An attorney alleged Tuesday in Denver federal court that the developer of a Snowmass spec home declared bankruptcy in bad faith to avoid being foreclosed on by a lender who is owed more than $8 million.
A bankruptcy judge, however, wasn’t ready to lift the court’s halt — referred to in legal speak as a “stay” — of foreclosure proceedings in Pitkin County on the Snowmass Village home, which at one time was marketed for $16 million.
U.S. Bankruptcy Judge Joseph G. Rosania Jr. instead set an evidentiary hearing for Nov. 18 to determine the merits of the bankruptcy and whether it meets legal muster to proceed.
Florida-based lender Okean Investments is challenging the Chapter 11 bankruptcy that was filed Aug. 12 by a limited liability corporation called 999 Brush Creek Road and controlled by Peter Droste. A foreclosure sale, instigated by Okean Investments, had been scheduled Aug. 14 but was indefinitely delayed because of the bankruptcy filing.
At Tuesday’s hearing, Okean attorney Jason Buckley said the LLC owes approximately $8.325 million to the lender and a foreclosure sale betters its chances to recoup that sum. Okean holds a $6.75 million secured note on the property, yet the LLC hasn’t made any payments this year on the debt, while interest accrues daily, he said.
“The company has had no cash flow ever,” said Buckley, an attorney with the Aspen firm Garfield & Hecht. “There’s never been any revenue. The debtor currently has no reserves or any cash to pay any type of adequate protection payments to the creditor and there are few unsecured creditors with relatively few claims.”
He added that “additional interest is accruing at approximately $4,500 per day.”
Okean is one of two secured creditors in the bankruptcy case; the Pitkin County Treasurer’s Office is the other one, with a tax lien of $21,807 on the property, according to court documents. The Pitkin County Building Department has an unsecured claim of $85,000, and an Aspen law firm has a $5,800 claim.
Carbondale attorney John LaSalle, however, objected to Buckley’s arguments saying 999 Brush Creek Road has received a lender’s commitment for debtor-in-possession (DIP) financing. LaSalle said the property, which is not currently on the market, will be relisted once the developer secures financing to finish the home.
“The house has had market exposure and it hasn’t sold in the period of market exposure,” he said, adding “without this type of luxury residence in this price range, it has to be completely finished and furnished to have any chance of successful marketing, and the successful marketing is of course our exit strategy from the Chapter 11, and the DIP financing will provide the money to finish the items necessary to complete the house.”
The financing would fund the completion of the home’s outdoor entryway, landscaping, paving of the property’s driveway, furnishing and other needs, he said.
“We anticipate the house will definitely be valued between $13 (million) and $14 million … and will permit us to exit Chapter 11 and go onto a successful sale,” LaSalle said.
Buckley said Okean can’t rely on the developer’s belief that the home will sell.
“At this point there is no effective reorganization that is in prospect,” he said. “All the debtor has right now is a hope that sometime in the future a purchaser will appear on the horizon to rescue them from this bankruptcy case.”
The judge noted that because the Pitkin County Assessor’s Office most recent appraisal of the property is $9.7 million, that gives the LLC equity because it owes $8.3 million to Okean.
The evidentiary hearing will include experts’ appraised value of the property. Each side said they will bring their own experts with their own appraisals.