James D. Gassenheimder
James D. Gassenheimder (J. Albert Diaz)

In an unique settlement, Bank of America Corp. will hand over $26.4 million in mortgage loans to the bankruptcy liquidation trustee for defunct Taylor, Bean & Whitaker Mortgage Corp.

Ocala-based Taylor Bean and ex-CEO Lee Farkas perpetrated a $2.9 billion fraud, causing the collapse of Montgomery, Ala.-based Colonial Bank in the process. Taylor Bean was the nation’s largest private mortgage origination company when it filed for bankruptcy protection in 2009 after manufacturing fake loans and failing to service 528,000 others.

Farkas is serving a 30-year prison sentence.

“This is the largest fraud case nobody has ever heard about,” said attorney James Gassenheimer, a Miami partner at Berger Singerman, who represents the liquidating trustee Neil F. Luria, senior managing director of Solic Capital in Evanston, Ill.

A settlement plan was approved by U.S. Bankruptcy Judge Jerry A. Funk in Orlando in 2011, and Luria has been pursuing clawback lawsuits to reimburse creditors, including Freddie Mac and Ginnie Mac.

The settlement with Bank of America calls for the trust to pay $10.3 million and receive the $26 million mortgage pool. The lawsuit against the bank claimed it failed to pay Taylor Bean $40 million under forward-purchasing agreements pending at the time of the bankruptcy filing.

Funk on Monday approved the bank settlement reached July 14.

“We’ve agreed to take these loans back as currency,” Gassenheimer said. “The interesting part of the transaction is how we settled.”

Luria will hire a company to service the single-family home mortgages. Even though some of the loans are 30-year notes, Gassenheimer said the estimate is that most, if not all, of the loans will be refinanced within five to seven years.

“They have a higher future value,” he said. “We will collect the interest and, when they are refinanced, the payoff. The value to the bankruptcy estate is substantially higher than $26.4 million.”

Bank of America was represented by Daniel F. Blanks of McGuireWoods in Jacksonville. He did not respond to a request for comment by deadline. Bank spokesman Phil Halldin said it had no comment.