3 G Properties, LLC

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
3G PROPERTIES, LLC, 	CASE NUMBER: 10-04763-8-JRL
CHAPTER 11
DEBTOR.
ORDER
This matter came before the court on the debtor’s request for confirmation of its chapter
11 plan of reorganization, filed on December 13, 2010, and the first and second modifications to
the plan, stated orally on the record at the hearing and subsequently filed. A hearing was held on
May 19, 2011, continued on May 20, 2011 and May 23, 2011, and concluded on May 24, 2011,
in Raleigh, North Carolina. The two secured lenders in this case, Southern Community Bank
(“Southern”) and Capital Bank (“Capital”), both impaired under the plan, object to confirmation.
Both creditors filed supplemental objections to the debtor’s second modified plan following the
hearing. Those objections are considered herein along with the record before the court at the
time of the hearing.
BACKGROUND
3G Properties, LLC, the debtor, is the resulting entity from the merger of three separate
entities: Lake Glad Road Commercial, LLC; Lake Glad Road Partners, LLC; and, Granville Park
SO ORDERED.
SIGNED this 12 day of July, 2011.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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Partners, LLC. On June 14, 2010, the debtor filed a voluntary petition for relief under chapter 11
of the Bankruptcy Code. The debtor owns two pieces of real property in Granville and Vance
counties; the first is raw land intended for development both as a residential neighborhood and a
commercial tract, and the second is raw land to be developed as an industrial park.
Known as Highland Trails, the first property is situated along Highway 56, in the city of
Creedmoor near the town of Butner and I-85. Highland Trails totals approximately 250 acres,
and is intended to be a mixed-use community with both residential and commercial portions. If
developed according to the debtor’s plan, the commercial portion would encompass 58 acres,
while the remaining 192 acres would accommodate approximately 340 residential home sites.
The debtor also owns 510.47 acres of raw land commonly known as Triangle Park North. This
separate real estate project is being developed in connection with the State of North Carolina as
an expansion of the Research Triangle Park.
Furthering the proposed development of Triangle Park North, the debtor executed a real
estate purchase and sales contract on October 22, 2007, with an international pharmaceutical
company known as Protherics, Inc. (the “Protherics Contract”). The Protherics Contract
contemplates the purchase of 50 acres of Triangle Park North at a purchase price of $50,000.00
per acre for a total amount of $2,500,000.00. The Protherics Contract failed to close by the
closing date of December 31, 2008; however, the contract was revived by a first amendment
executed on April 7, 2010 ( the “Amended Protherics Contract”). Consideration for reviving the
contract was an exchange of $1.00. Under the Amended Protherics Contract, the inspection
period and closing date are extended through December 31, 2011.
Southern holds two claims against the debtor, the aggregate amount of which is
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$6,767,611.85. The claims are secured by Highland Trails. Capital, secured by Triangle Park
North, holds an outstanding claim in the approximate amount of $9,060,000.00. Both Southern
and Capital filed ballots rejecting the debtor’s proposed chapter 11 plan. The parties challenge
the debtor’s ability to confirm the proposed plan pursuant to 11 U.S.C. § 1129.
DISCUSSION
To confirm a plan pursuant to 11 U.S.C. § 1129(b)(1), the court must determine whether
the plan is “fair and equitable with respect to each class of claims or interests that is impaired
under, and has not accepted, the plan.” To determine whether a plan is fair and equitable, the
court looks to the requirements of § 1129(b)(2). The standards set forth in § 1129(b)(2) are
minimums; therefore, a plan may meet the standard and still not be considered fair and equitable.
In re EFH Grove Tower Assoc., 105 B.R. 310, 313 (Bankr. E.D.N.C 1989).
The debtor’s plan of reorganization was filed on December 13, 2010. Subsequently, on
May 23, 2011 and May 27, 2011, first and second modifications were filed. Southern’s claims
are treated under classes 5 and 6 in the plan, while Capital’s treatment is laid out in class 4. All
three classes follow a formula of non-payment in the first two years while interest accrues. In
the third and final year of repayment, treatments, pursuant to which remaining balances are paid
in full, vary by class. Under these terms, the only way Southern or Capital would receive
payment in the two years following the effective date is if the properties were to sell.
With respect to Southern, the debtor intends to surrender the residential tract for a credit
of $3 million dollars or such value as the court determines. As of the petition, Southern was
secured on the residential tract in the approximate amount of $3,333,519.84. Southern is treated
differently on its claim of $3,752,623.83 secured by the commercial tract. The debtor intends to
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treat the commercial tract as fully secured up to $2.5 million. Interest would accrue on this
amount for a one year period. Then, at the start of the second year, $65,000.00 in accrued
interest would be paid from a “member contributed escrow account.” The accrued interest
unpaid from the member contribution account would remain part of the outstanding balance,
towards which interest-only payments will be made in the third year before the three year call.
The debtor intends to secure the remainder in the residential tract and the excess in the
commercial tract, and any interest accrued thereon, through an assignment of the Goldston
Family LP and James Adams, Sr. deeds of trust in Triangle Park North. These assignments
would render Southern a junior lien-holder on Triangle Park North behind Capital and Granville
County. Granville County’s secured claim is approximately $1.4 million.
Capital’s treatment follows the similar approach of non-payment for the first two years.
As of the petition, Capital is secured in Triangle Park North in the amount of approximately
$9.06 million dollars. If the Amended Protherics Contract closes, the debtor will pre-pay Capital
one years worth of interest at 5% from the proceeds of the sale. Following the interest payment,
the remaining sale proceeds would be paid toward Capital’s claim. However, if the contract fails
to close, the debtor proposes to let interest accrue for two years. In the third and final year, the
debtor intends to take action to satisfy Capital’s claim. The debtor retains three options as a
means of satisfaction: refinancing; public auction; or a transfer of property back to Capital
sufficient to payoff the remaining balance. Which of the three proposed methods is utilized is
determined solely by the debtor.
Though potentially no payments will be made, interest on the claims will accrue at a
fixed rate. This form of repayment is known as negative amortization. In determining whether a
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plan that includes negative amortization is fair and equitable, courts apply a ten-factor test. In re
The Northern Outer Banks Assoc., LLC, Case No. 10-01292-8-RDD (Bankr. E.D.N.C. Nov. 8,
2010); see also Great Western Bank v. Sierra Woods Group, 953 F.2d 1174, 1178 (9th Cir. 1992)
(holding that negative amortization is not per se inequitable but requires a case-by-case
determination utilizing the ten factor test). The ten factors considered are:
(1) Does the plan offer a market rate of interest and the present value of the
deferred payments; (2) Is the amount and length of the proposed deferral
reasonable; (3) Is there a sufficient equity cushion; (4) Is the plan feasible; (5) Is
the collateral appreciating, depreciating, or stable; (6) Are the risks involved
unduly shifted to creditors; (7) Are the risks borne by one secured creditor or a
class of secured creditors; (8) Does the plan preclude creditors from foreclosing
on collateral; (9) Did the original loan terms provide for negative amortization;
and, (10) Are adequate safeguards in place to protect secured creditors against
plan failure.
Northern Outer Banks, Case No. 10-01292-8-RDD at *18.
Although the term valuation does not appear outright in the list of factors to consider,
valuation of the collateral subject to negative amortization is central to the analysis. Here, the
linchpin of the debtor’s plan is the Amended Protherics Contract and the value it brings to the
Triangle Park North property. If the pending sale closes on the terms of the Amended Protherics
Contract, then there is arguably an equity cushion which adequately protects both pieces of
collateral and supports confirmation. Were the contract to fail, or differ from the terms
presented, then valuation of the property becomes a much more difficult task.
The Amended Protherics Contract
Dated October 22, 2007, the Protherics Contract provides for the sale of 50 acres within
the Triangle Park North property. Under the terms of the agreement, the purchase price per acre
is $50,000.00. Protherics, the buyer, placed $20,000.00 in an escrow account as an earnest
money deposit. For reasons unexplained, the Protherics Contract expired on its own terms on
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December 31, 2008; however, the original purchase and sale agreement was revived on April 7,
2010. The terms of the Amended Protherics Contract state, “[e]xcept as expressly modified
hereinabove, each and every term and provision of the [original] Contract is hereby ratified and
shall remain in full force and effect.” Only the inspection period and closing date were modified
by the Amended Protherics Contract, which are extended through December 31, 2011.
At the hearing, counsel for Protherics made an appearance to insure that the debtor
assumed the Amended Protherics Contract according to its precise terms. Critically, no
representative of Protherics provided any evidence of its intent to actually close on the contract,
and counsel’s appearance does not alter the terms agreed upon by the parties. In paragraph 10.2
of the original Protherics Contract, entitled Notification of Failure of Contingency, the
agreement states that at any time before the expiration of the inspection period, the purchaser
may notify the seller that:
[If] this contingency has not been satisfied for any reason whatsoever, or for no
reason, in Purchaser’s sole and absolute discretion, then this agreement shall be
terminated and any and all Earnest Money and all interest accrued thereon shall
be refunded to Purchaser. . . .
A basic tenet of contract law is that a valid contract must be supported by consideration. 17
C.J.S. Contracts § 2 (2011). North Carolina courts have held that consideration for an option
contract which may be withdrawn on a whim is insufficient. In re McLamb v. T.P. Inc., 173
N.C. App. 586, 591, 619 S.E. 2d 577, 581-82 (2005). Illusory consideration renders a contract
non-enforceable. Huttenstine v. Mast, 537 F. Supp. 2d 795, 801 (E.D.N.C. 2008). In McLamb,
the plaintiffs were individuals seeking to purchase real estate from the defendant. Each plaintiff
signed a reservation agreement requiring a $500 deposit as consideration. The agreement also
contained a provision under which the plaintiffs could request cancellation of the agreement and
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receive a full refund of the deposit. When the defendant was unable to obtain certain permits for
development, it rescinded the agreements and returned deposits. The plaintiffs filed suit seeking
specific performance and damages. Following dismissal for failure to state a claim in district
court, the plaintiffs appealed. The North Carolina Court of Appeals declined to adopt the view
that an option “held open only by a deposit which is (1) refundable at the behest of the
depositing party, and (2) to be applied as payment towards the object for which the option is
offered if a sale occurs” was supported by adequate consideration. 173 N.C. App. at 592, 619
S.E. 2d at 582. 	Rendered invalid for lack of consideration, there were no contracts pursuant to
which the plaintiffs could allege a breach.
As a general rule, courts should interpret contract terms in a way that upholds the validity
of the contract. Huttenstine, 537 F. Supp. 2d 795 at 801. However, the court cannot read into a
contract terms which are not there. Here, Protherics, in its sole discretion can ask that the
$20,000.00 deposit be returned “for any reason, or no reason at all.” (Emphasis added).
Following McLamb, this language does not support the conclusion that adequate consideration
was provided at the execution of the contract.
Moreover, the testimony at the hearing revealed that there are several other similarly
situated tracts of land in the same general vicinity as Triangle Park North, all of which are
currently marketed for significantly less than $50,000.00 an acre. Nothing in the Amended
Protherics Contract prevents the buyer from pursuing a lesser priced property; or, for that matter,
taking back the deposit, thereby terminating the current contract, and renegotiating with the
debtor under a new contract for terms that reflect the current state of the market. It is unrealistic
to think that a buyer in today’s market, with the option of walking away from the table without
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detriment, would pay an asking price determined in 2007. The court cannot construe a less than
1%, fully refundable deposit as sufficient consideration; nor, does the latter exchange of $1.00
change this conclusion. Whether $1.00 or $20,000.00, Protherics may still decide without risk to
terminate the contract. Therefore, the Amended Protherics Contract is given little weight and is
not a reasonable factor to consider when valuing the subject properties.
Valuation
As finders of fact, bankruptcy courts should determine the best method of ascertaining
value, based upon the evidence presented. Assocs. Commer. Corp v. Rash, 520 U.S. 953, 964
(1997). Broken into three classes under the plan, there are primarily two properties at issue —
Highland Trails and Triangle Park North. This analysis begins with the Highland Trails
property. Having both a residential and commercial tract, the treatment for Highland Trails is
divided between the two. The debtor’s plan provides for the surrender of the residential portion
of Highland Trails in partial satisfaction of Southern’s secured interest. Highland Trails consists
of 250 acres of mixed use development property in Granville County, North Carolina. Fifty-
eight of the 250 acres are designated for commercial use while 192 acres are designated for
approximately 340 residential home sites. Highland Trails was appraised by Jonathan Chapman
of Keystone Consulting Group in March 2010 and February 2011 (“Keystone Appraisals”). Mr.
Chapman was qualified by the court as an expert witness. The 2010 Keystone Appraisal valued
the residential portion at $1,810,000 and the commercial portion at $2,270,000 for a total value
of $4,080,000. Mr. Chapman applied the sales comparison approach in both Keystone
Appraisals. In his professional capacity, Mr. Chapman concluded that the highest and best use
of Highland Trails was holding the property for three to five years. This recommendation
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derived from Chapman’s knowledge of an oversupply of competitive developments and limited
demand for new development.
The 2011 Keystone Appraisal only addressed the 192 acre residential portion of Highland
Trails. Mr. Chapman identified seven new comparable properties that were not noted in the
2010 Keystone Appraisal. Three of these properties were current listings, one was under
contract, and three were sales occurring in the last year. Chapman made downward adjustments
to the properties listed for sale to reflect current market conditions. Adjustments were then made
for zoning, topography, location, utilities, and size to all seven properties. In conclusion,
Chapman valued the residential portion of Highland Trails as of February 25, 2011, at
$1,810,000. This is the same value derived using the sales comparison analysis of six different
properties in the 2010 appraisal.
In addition to the Keystone Appraisals, the court considered the May 26, 2010, appraisal
conducted by Leatherman Real Estate Services. Leatherman’s appraisal concluded that the
combined value of the Highland Trails residential and commercial tracts was $8,285,000.00.
During the hearing, Mr. Leatherman asserted that since conducting the appraisal, he and his
company undertook a summary analysis of the overall local real estate market. According to his
analysis, land values in the area have declined. Based on market evidence garnered since his
2010 appraisal, Mr. Leatherman testified that the value of the residential tract had declined from
$4,535,000.00 to $3,750,000.00.
Because the debtor proposes to surrender the residential tract of Highland Trails for
credit, Southern is entitled to the indubitable equivalent of its claim. 11 U.S.C.
§ 1129(b)(2)(A)(iii). The proposed plan states that the credit shall be $3 million, or an amount
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set by the court. In light of the uncertainties involved in valuation, particularly in this market,
this court has cautioned that a conservative approach must be taken. In re Bannerman Holdings,
LLC, Case No. 10-01053-8-SWH at *7-8 (October 20, 2010). Accordingly, the court accepts the
Chapman value of $1,810,000.00 for the surrendered residential portion of Highland Trails.
Analyzing the situation in which real property collateral is partially surrendered, this
court, in Bannerman, chose to adopt an analysis of value that included a conservative discount
rate of 12%. Id. Discount rates are important as they ensure creditors are compensated for the
present value of their claim. “Considering the low level of present-day interest rates, a 12%
discount rate would clearly not overstate value and should provide reasonable cushion to the
creditor.” Id. No evidence was offered by either party as to an appropriate discount rate, so the
court will use the 12% figure. Applying this rate of discount to the Chapman appraisal, after
first adjusting for a 5% realtor commission, and then discounting by 12% twice, once for each
year of the holding period required to sell the property at the determined price, the value of the
surrendered residential Highland Trails property rounds to $1.2 million. Neither appraiser gave
an updated value for the retained commercial tract, so the court deems the $2.5 million value of
the claim secured by the commercial tract to be reasonable. Subtracting these numbers from
Southern’s total claims, the unsecured portion of the claim approximates $3.3 million. This is
the amount for which the debtor offers new security in the form of assigned third and fourth
deeds of trust in Triangle Park North. Therefore, the analysis of Triangle Park North’s value is
critical.
The proposed plan relies on the existence of equity in Triangle Park North to grant
Southern new security for its unsecured claims after the residential portion of Highland Trails is
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surrendered and the secured claim of the commercial tract is set at $2.5 million. The court takes
into consideration three of the appraisals presented at the confirmation hearing when determining
the value of the 510 acres known as Triangle Park North. The appraisals considered include two
conducted by Williams Appraisers, Inc. dated November 16, 2009, and November 12, 2010 (the
“Williams Appraisals”), and one conducted by Kirkland Appraisals dated February 11, 2011 (the
“Kirkland Appraisal”). Respectively, the appraised values of Triangle Park North are $15
million, $14 million, and $9.9 million. “The court has the task of determining the value of the
Property, [when] faced with two conflicting appraisal reports.” In re Sailboat Props., LLC, 2011
Bankr. LEXIS 1316, *16-17 (Bankr. E.D.N.C. March 31, 2011 ).
The Williams Appraisals divided Triangle Park North into two separate tracts for the
purpose of valuing the property as a whole. The first tract of 150 acres was labeled the
“industrial tract” because a majority of its infrastructure is already completed. The second tract
of 360.47 acres was labeled “excess vacant land” due to its lack of infrastructure. The Williams
Appraisals relied on the sales comparison approach as recognized by the Uniform Standards for
Professional Appraisal Practice (USPAP) for assessing the value of real property. James E.
Norman II, who helped prepare both appraisals, was qualified by the court as an expert witness.
In the 2009 Williams Appraisal, Mr. Norman identified four comparable properties and made
adjustments based on each property’s date of sale, location, access/visibility, utilities,
infrastructure, and size in order to establish a fair market value of the subject property. In the
2010 Williams Appraisal, five comparable properties were identified and similar adjustments
were made. However, Mr. Norman noted in both of the Williams Appraisals that “recent sales of
similar industrial tracts in the subject market were scarce, [sic] therefore, we expanded our
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search area to include surrounding counties.” Debtor’s Exhibit 1 at 50; Debtor’s Exhibit 2 at 52.
Although Mr. Norman’s appraisal methodology is sound, the Williams Appraisals suffer from
the fact that both relied heavily on the pending sale under the Amended Protherics Contract.
Debtor’s Exhibit 1 at 61, 68; Debtor’s Exhibit 2 at 63, 71.
The third appraisal considered by the court was the Kirkland Appraisal. Dated February
11, 2011, the Kirkland Appraisal indicates that it also used the sales comparison approach when
coming to the conclusion of Triangle Park North’s value. Richard C. Kirkland, Jr. prepared the
appraisal and was also qualified by the court as an expert witness. Although the appraisal report
states that it follows the sales comparison approach, it does so with respect to only one piece of
property. A majority of the appraisal is based on an alternative method known as matched pair
analysis. See Capital Bank Exhibit 5 at 39. Under this approach, a property’s undeveloped sales
price per acre is compared to its single lot developed price per acre in order to establish a
comparable discount ratio which is then used to value the entire property. Mr. Kirkland
concluded that “[i]ndustrial land has sold poorly over the last few years due to the significant
oversupply of existing industrial buildings on the market or vacant for lease.” Id. at 48.
However, “[t]he few land transactions [considered] show steep drops of around 40% from land
value expectations from even just three years ago.” Id. Combining his findings under the
matched pair analysis with the one property comparable to the subject, Mr. Kirkland concluded
that Triangle Park North was valued at $19,000 per acre. After factoring an estimate of the
additional infrastructure costs associated with the land, he concluded that the entire 510 acre
tract was valued at $9,965,000.
“When two appraisal reports conflict, a court 'must determine the value based on the
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1 Alternatively, the court notes that the 2011 appraisal makes no downward market
adjustment for the Amended Protherics Contract value, even though the testimony is that
commercial tracts have declined in the 30% - 40% range.
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credibility of the appraisers, the logic of their analys[es] and the persuasiveness of their
subjective reasoning.'" In re Sailboat Props., LLC, at *17 (internal citations omitted). The court
finds Mr. Norman’s use of the sales comparison method more persuasive than Mr. Kirkland’s
combined sales comparison and matched pair approach. Nonetheless, history has proved the
Williams Appraisals too high. The first appraisal in 2009 opined that the property would sell for
$15 million in a two-year exposure period. That has not happened. This problem arises because
the Williams Appraisals rely heavily on the Amended Protherics Contract as the primary
comparable sale when valuing Triangle Park North. Because the Amended Protherics Contract
should be discounted, the court disregards Mr. Norman’s use of the Amended Protherics
Contract as a comparable sale. 1 Aside from the inclusion of the Amended Protherics Contract,
Mr. Norman sufficiently explained in detail each adjustment made in comparing other properties
to Triangle Park North.
“The Bankruptcy Code provides no bright-line rule for establishing valuation; however,
‘[w]here property values have declined . . . as a result of a depressed economy, the court, in
valuing the property . . . must look at the situation realistically and in light of the most
reasonably commercial disposition of real estate practicable in the circumstances.’" In re 3G
Props., LLC, Case No. 10-04763-8-JRL (Bankr. E.D.N.C. November 5, 2010) (quoting 21 Am.
Jur. Proof of Facts 3d 769 § 4 (2010)). Triangle Park North has been listed at $15 million for
over three years. Other than the Amended Protherics Contract, buyers have shown little to no
interest in the property. The Williams Appraisals indicated that an additional 18-month
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marketing period would be necessary for the property to sell at the appraised value. Both Mr.
Norman and Mr. Kirkland testified that in their professional opinions, they believed the
commercial real estate market was close to bottoming out, if it had not done so already.
Regardless, the market is expected to remain flat for a few more years before beginning to
slowly recover, and will recover more slowly in outlying counties than in the Research Triangle
Park area. Though the court declined to apply Mr. Kirkland’s overall appraisal methodology, he
provided extensive testimony regarding the significant oversupply of existing industrial
buildings currently on the market or vacant for lease, and the listing prices of comparable tracts.
Overall, the evidence presented indicates that the current asking price of $15 million grossly
overvalues the property under the current economic conditions.
Relying on the November 2010 Williams Appraisal, which included four comparable
properties, the court recalculates the value of Triangle Park North using the sales comparison
method minus the Amended Protherics Contract. After calculating new values for the 150 acre
industrial tract and the 360 acre excess land tract, the court used the mean value of the four
comparable properties. Due to current economic conditions and the testimony regarding the
current state of the market, the mean value appears to be the most accurate indication of value.
Therefore, the court concludes that Triangle Park North is valued at $11.1 million.
Fair and Equitable Treatment
After determining the value of Triangle Park North, the court turns to the confirmation
requirements of 11 U.S.C. § 1129(b)(2). Treatment may be deemed fair and equitable if one of
three criteria set forth in § 1129(b)(2)(A) is satisfied. As previously noted, a plan that proposes
to pay the present value of secured claims but allows those claims to increase by non-payment
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post-confirmation is not, per se, unfair. However, negative amortization must be scrutinized
closely according to the ten factors identified earlier, keeping in mind the $11.1 million value of
Triangle Park North. Here, virtually all of the ten factors cut against the debtor.
With the value of Triangle Park North set at $11.1 million, there is no equity cushion to
support the treatment as proposed. After newly securing Southern’s $3.3 million unsecured
claim in Triangle Park North by the assignment of the third and fourth deeds of trust, the total
amount of claims secured by the property approximates $13.7 million. Southern would not be
able to move against this collateral until two years after the effective date. During that time,
interest of approximately $1 million would accrue and be added to Capital’s secured claim. That
amount added to the second position secured claim of Granville County of $1.4 million, on
which interest will also accrue, makes it clear that the promise of additional security to Southern
is illusory.
It is also clear that the debtor has no means to meet its obligations except through land
sales. The debtor has no equity in property or capital, and its members are unable to meet its
obligations out of their personal resources. Further complicating these facts, Southern already
procured judgments on the members’ guaranties for $6.5 million each. Although Jim Goldston,
one of the two members, testified that in general he would attempt to support the plan, his
obligation to do so is limited to $65,000 in interest payments to Southern during the second year
of deferred interest. This is only a small percentage of the interest that will come due in the
deferral period. Thus, factors one through four concerning equity, payment of present value,
length of deferral, and feasibility fail to support the debtor’s assertion that the plan is fair and
equitable.
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Furthermore, the record in this case is replete with appraisal testimony. The four
appraisers: Chapman, Leatherman, Kirkland, and Norman, all opined that during the four years
in which Triangle Park North has already been on the market, it has declined in value. Their
testimony also reveals that an upturn in the Granville County or Vance County market is not
expected during the next two years, which is the length of further marketing it will take the
debtor to sell Triangle Park North at the determined value. At best, the value of Triangle Park
North will remain stable over the next two years. If current economic conditions were different,
the method of funding a plan by holding property for sale might fulfill confirmation
requirements; however, the reality is that Triangle Park North has been on the market for at least
four years and Highland Trails for at least two. During the last two years, each property has
been listed with reputable and skilled realtors who have produced barely a glimmer of interest,
aside from a contract which does not bind the purchaser and thus does not weigh in the debtor’s
favor. The further reality is that there are multiple tracts of land similar to the subject on the
market for substantially less. Therefore, the negative amortization, which was not provided for
in original loan documents, and associated risks are borne entirely by the secured creditors who,
under the plan, have no right to foreclose while continuing to wait for payment. On these
realities, factors five through nine also weigh against the debtor.
As proposed, the plan fails the majority of the factors considered when determining the
equatability of a plan built around a negative amortization scheme. 	Because there is not
sufficient equity in the property at issue to support the proposed deferral period of negative
amortization, the plan fails to provide secured creditors with the present value of their claims;
and, therefore, is not fair and equitable under 11 U.S.C. § 1129(b)(2).
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CONCLUSION
Based on the foregoing the motion for confirmation is DENIED. On the record before it,
the court does not foresee any change in the debtor’s circumstances that would allow it to
propose a plan to cure the defects identified herein. Therefore, Capital’s motion for relief from
stay is ALLOWED. Additionally, the court reconsiders its earlier denial of Southern’s motion
for relief from stay, in the order dated November 5, 2010, and that motion is also ALLOWED.
END OF DOCUMENT
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