Landmark Predatory Lending Suit Settled

FTC officials also declined to comment yesterday.

But others in the civil rights and fair lending arenas hailed the FTC's tenacity. "We're glad to see that the FTC persisted and obtained relief for the broader class of people," said Jeffrey D. Robinson, a lawyer who worked with Relman on the earlier settlement, involving cases documented in a Washington Post investigation in 1995.

The FTC case against Capital City was the agency's first action alleging massive predatory or abusive home lending.

Capital City foreclosed on one in five mortgage loans made from 1984 to 1995, and on one in three made from 1989 to 1991.

The national foreclosure rate has stayed around one in 100 in recent years, and the percentage of "subprime" loans in foreclosure -- those loans made at higher cost to people with faulty credit -- is on the order of four in 100.

The FTC has subsequently sued 19 other companies, mostly national or regional firms, and has won millions of dollars in those cases. In the Capital City case, the FTC had sought to reclaim about $8 million in allegedly fraudulent loans and to impose about $3 million in fines.

But the case dragged on. First, company founder Nash became incapacitated in late 2000 when he fell off his polo pony while riding at his estate in Brookeville. His cousin, Fairfax real-estate businessman Alan W. Nash, was appointed guardian in January 2001 and began serving as company president.

On the eve of the trial in April 2002, Kessler learned that Thomas Nash, then 57, had died, after being in a coma-like state for about 18 months. When the FTC learned of his death, agency lawyers scrambled to follow the money trail, which was complicated by the number of family and business trusts involved. Although Nash's will indicated that he died insolvent, with about $2.3 million in debt, the FTC lawyers moved to gain the right to sue some of the trusts, freeze the company's assets and persuade Kessler to order an accounting of what it said were "ill-gotten gains." The lawyers sought to have Kessler set aside at least $11.6 million pending the trial.

Kessler's busy caseload also complicated the scheduling. The judge consistently has urged the sides to settle.

According to the settlement documents, the $750,000 payment will come from the corporation. The FTC will secure the funds by holding the title to a building Capital City is turning into 14 condos. The property at 2100 Fendall St. SE will also secure a $350,000 "performance" fund to be kept up for seven years. The fund is meant to ensure that the company follows through on the deal.