ALEXANDRIA, Va. — A federal judge Wednesday issued an injunction against Equity Programs Investment Corp. that orders it to put all income from mortgage loans in an escrow account until further determination by the court.
U.S. District Judge Claude Hilton said two banks that sued EPIC showed "substantial evidence that (EPIC) is in default of its contractual obligations."
National Bank of Washington and First National Bank of Maryland, which are trustees for more than $1 billion of the mortgages on houses owned by EPIC, claimed in their suit that EPIC was defaulting on $10 million in monthly payments to them.
The judge ordered EPIC to account to the two banks for all income received from mortgage loans and tell them how it is used. He prohibited the investment corporation from diverting any payments and income from the loans to any use other than an escrow account.
"The balance of equities would be best served in preserving the income received from the mortgage payments until the merits of the controversy can be considered by the trial court," Hilton said.
The judge ordered EPIC to post a nominal bond of $10,000.
EPIC is a real estate subsidiary of Community Savings & Loan of Bethesda, Md., and its problems have had such an effect on Community Savings that Gov. Harry Hughes ordered the thrift institution closed, stopping all withdrawals by depositors.
The savings and loan has been told by the state of Maryland that it must get Federal Savings and Loan Insurance Corp. coverage to reopen, but the FSLIC has denied such coverage until the thrift divests itself of EPIC and recovers millions of dollars that it loaned to the firm.
EPIC officials announced Aug. 16 that it did not have enough cash to make many of the mortgage payments due in August. But it said last week that it was analyzing its finances and that the banks should be assured that they would eventually be paid.
The New York Times reported Wednesday that a major real estate company has agreed to buy EPIC if the private mortgage insurers backing the corporation's securities contribute $100 million.
The potential buyer was not identified by the Times but was described as a syndicator, meaning that it raises money from the public and invests the proceeds in real estate ventures, similar to EPIC.
The newspaper said a formal meeting to negotiate a sale would be held in New York today among EPIC officials, insurance executives, representatives of the prospective buyer and investment bankers from Dean Witter Reynolds and Salomon Bros., which have been negotiating a bail-out of EPIC.