MIAMI – A federal appeals court yesterday denied a request by Power Financial CU to order NCUA to uphold a $15 million real estate loan deal the federal regulator had agreed to, then rescinded because the borrowers did not fit within the credit union’s field of membership.
The U.S. Court of Appeals for the Eleventh Circuit simply affirmed the lower court ruling in October 2011, in which the court found that NCUA was within its authority to cancel the preliminary agreement for Power Financial to buy mortgages owned by trouble Keys FCU because the borrowers were not eligible for Power Financial membership.
Power Financial is based in Pembroke Pines, a suburb of Miami that is 160 miles north of Key West, the seat of Monroe County and home of Keys FCU. NCUA has run Keys FCU under conservatorship since September 2009.
In the lower court ruling, the U.S. District Court for the Southern District of Florida said to approve the deal, “would put NCUA in the proverbial position between a rock and a hard place,” requiring it to either void a legal contract or approve a deal that violates the Federal CU Act’s provisions on field of membership.
But Power Financial argued that state regulators subsequently approved its expansion to cover the Florida Keys and ruled the credit union could complete the deal because it was authorized to sign the borrowers as members. The state credit union statute “does not require that loans purchased by a credit union have been made to persons who are members of the purchasing credit unions at the time the loans were made, but only to persons who are or who would become members of the purchasing credit union at the time the loans are purchased.” Therefore, reasoned Power Financial, it could buy the loans, then sign the borrowers as members afterward.
The lower court said if Power Financial had done so “in a reasonable time frame” then NCUA would have been obligated to complete the deal by the July 15, 2010 closing date. It was not until October 2010 that the Florida Office of Financial Institutions approved Power Financial’s request to expand to Monroe County. “However,” said the court, “this authorization to enroll members in the Monroe County area by no means guaranteed their enrollment.”