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Bank One of Eastern Ohio (Bank One) on behalf of himself and
Family Motels to discuss a possible loan. After reviewing Mr.
Hafiz's financial statements, Bank One agreed to lend Mr. Hafiz
and Family Motels $1.6 million toward the purchase price of the
motel. The loan agreement required that the proceeds of the loan
be used to purchase the motel. Mr. Hafiz was required to pledge
all of his personal real estate holdings, bank accounts,
certificates of deposit, and his pension plan as security for the
loan. The loan was also secured by a mortgage on the motel.
Family Motels, Abdul Hafiz, M.D., Inc.,2 and petitioners were the
primary obligors under the loan.
In 1988, Mr. Hafiz and Family Motels applied for a second
loan with Bank One for the purchase of a Days Inn in Seymour,
Indiana. Bank One agreed to lend Mr. Hafiz and Family Motels
$1,550,000 for the purchase of the motel. Once again, Mr. Hafiz
was required to pledge all of his assets as security for the loan
and mortgage the motel to the bank. The commitment letter stated
that the source of repayment would come from the operating income
of the motel. Petitioners, Family Motels, and Abdul Hafiz, M.D.,
Inc., were the primary obligors under the loan.
Although Mr. Hafiz received promissory notes from Family
Motels equal to the amount of the loans at issue, the
2 Abdul Hafiz, M.D., Inc., was the professional corporation
for Mr. Hafiz's medical practice.
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