Loans with Diverted Principal: List, Amounts, Recovery Update

UPDATE (Oct. 2): USACM has released a partial list of the loans for which principal repayments by the Borrowers were diverted by the Company’s prior management for use as interest payments to all investors, plus the dollar amounts that were diverted. This partial list reports only the principal owed to Direct Lenders as of April 13, 2006. All other loans and amounts have not yet been approved by the Committees for disclosure

USA Commerical Mortgage Company, et. al.

Principal Owed to Direct Lenders

As of April 13, 2006

LOAN NAME	Principal Owed to Direct Lenders
Bay Pompano Beach	$8,289,150.50
Beastar, LLC	$3,073,694.36
Beau Rivage Homes/$8,000,000	$23,356.58
Cabernet	$900,000.00
Copper Sage Commerce Center, LLC	$1,388,389.86
Del Valle Isleton	$380,000.00
Freeway 101	$3,750,000.00
Oak Shores II	$3,000,000.00
Roam Development Group	$633,743.28
Universal Hawaii	$5,040,826.63

USACM's Approach to Recover $46 Million in Diverted Principal

(Sept. 5): At the Aug. 4 hearing, USACM was approved by the U.S. Bankruptcy Court to make an interim distribution of funds to Direct Lenders from funds held in its Collection Account and to “net” prepaid interest from amounts due to investors. Direct Lenders who had received interest from USACM pre-petition on loans where the Borrower had failed to remit the interest payment to USACM had that amount deducted from any amounts due to them. The prepaid interest represents diverted principal USACM is working hard to recover.

With the netting from the distribution approved at the Aug. 4 hearing, the status of recovery of the diverted principal back into the USACM estate looks like this:

$13 million has been recovered by collecting unpaid interest from Borrowers
$13 million was recovered through “netting” in the interim distribution approved Aug. 4
$13 million has been held back from legal vesting accounts where the amount due to the investor was less than the amount owed from the investor to USACM. The Direct Lender would know this had happened because he or she would receive a new June 30 statement with a negative balance.

We will try to update the status of this recovery as new information becomes available

The following is USACM's approach for recovering certain principal repayments received from Borrowers that were subsequently diverted by USACM's prior management and not remitted to those Direct Lenders. USACM, Mesirow, and the Debtor's legal counsel are working very hard to solve this issue for Direct Lenders that Chief Restructuring Officer Thomas J. Allison has described in court as the "true creditors of the estate." USACM is aggressively pursuing a multi-faceted strategy for recovering the approximately $46 million in principal that was diverted.

Collect Unpaid Interest from Borrowers - USACM seeks to collect unpaid interest from Borrowers on non-performing loans that USACM advanced to investors in those loans. Mesirow estimates that approximately $46 million in interest was paid by USACM to investors, but not collected from Borrowers. To-date, USACM has been able to recover approximately $13 million of this uncollected interest.
Collect Prepaid Interest from Investors Through Court-Approved “Netting” - Direct Lenders who had received interest from USACM pre-petition on loans where the Borrower had failed to remit the interest payment to USACM had that amount deducted from any amounts due to them in the interim distribution approved at the Aug. 4 hearing. This netting recovered $13 million.
USACM $58.3 million Security Agreement and Promissory Note with USA Investment Partners ("USAIP") - USACM obtained and is working to monetize a security agreement and promissory note with USAIP that grants the USACM a security interest in USAIP's equity interests as part-owner in the several real estate entities.
Any and All Other Avenues of Recovery - USACM and the Mesirow continue to examine the records of USACM to identify and trace monies that left the estate that can be recovered by any legal means.

It is important to note that if USACM is successful at collecting all the monies it is pursuing, USACM believes it is possible for every creditor to get paid in full.

info@usacapitalcorp.com

USA Capital - Las Vegas · 4484 South Pecos Road · Las Vegas, NV 89121
NV MBR 333 · Phone 702.734.2400 · Fax 702.734.0163