Traverse City Record-Eagle

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September 16, 2012

Millions at stake in foreclosure battle

TRAVERSE CITY — Northwestern Bank is attempting to recoup over $30 million in non-performing loans from one of its major commercial customers, a local client with deep development roots here.

Traverse City-based Northwestern Bank filed suit in 2011 against more than a dozen limited liability companies managed by members of the Nielson family of Generations Management LLC, and Generations Realty. The bad debt accounts for most of Northwestern's $50 million of non-accruing loans, those in which interest and principal payments have not been made in 90 days.

Some private groups that rank banking health and stability have downgraded Northwestern Bank, thanks to those troubled assets.

Northwestern continues to earn a two-star, problematic ranking from Florida-based Bauer Financial Inc., despite reporting $2.74 million in profit for the first six months of 2012.

Northwestern spokesman Doug Zernow said the bank tries to work with its customers to avoid foreclosures, which has put it behind the curve of other banks that already cut their foreclosure-related losses.

"If we had foreclosed on a number of loans earlier on and (got) them off the books, that actually improves the appearance of the bank and probably helps your star rating," Zernow said. "But we're a community bank. Foreclosure is not part of our business model."

Zernow called the recent flurry of foreclosures an "anomaly.

"This particular group of foreclosures we've been trying to work things out for a long time," Zernow said.

He declined to discuss details of the lawsuits or Northwestern's relationship with its customer.

Cori Nielson of Generations Management said their relationship with Northwestern is over and "unrecoverable."

The country's economic collapse contributed to, but was not the main reason behind the loan defaults, Nielson said.

"Nearly all of our portfolio loans with Northwestern matured in 2010," Nielson said. "Unfortunately, we were unable to get renewals on acceptable terms."

Northwestern's proposal doubled Generations' debt service and was an "all or nothing deal," she said.

"We wrote off all of these properties almost a year ago, so we moved on," Nielson said. "It wasn't pleasant, but we made the appropriate choice under the circumstances."

Court documents show Northwestern renegotiated the loans in November 2010, at an interest rate of 3 percent. A year later Northwestern filed 10 lawsuits that sought foreclosure on dozens of properties in four counties for $26.8 million in principal, costs, and interest due to non-payment of the loans and property taxes. Most of the loan documents were signed by Keith Nielson, Cori Nielson, and Jonathan Crosby.

Northwestern already was trying to recoup $3.75 million from a Nielson and Crosby-managed company, Immanuel LLC, related to the failed Bates Crossing development in Acme Township. Immanuel, which had also gone into default on $7.8 million it owed to the Oleson Foundation for a property purchase, filed for bankruptcy in 2010.

Northwestern also foreclosed on other properties outside of the lawsuits, Cori Nielson said. She could not say how many without researching the issue.

The bankruptcy remains ongoing and the lawsuits remain only partially settled pending their sale at auction.

"I hope any interested buyers attend the auction ... because there are going to be some really good deals," Cori Nielson said.

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