Combs’ Tale Shows Fraying Bank Ties

This year, Gary Combs replaced Tom Terminella as the most vocal commercial borrower taking on the Northwest Arkansas lending establishment.

The 56-year-old Springdale developer, like Terminella before him, has taken the battle to the bankers he thinks have done him wrong.

While Terminella continues to battle on despite losing a long-running fight with Little Rock’s Metropolitan National Bank, Combs has found a measure of success negotiating settlements at the tip of lawsuits.

Combs reached settlements with Bank of the Ozarks of Little Rock in June and First Federal Bank of Harrison in October after he filed lawsuits accusing the lenders of unjust treatment.

Combs has ongoing courtroom fights with Metropolitan and The Bank of Fayetteville, too. On the desktop publishing front, Combs began sharing his conspiracy-tainted opinions on the sad state of lender-borrower relations in inflammatory fliers distributed by e-mail.

The fliers eventually drew a warning from Arkansas State Bank Commissioner Candace Franks that his opinions might be construed as a criminal offense under the heading of “circulation of false rumor injurious to bank.”

His critics certainly don’t consider the outspoken developer a champion of abused borrowers. Some privately view him as a loud-mouthed bullyboy who needs to do a better job of keeping his financial affairs in order.

Combs finds such characterizations amusing and really isn’t interested in what anyone thinks about him, especially bankers. His stated interest is in seeing reason return to the relationship between developers and lenders.

“I don’t know if there is any relationship left between commercial borrowers and banks,” Combs said.

His dispute with The Bank of Fayetteville is a snapshot of the frayed relationships produced by the real estate meltdown in Northwest Arkansas.

The bank in July sued Combs and two of his limited liability companies, Combs LLC and Electric Avenue LLC, attempting to foreclose on loans totaling more than $5.5 million.

Combs responded with a $150 million amended countersuit against the bank, its nine directors and Bob King, a commercial loan officer. The amended counterclaim that Combs recently filed alleges breach of fiduciary duty, fraud, misrepresentation and more.

After a couple of bank directors were served with notice of the countersuit, Fayetteville attorney W.H. Taylor asked to receive service on behalf of the remaining directors. Combs’ attorneys decided to continue serving the board members personally, which generated an angry return call from Taylor.

“He called up my lawyer and told us we were chickenshits and assholes for serving them at their offices, that we had caused the directors embarrassment,” Combs said.

“I think he was frustrated that we weren’t content with his assertion that he could receive service on behalf of all the parties,” said David Fisher, co-counsel with Little Rock lawyer Jim Penick in Combs’ countersuit against the Bank of Fayetteville.

Taylor is “a well-respected lawyer up here, but to my knowledge, he doesn’t serve on the board of directors,” Fisher continued.

“His wife [Tonya Patrick] serves as the in-house counsel for The Bank of Fayetteville, and his partner, Tim Brooks, is the husband of the bank’s president, Mary Beth Brooks.”

And, in the sort of entanglement common in small cities, Taylor represented Carla Tyson Combs in her divorce from Combs several years ago.

“All I was trying to do was facilitate the activation of the legal insurance coverage for the board of directors,” Taylor said.

“Gary and I go way back. We’ve grown up together and gotten old together. We’ve even been on the same side of some cases.”

Combs didn’t appreciate being lectured on the niceties of observing proper etiquette for suing someone, considering how he learned that the bank had sued him in the first place.

“I’m getting sued by the bank a week after talking with Bob King,” Combs said, referring to The Bank of Fayetteville’s commercial loan officer. “He assures me that everything is in order and that a new financing agreement should be ready any day.

“Everything is good, he told me. The next thing, I’m talking with a reporter who wants to know what I think about the foreclosure suit that’s been filed against me. I’m going, ‘What?’

“That’s a 20-year relationship? They can’t justify [the foreclosure suit]. They have to give you 90 days’ [notice].”

Mary Beth Brooks, BOF president and CEO, declined comment.

The disputed Bank of Fayetteville loans are secured by the undeveloped Dead Horse Mountain tract in southwest Fayetteville, where Combs planned to build an upscale retirement project, a car wash in Springdale and Combs’ personal guarantee.

 

Diesel Downs

The battlefield for Combs’ fight with Metropolitan National Bank is a 36-acre tract at the northeast corner of Interstate 540 and Wagon Wheel Road in Springdale. The property was to become the home of Diesel Downs, a mixed-use development anchored by a truck stop.

His Wagon Wheel Development LLC bought the property for $7 million, originally backed with an $11.3 million loan from Bank of the Ozarks that included funding for site work.

According to Combs, Metropolitan wanted to fund the project as a substitute for the development loan on his 612-lot Sundowner residential project in Prairie Grove, east of Fayetteville.

So Combs switched the Sundowner loan to Bank of the Ozarks and Metropolitan picked up Diesel Downs.

“They told me they wanted that project, that they loved that project,” he said of Metropolitan’s assessment of Diesel Downs. “Why would I move the loan to get the same deal? At the time, we didn’t know they had so many problems.”

Problems with Metropolitan’s loan portfolio became public knowledge in June 2008 when the Office of the Comptroller of the Currency revealed that it had entered a supervisory agreement with Metropolitan the previous month.

Metropolitan has multimillion-dollar losses for the past four consecutive quarters.

The Diesel Downs project never progressed beyond having the infrastructure completed and the site ready for construction. When it came time to fund the second-phase construction, Combs said Metropolitan wouldn’t make the promised loan. He also learned bank officials were taking their cues from the OCC.

“They told us they can’t loan any more money at this time,” Combs said. “The very next day, it came out in the newspaper that they were under a supervisory agreement with the OCC.

“They left us sitting there stuck with a $150,000-a-month payment on a property that should be generating a nice profit if we could build on it.”

Combs said he was unable to find replacement financing because the credit pipeline was shut down amid mounting regulatory concerns over real estate lending.

“So I had to sue them for breach of contract,” Combs said. “They owe me $25 million to finish my project. They retaliated after I sued them by foreclosing on a house I had, and I hadn’t missed a payment.

“They’re breaching their contracts. What is good-faith lending any more? The banks have hit so many of us so hard that we’re going to be afraid to do any business with them.”

Susie Smith, senior executive vice president and chief financial officer at Metropolitan National Bank, declined to address specifically the changing relationship between banks and borrowers such as Combs. However, she said regulators are showing signs of easing up on lenders and creating more leeway to work with borrowers.

“Everyone is looking for ways to help customers through this turmoil,” she said. “We’ve had good relations with customers and look forward to good relationships in the future.”

For now, Combs said, negotiations at the point of a lawsuit remain the norm.