inc. all played roles in the scheme. Scottsdale resident Alexander was a mortgage broker working for American Mortgage Specialists and American Mortgage Funding, while Stevens and Johnson worked at Capital Title.

Capitol's lawsuit involved 45 residential-construction loans on which Mesa Bank suffered damages. The company sold 193 other loans.

The loan defaults harmed Mesa Bank to the point that Capitol was forced to merge it into sibling Sunrise Bank of Arizona, said Brian English, Capitol's general counsel.

"If the fraud didn't happen, Mesa Bank still would be operating," he said.

Phone calls to some of the defendants weren't immediately returned.


by Russ Wiles The Arizona Republic August 20, 2010 03:11 PM



Capitol Bancorp awarded $44.8 million