Lordship Development, LLC

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
NEW BERN DIVISION
IN RE:
LORDSHIP DEVELOPMENT, LLC,
Debtor. 	CASE N0. 08-04965-8-JRL
CHAPTER 11
____________________________________________________________________________
ORDER
This case is before the court on a motion for relief from the automatic stay filed by
Wachovia Bank, National Association (“Wachovia”). On November 4, 2008, the court
conducted a hearing on this matter in Greenville, North Carolina.
BACKGROUND
On July 24, 2008, Lordship Development, LLC (“Lordship Development”) filed for relief
under chapter 11 of the Bankruptcy Code. The debtor is engaged in the business of real estate
development and owns real property comprised of approximately 101 acres of raw land in
Brunswick County, North Carolina. On October 31, 2006, the debtor executed a promissory
note and deed of trust in favor of Wachovia in exchange for a loan in the maximum principal
amount of $5,215,744.00, although the total amount was never advanced. On June 11, 2008, the
SO ORDERED.
SIGNED this 06 day of November, 2008.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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Clerk of Court of Brunswick County, North Carolina entered an order allowing a foreclosure
sale on the debtor’s property. This case was filed after the sale and during the upset bid period.
On October 3, 2008, Wachovia filed a motion for relief from the automatic stay. As of the date
of this motion, the outstanding balance due to Wachovia under the note was $3,744,424.48.
DISCUSSION
Section 362 of the Bankruptcy Code provides that a debtor’s bankruptcy petition
automatically stays “any act to obtain possession of . . . or to exercise control over property of
the estate,” as well as “any act to collect . . . or recover a claim against the debtor that arose
before the commencement of the case . . ..” 11 U.S.C.A. § 362(a). However, the court may
terminate the automatic stay -- (1) for cause; (2) if the debtor has no equity in the property and
the property is not necessary to an effective reorganization; or (3) in a single asset real estate
case, 90 days after filing unless the plan of reorganization “has a reasonable possibility of being
confirmed within a reasonable time,” or the debtor “has commenced monthly payments that are
in an amount equal to interest . . . on the value of the creditor’s interest in the real estate.” Id. §
362(d)(1)-(3).
First, Wachovia asserts that there are adequate grounds to lift the automatic stay for cause
due both to a lack of adequate protection of its interest and a lack of payments for a substantial
period of time. Under § 361, a debtor-in-possession can provide adequate protection by making
periodic cash payments to a creditor whose interest in property is declining in value due to the
automatic stay. 11 U.S.C. § 361. At hearing, Wachovia offered credible testimony from an
appraiser who conducted two appraisals on the real property at issue. The first appraisal
concluded that the “as is” market value of the property on January 3, 2008, was $4,150,000.00.
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The second appraisal, dated September 12, 2008, concluded that the value of the property had
decreased to $3,510,000.00. The appraiser testified that the property’s decline in value was due
to depressed housing market conditions. Also in support of cause to lift the stay, a representative
of Wachovia established that, except for interest payments drawn from a reserve account under
the loan, the debtor had failed to make any payments under the note since its inception. In
response, the debtor asserted that Wachovia was not entitled to adequate protection because the
value of the property had stabilized. In support of this assertion, the debtor referred to a quote
contained in the September appraisal from an economist who stated that the Brunswick County
housing market had declined during the early portion of 2008 but was rebounding to mid-2007
levels.
Second, Wachovia contends that the court should lift stay pursuant to § 362(d)(2)
because the debtor lacks equity in the property and the property is not necessary to an effective
reorganization. At hearing, a representative of Wachovia established that, as of the petition date,
the total amount due under the note was $3,640,752.93. However, the most recent appraisal
valued the property at $3,510,000.00. Additionally, Wachovia asserted that there is no entity to
reorganize because the real property is merely raw land, the debtor is not conducting any
operations on the property, and nothing had been done to the property since the fall of 2007. As
a result, Wachovia argued that it was being held hostage on account of the automatic stay and
that no detriment to the estate would result by lifting the stay. In response, the debtor argued
that it needed more time to either obtain new financing or market the property for sale. Also, the
debtor identified several unsecured creditors and executory contracts that would allegedly be
harmed if the stay is lifted.
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Finally, Wachovia alleges that relief from stay is appropriate under § 362(d)(3) because
the property at issue is single asset real estate, the debtor’s plan does not have a reasonable
possibility of being confirmed within a reasonable time, and the debtor has not proposed to pay
any principal or interest to Wachovia. At hearing, Wachovia pointed to the debtor’s inability to
make any payments on the note as evidence that the debtor was simply using the automatic stay
to shift the risk of a decline in property value to Wachovia. The debtor asserted that its proposed
plan allocates two years in which to either sell the property or obtain additional financing to pay
Wachovia’s claim in full. The debtor contends that this two-year period is necessary based on
current housing market conditions.
The court finds that Wachovia is entitled to relief from stay under all three prongs of §
362(d). The appraisals establish that there is no equity in the property and the property has
declined in value over the course of the year. Furthermore, there is no reasonable likelihood of
reorganization here. There has been a complete default by the debtor, both of payment and
performance, since the loan was taken out and there is no prospect of development, no financing
in place, no prospective purchasers, and no marketing strategy. Critically, the debtor offered no
evidence at the hearing, as no proponent of the debtor appeared to persuade the court that the
debtor has any interest in reorganization. In short, the court finds that this is precisely the type
of case that the single asset real estate provisions were adopted to prevent.
Based on the foregoing, Wachovia’s motion for relief from the automatic stay is
ALLOWED.
“END OF DOCUMENT”
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