When taxpayers fail to pay money they owe the federal government, the consequences aren't pretty: lawsuits, fines and even jail time are possibilities.

But when banks don't keep up with payments on the aid they received through the Troubled Asset Relief Program, the response can be far more charitable.

After failing to pay millions of dollars in dividends it owes the government as a condition of its TARP aid, Hampton Roads Bankshares is set to have nearly $60 million of its obligation forgiven.

An agreement announced last week between the Hampton Roads and the Treasury Department would cause the government to exchange its $80.3 million investment in the company for common stock initially valued at about $20.9 million.

Essentially, 74 percent of taxpayers' investments in the Norfolk, Va.-based company - or roughly $59.4 million - would be wiped out.

The exchange would be part of a broader restructuring designed to save Hampton Roads from possible insolvency by injecting it with more than $250 million in new capital from private investors.

Hampton Roads is the holding company for two Virginia banks: Bank of Hampton Roads, which has $2.7 billion in assets, and Shore Bank, with $323.7 million in assets. It also owns Gateway Bank & Trust Co., which operates primarily in North Carolina.

The holding company got $80.3 million through TARP's Capital Purchase Program on Dec. 31, 2008. Since then, it has missed three of the quarterly dividend payments it was supposed to pay Treasury, leaving it $3 million short on its obligations to taxpayers, according to the latest report from the Special Inspector General for TARP.

Deals like the one that Treasury struck with Hampton Roads are becoming increasingly common among struggling TARP banks. Earlier this week, BailoutSleuth reported that taxpayers could lose $227.2 million under a similar deal with Sterling Financial Corp., of Spokane, Wash.  Last week, BailoutSleuth reported that taxpayers could lose $180.6 million of their investment under a deal Treasury orchestrated with Pacific Capital Bancorp., based in Santa Barbara, Calif.

Although taxpayers stand to lose hundreds of millions of dollars on the deals, they could recoup some of that money if the banks return to financial health and Treasury is able to sell its common stock for more than the conversion price.

Without the exchanges, investors would be unlikely to provide the companies with fresh capital. And if the banks become insolvent and fail, taxpayer could lose their entire investment.

Hampton Roads is seeking to raise $275 million in new capital, and the deal with Treasury is conditioned upon the company raising at least $235 million.

It appears that Hampton Roads will meet the government's requirement. It has announced that it expects to close a deal in the third quarter in which three investors - Anchorage Advisors LLC; CapGen Financial Group; and The Carylye Group - would put $255 million into the company.

"This agreement facilitates our capital raise, which will substantially strengthen our balance sheet and provide a solid foundation for the future," said John A. B. "Andy" Davies, Jr., the company's president and chief executive.

The holding company and Bank of Hampton Roads are under an enforcement order issued earlier this summer by the Federal Reserve. The order required the company to take a number of actions, including boosting its capital, strengthening its management and improving its lending operations.

Bank of Hampton Roads has a worst-possible rating of "0" from independent banking analyst Bauer Financial.