Mercury Companies Inc. is closing down its title and escrow subsidiaries in California, Texas and Arizona, after the Colorado-based company was denied additional credit by lenders.
In California, Mercury subsidiary Financial Title Co., a title and escrow service provider with 57 offices in 10 counties, closed its doors Wednesday much the way sister company Alliance Title did in December — abruptly, and with little warning to employees, clients or regulators.
"We first heard about it this morning," said Darrel Ng, a spokesman for California Insurance Commissioner Steve Poizner, on Wednesday. The Department of Insurance has employees in place at each Financial Title office to oversee the transfer of files to underwriter First American Corp., Ng said. "It is our understanding that all the escrow money is intact, and that there will be no financial losses for customers," although some may see their closings delayed.
First American — which is currently engaged in a legal battle with Mercury over its stake in the company — has set up a dedicated customer service center to field questions from existing customers. Those with pending transactions are advised to call (925) 249-2819 for more information.
As the sole title insurance underwriter for Financial Title and another Mercury subsidiary, Lenders Choice Title, First American said it was committed to fulfilling "its duties and responsibilities" to ensure transactions "are successfully processed to completion." A First American spokeswoman said the company is taking similar steps in Texas and Arizona.
Mercury also shut down United Title of Texas on Wednesday, informing employees in a memo that it was unable to obtain cash needed to sustain operations outside of Colorado, the Houston Chronicle reported. The memo blamed the decision on "an unexpected, and in our opinion, unwarranted and unjustified act by our syndicate of banks, which deprived us of the cash we needed to sustain and to continue those operations."
Mercury did not immediately respond to a request for comment Wednesday.
After Alliance Title closed, the California Department of Insurance filed a "cease and desist" order against the company, claiming it had a net deficit of $50.6 million at the end of November. Alliance and Mercury also face lawsuits by the California Labor Commissioner and former employees who claim they are owed unpaid wages and expenses.
Mercury sued First American Corp. in May in an attempt to obtain a judgment from a federal district court that would force the company to continue underwriting title insurance policies on behalf of Mercury’s California subsidiaries.
The lawsuit claimed that Mercury and First American had agreements that, among other requirements, called for Mercury and its affiliates to be First American’s exclusive agents in Colorado (see story).
In a July 17 answer to the lawsuit and counterclaim, attorneys for First American said Mercury breached the agreements by refusing to repay millions in loans dating back to 2001 or convert First American’s nonvoting preferred stock in Mercury into Class A common stock as promised.
In November 2004, First American alleged in its counterclaim, Mercury issued a promissory note obligating it to pay First American Title $15 million by Oct. 31, 2005. The maturity date was later extended to Sept. 30, 2007, with Mercury obligated to pay 12 percent interest on any outstanding debt after that date.
In June 2006, First American Title agreed to pay Mercury $75 million in exchange for 75,000 shares of nonvoting preferred stock, which was to pay dividends of 5 percent a year. First American claims that under Mercury’s articles of incorporation, the stock was to be automatically converted into Class A common stock if Mercury did not announce plans to redeem the shares by Sept. 30, 2007.
Mercury did not redeem the shares or convert them into Class A common stock with voting rights, and has failed to pay principal and interest on other debts, First American alleges.
"Mercury has breached its agreements (by) … refusing to pay dividends, principal, interest and other sums owing to (First American), failing to perform key obligations under the agreements and Mercury’s articles, and by failing to provide other performance required under the agreements," First American’s lawyers said.
First American is seeking an order preventing Mercury from holding shareholder meetings or votes without notice and consent of First American Title.
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