LandAmerica claims plan set

Customers of the now-closed LandAmerica 1031 Exchange Services Inc. are slated to receive between 25 cents and 70 cents on the dollar owed when their claims are settled in bankruptcy court.

Who gets what depends on the type of agreement customers had with the company, a subsidiary of Henrico County-based LandAmerica Financial Group Inc.

"This thing is a scam, it's a rip-off," said Ret. Army Lt. Col. Tracy Ralphs of Suffolk, who put $81,666 with the exchange company. "I'm getting pennies on the dollars that should be mine to begin with."

LandAmerica and its 1031 subsidiary filed Chapter 11 in U.S. Bankruptcy Court in Richmond in November. A plan detailing how claims from creditors would be handled was filed last month.

About $108.5 million may be left over from the exchange company for creditors once costs, such as attorney bills, are deducted, court documents show.

A hearing will be held Tuesday on a disclosure document detailing LandAmerica's financial and administrative circumstances, as well as a request to send a letter to creditors seeking support of the plan. That letter contained the breakdown of what creditors may receive.

"Is it ideal? No," said Cantor Arkema attorney Kevin J. Funk, who represents several exchange customers. "There is no ideal outcome for this. It's a matter of dividing up a finite amount of resources."

Section 1031 of the Internal Revenue Service code allows investors to defer capital gains taxes if they park the proceeds of a real estate sale with a third party, commonly known as 1031 exchange companies, and then reinvest that money within a certain time period.

In most cases, LandAmerica's exchange subsidiary put customer money in one fund and then invested the money. Only at a customer's request was the money segregated into separate accounts.

When the exchange company filed bankruptcy, it had about 450 customers. Only about 50 had segregated accounts. They are slated to receive 70 percent of their claims, while the others will get 25 percent.

Charles R. Gibbs, a Dallas attorney representing unsecured creditors, declined to say why some customers are expected to receive more money. "That's part of a mediation settlement that includes many issues," Gibbs said.

It's possible exchange creditors could recoup more money.

The plan also calls for the creation of a trust to fund potential litigation. LandAmerica's exchange company invested customer money in auction-rate securities, a supposedly liquid investment that dried up in February 2008.

The company hired a law firm to go after the banks that marketed those funds. Any damages won will go to exchangers, unsecured creditors and other claimants.

"I think it's safe to say money will be coming into the estate in the future," Funk said. "How much? It's hard to say."

Contact Emily C. Dooley at (804) 649-6016 or .