What If My Loan Is Still With A Bridge Bank?

• Published date: 17 April 2023
• Subject Matter: Wealth Management, Real Estate and Construction, Wealth & Asset Management, Construction & Planning
• Law Firm: Seyfarth Shaw LLP
• Author: Mr William Hanlon and David M. Bizar

When Signature Bank and Silicon Valley Bank were placed in receivership, the Federal Deposit Insurance Corporation (FDIC) transferred their respective assets to "bridge depository institutions" a/k/a "bridge banks."¹ The Signature Bridge Bank, N.A. and Silicon Valley Bridge Bank, N.A., subsequently sold "substantially all" of their assets to Flagstar Bank, N.A. (Flagstar) and First-Citizens Bank & Trust Company (First-Citizens), respectively, but excluded certain assets:

• $60 billion dollars of loans held by Signature Bridge Bank remain in receivership for disposition by the FDIC.²
• $90 billion in securities and "other assets" held by Silicon Valley Bridge Bank remain in receivership for disposition by the FDIC.³

Flagstar did not acquire merchant bank accounts, credit card loans, multi-family loans, construction loans, development loans and subscription finance loans.⁴ The Wall Street Journal recently reported that the FDIC has retained Newmark Group to sell roughly $60 billion of SB loans that were not sold to Flagstar Bank.⁵ These loans, many of which are reported to constitute New York-based commercial property loans, remain under FDIC receivership and are expected to be sold off at enough of a loss to cause reconsideration of the market value of property loans generally.⁶

The FDIC as receiver and First-Citizens entered into a loss-share transaction for the commercial loans that First-Citizens purchased, under which the FDIC as receiver and First-Citizens will share in the losses and potential recoveries.⁷ The FDIC projects that the loss-share transaction will maximize recoveries on these assets by keeping them in the private sector.⁸

Am I still required to pay my loan?

Yes. The FDIC continues to instruct borrowers of loans, transferred or not, to continue making their loan payments as usual unless notified otherwise. ⁹ Borrowers who stop making their loan payments should expect to be defaulted. The FDIC is obligated to maximize the value of failed bank loan portfolios, and we fully expect that the FDIC as receiver and the purchaser(s) of loans from the bridge banks will seek to enforce them. Borrowers are well advised to avoid default status, with its accompanying increase in interest, penalties and fees.

Interest on construction loans is normally funded by draws on the loan. Can the FDIC refuse to make advances and require borrowers to start paying out of pocket?

Loans transferred to Flagstar and First-Citizens should be serviced as usual.¹⁰ As we...