On February 11, 2011, the Hon. Alan Gold of the United States District Court for the Southern District of Florida issued a 113 page opinion and order quashing the bankruptcy court's order requiring the lenders involved in TOUSA, Inc.'s Transeastern joint venture to disgorge, as fraudulent transfers under Section 548 of the Bankruptcy Code, settlement monies that they had received on July 31, 2007 in repayment of their existing debt and to pay prejudgment interest on such monies, for a total disgorgement in excess of $480 million.

Judge Gold's decision signifies a victory for lenders who have criticized the bankruptcy court's order as unduly broadening the scope of fraudulent transfer risk and liability to lenders and for failing to recognize the commercial realities of financing provided to a corporate group. However, whether Judge Gold's decision will withstand the scrutiny of appeal to the Eleventh Circuit remains to be seen.

TOUSA and the July 31 Transaction

In June 2005, TOUSA, Inc. ("TOUSA")'s wholly-owned subsidiary Tousa Homes LP ("Homes LP") entered into a joint venture (the "Transeastern JV") with an unaffiliated entity for the purpose of acquiring certain homebuilding assets. The Transeastern JV was funded primarily by $675 million of financing from various lenders (the "Transeastern Lenders"). TOUSA and Homes LP were obligated as guarantors under multiple completion and carve-out guarantees in favor of the Transeastern Lenders.

In or about September 2006, the TOUSA obligors went into default under the Transeastern credit agreements. In late 2006, litigation ensued between TOUSA and Homes LP and the Transeastern Lenders. The Transeastern Lenders alleged more than $600 million was advanced under the Transeastern credit agreements and that liability under the completion guarantees exceed the full amounts owing under the credit agreements several times over.