Report for Special Master s Status Conference. November 7, R-558 Millennium Closing Services, L.L.C. d/b/a Millennium Title

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1 Report for Special Master s Status Conference November 7, 2016 R-558 SDR: CANTILO & BENNETT, L.L.P. Primary Responsible Person: Susan E. Salch Estate Counsel: Christopher Fuller Receiver s Counsel: Kimberly M. Hammer RLO Analyst: Vicente Aguillon Background on Receivership Date of Permanent Injunction (Liquidation): January 25, 2016 Date of Appointment of SDR: January 26, 2016 Claims Filing Deadline: November 15, 2016 States where Licensed: Texas Lines of Business: Title Agency Texas Guaranty Association Triggered: Texas Title Insurance Guaranty Association Date of Impairment: January 25, 2016 Early Access Distributions: N/A Statement of Assets and Liabilities as of September 30, 2016 Total Assets: $4,082,880 Cash Assets: $ 980,156 Escrow Funds: $3,102,574 Non-Cash Assets: $ 150 Total Liabilities: $8,516,437 Negative Equity: ($4,443,557) Asset Recovery through September 30, 2016 Premium Collected: $N/A Subrogation/Salvage: $N/A Reinsurance Collected: $N/A FF&E Sold: $11,309 Status and Activity Since Last Status Conference Nancy Carroll Matters: Disbarment: On August 31, 2016, the Supreme Court of Texas entered an order in a disciplinary proceeding against Nancy Jackson accepting her resignation in lieu of disbarment. The order has the same effect of actual disbarment: she can no longer practice law. She is to notify all clients and opposing counsel of her disbarment, and

2 return all files and property (see Carroll Law Firm Files section below). She is ordered to pay restitution, totaling over $2.35 million, to a list of individuals, most of whom, but not all, were creditors known to the SDR. None of the individuals have received a payment from TTIGA. Carroll Law Firm Files: A large number of law firm files for NJC Carroll Law were abandoned at the Millennium Title Southlake office. The files are not estate records or estate property. The SDR has stored the materials since moving out of the office in March, while unsuccessfully trying to have Ms. Carroll or the State Bar take them. The Supreme Court s order required Ms. Carroll to notify clients and counsel of her disbarment, and return files and property. In late October, Ms. Carroll assumed the SDR s storage lease for her law firm files. There are no estate records at that location. Criminal Prosecution: The original criminal complaint was filed against Nancy Carroll a/k/a Nancy Jackson a/k/a Nancy Spinks in Tarrant County, Texas on February 22, She was released on a $50,000 bond in March. She was ordered not to participate in any real estate business or to practice law. On August 11, 2016, the State indicted Ms. Carroll for misapplication of fiduciary property that involved substantial risk of loss for William G. Williams and William Russell Williams. The court entered a scheduling order, but did not set a trial date. Carroll v. PTS of America: On July 1, 2016, Ms. Carroll filed a pro se lawsuit in federal district court in Fort Worth, Texas, claiming her constitutional rights were violated during her transfer from jail in Illinois to Texas. She unsuccessfully sought to proceed in forma pauperis, and has since paid the filing fees. Bank Accounts: All monies which had been held in Millennium Title escrow accounts are now held in a receivership escrow account, and have not been commingled with operating funds. IT/Data: All pre-receivership records, both paper and electronic, have been preserved and are being stored. The estate maintains access to the company s data through a cloud-based server operated by Willow Bend Systems. The transaction documents, maintained in guaranty files ( GFs ), are accessible through the Ramquest system. The SDR will maintain access to the Ramquest system for the foreseeable future. There is only a handful of paper GFs. Before receivership, it was the company s practice to scan all the documents into the Ramquest system, and then shred the file after the original documents were recorded and sent to the proper party. No documents were destroyed after the SDR was appointed. Employees/Staffing: Wayne Norton, a consultant retained by the Supervisor, advises the SDR on title agency matters. Mr. Norton, along with a small staff of other professionals, research GFs and the Ramquest system to review and make recommendations on claims filed with the Texas Title Insurance Guaranty Association ( TTIGA ) under its claims process (detailed below). Mr. Norton and his team also assist the SDR in reviewing Proofs of Claims ( POCs ) filed with the estate. 401(k) Plan: The SDR is now the administrator of the Millennium Title 401(k) plan. 2

3 The SDR will make the necessary filings for 2015, and begin the process to dissolve the plan while safeguarding the funds. Asset Recovery Activity Cost Sharing with TTIGA: The SDR and TTIGA continue to work under a cost sharing agreement, similar to the agreements reached in prior title agency estates. Nancy Carroll and Affiliates: Previously, in order to prevent a race to the courthouse and the related dissipation of assets, the SDR sought and received a temporary injunction against Ms. Carroll, a number of assumed named entities, her law firm, and her 1031 exchange company freezing all of their assets. The court order also required the banks holding accounts for Ms. Carroll, her affiliates, and associates to freeze the accounts and turn over financial records. In September, the SDR severed its motion for injunctive relief against Ms. Carroll, her family and affiliates into a separate lawsuit. The new case is set for trial on September 25, Subsequently, the SDR filed an amended pleading asserting causes of action for money damages against the same parties and adding certain former employees as defendants. The suit is brought on behalf of the estate s creditors pursuant to Tex. Ins. Code (m). The former employee defendants are insureds under the E&O policies issued to Millennium Title and/or Carroll affiliate Millennium 1031 Exchange. The SDR anticipates that TTIGA, as the assignee of covered title claims, will intervene as a plaintiff. All proceeds from litigation will be allocated pursuant to the requirements of the Insurer Receivership Act, including, but not limited to, Tex. Ins. Code The SDR anticipates that there will be a number of creditors who may not qualify for TTIGA coverage, but nevertheless have claims against the assets of the estate. Such creditors would participate in any distributions based on their priority under Tex. Ins. Code Insurance/Bonds: The SDR is pursuing claims against the bonds and insurance policies involving Millennium Title. The SDR s claim under the $500,000 Escrow Security Bond remains pending; the SDR anticipates a response from the carrier in the near future. The SDR provided additional information to the bonding company in connection with its claim on the $50,000 Direct Operations bond. The SDR is completing work necessary to file claims on the $50,000 Escrow Officers bond. The SDR s amended lawsuit against Ms. Carroll, her family, affiliates, and certain former employees asserts claims that should be covered by Millennium Title s E&O policy and Millennium 1031 Exchange s E&O policy. The SDR is not aware of a malpractice policy for the NJC Carroll law firm. In the lawsuit, the SDR is asserting claims on behalf of all creditors pursuant to its authority under section (m). To the extent that some creditors that claim to assert only personal (i.e., fraud) claims, which are outside the scope of section (m), they would not be covered under the E&O policies. Only the SDR is authorized to assert all other claims. Claims Activities 3

4 SDR s POC Process/Filing Deadline: The Receivership Court granted the SDR s joint application with TTIGA to establish a POC process and filing deadline of November 15, 2016, for claims against the estate and the association. As of September 30, 2016, notices had been mailed or ed to 6,250 potential claimants. The SDR also published notice of the process and filing deadline in newspapers in Austin, Fort Worth, Dallas, and Houston, Texas. Additionally, the POC forms, instructions, and notice of the filing deadline are posted on the estate s web site. As of September 30, 2016, 147 POCs had been filed or deemed filed. The total includes 125 claims that had been originally submitted to TTIGA and denied, in whole or in part. Such claims were deemed filed with the SDR pursuant to the order approving the POC application. Claims arising from title issues will be processed by Wayne Norton and his team; non-title claims will be processed by EMKAY. New claims that may be covered by TTIGA are being referred to the association. TTIGA Claims: Through September 30, 2016, TTIGA received 442 POCs, and processed and paid 332 POCs for approximately $3,348,981. In comparison, as of June 30, 2016, TTIGA had received 403 claims and processed and paid 289 POCs for approximately $3,170,134. As noted above, the deadline for TTIGA POCs to be filed is also November 15, Over the Cap Claims: No over the cap claims were reviewed or approved in the last quarter. Avondale v. TTIGA: On August 4, 2016, Avondale Development filed suit against TTIGA in Travis County state district court. The suit seeks a declaratory judgment that (1) there is a right to a judicial review of TTIGA claim determinations, and (2) that Avondale has one or more covered claims. TTIGA has answered and served discovery. Unclaimed Escrow Money: The SDR holds $224,653 in escrow funds for which no claim has been filed even though the claims team has notified the presumed owner of the funds (at least once) of the need to file a claim. There are 215 open items with amounts ranging from $5.00 to $66,298. The SDR will continue to work with the claimants and TTIGA to get the claims filed. Transaction Completion: The SDR s team has resolved a number of pre-receivership real estate closings and/or transactions that required clean-up work even though they did not represent a covered claim or even a monetary claim against the estate. The SDR instructed the claims team to handle such matters to the extent that Millennium Title would have, but for the receivership, provided that the estate is not bearing significant costs. These matters include facilitating the issuance of title policies for lenders. At this time, the majority of issuable policies have been issued; the underwriters are still working to issue, or have objected to the issuance of, approximately 25 policies. In the case of such objections, the SDR provides the policy owner with contact information for the underwriter. 4

5 General Legal Activities Conclusion Litigation: Only one lawsuit has been filed against Millennium Title, and it is stayed. Four lawsuits have been filed against Nancy Carroll and/or her affiliates, and notices of the automatic stay have been filed in each case. One case against Ms. Carroll, her family, and affiliates, has not recognized the stay. WFG has filed a petition in intervention in that case. The SDR expects to file an application to enforce the automatic stay and permanent injunction against the lawsuit in Tarrant County. Motions to Lift Stay: Three motions for relief from the automatic stay have been filed, and the Special Master recommended that all be denied. The district court affirmed the denial of the Maverick Title motion. The SDR reached an agreement with JAW Homes on its motion. The most recent was filed by Peniel Holdings, LLC ( Peniel ). The Special Master recommended denial of the Peniel motion on September 30, No appeal to the district court has been filed as of the date of this report. Summary of Major Achievements: Obtained court approval of estate and TTIGA POC filing deadline and process. Published notice of POC deadline and issued notice to potential claimants. Assisted TTIGA with review of escrow account POCs. Severed claims against Carroll, her affiliates and associates, and certain financial institutions into a separate lawsuit, and amended pleadings to assert claims for damages. Filed claims on Escrow Security and Direct Operations bonds. Completed transfer of NJC Carroll law firm files. Estate Goals to achieve prior to next Status Conference: Complete adjudication of SDR claims as to priority classification. Pursue case against Carroll and affiliates. Pursue bond and insurance claims. Assist TTIGA in completion of its claims process. Enforce stay and permanent injunction. Assist prosecutors. Estate Closing Date of Receivership: Mid-2018 Identification of Factors Affecting Closing Date and Final Distribution: Coordination/Cooperation with TTIGA. Processing TTIGA and Estate POCs. Coordination/Cooperation with Criminal Prosecution. Asset Recovery. 5