Thomas L. Ripley

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
T HOMAS L. R IPLEY , S R ., 	:
Debtor. 	: 	Case No. 08-12390 (JKF)
________________________________
MEMORANDUM OPINION
BY: 	J EAN K. F ITZ S IMON
United States Bankruptcy Judge
This matter is before the Court on Bank of America’s Motion for Relief from
the Automatic Stay pursuant to 11 U.S.C. § 362(d)(2) (the “Motion” or “Motion for
Relief”). An evidentiary hearing was held on August 13, 14, and 18, 2008, the
“August Hearing”) and this matter is now ripe for adjudication. Upon
consideration of the testimony and evidence presented at the August Hearing, as
well as an examination of the relevant law, the Court concludes that while the
Debtor lacks equity in his property, this property is necessary for a reorganization
under Chapter 11 of the Bankruptcy Code. Therefore, for reasons more fully
discussed below, the Motion is denied.
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This is Mr. Ripley’s second bankruptcy petition. His first petition (case number 08-10999)1
was filed in this Court on February 8, 2008 and dismissed on April 1. 2008 for failure to obtain
credit counseling prepetition or to satisfy the legal requirements of demonstrating “exigent
circumstances” which would excuse his prepetition noncompliance. See docket no. 38.
2
I. BACKGROUND
The Bankruptcy Filing
Thomas L. Ripley, Sr. (“Mr. Ripley” or the “Debtor”) filed for Chapter 13
bankruptcy protection in this Court on April 10, 2008. 	On July 16, 2008,1
Mr. Ripley’s case was converted to Chapter 11 of the Bankruptcy Code. The
Debtor’s Schedule A lists ownership of one piece of real property located at
3535 Bristol Road in Doylestown, Pennsylvania (the “Property”). Docket entry
no. 19. The value of the Property is listed at $3,220.000. Id. Amended
Schedule D lists four secured claims on the Property: 1) a first mortgage lien in
the amount of $1,781,229 owed to Bank of America; 2) a second mortgage lien in
the amount of $531,406 owed to Madison Bank, Division of Leesport Bank
(“Madison Bank”); 3) a third mortgage lien in the amount of $1,200,000 owed to
The Ohio Casualty Insurance Company (“Ohio Casualty”); and 4) 2006 real
estate taxes in the amount of $5,963 owed to Bucks County Tax Claim Bureau
(the “Real Estate Taxes”). Docket entry no. 64.
Stephen and Lisa Cataldo are listed on Schedule H as codebtors with
regard to the loans to Ohio Casualty and Madison Bank (as well as two other
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Mr. Ripley resides on Parcel number 9733 of the Property. See the Objection to the Motion2
for Relief at 1.
3
debts). Docket entry no. 19. According to Schedules I and J, Mr. Ripley and his
wife have a combined monthly income of $2,815 (she works as an office assistant
and he as a groundskeeper) and average monthly expenses of $2,988.
On April 17, 2008, Bank of America (“BOA” or the “Bank”) filed a Motion for
Relief from the Automatic Stay. Docket entry no. 13. The Motion for Relief asks
the Court to lift the stay on the four contiguous parcels of land which have the
address of 3535 Bristol Road (previously defined as the “Property”) pursuant to
section 362(d) of the Bankruptcy Code. 	Mr. Ripley filed an Objection to the2
Motion for Relief on July 22, 2008 (the “Objection”). Docket entry no. 56. The
Objection asserts that, because the Property is valued at $3,220,000 and BOA’s
secured claims total $2,000,000, there is equity in the Property and the stay
should not be lifted. The Debtor’s Objection further asserts that BOA and
Mr. Ripley reached a stipulation which resolved the Motion. However, when the
parties appeared before the Court of August 13, 2008, the Bank reported that no
such agreement was pending between the parties and that it wished to proceed
with the Motion for Relief.
Ohio Casualty, which is a junior secured creditor and owed $1,200,000 by
the Debtor, also filed a Response to the Motion for Relief. Docket entry no. 29.
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All Exhibits were entered into evidence at the conclusion of the August Hearing.3
4
Ohio Casualty, like the Debtor, asserts that there “may be substantial equity in
the Debtor’s real estate over and above BOA’s secured claims.” (Ohio Casualty
Response, pg. 2.)
The August Hearing
During the three day August Hearing, Mr. Ripley and the Bank each had
the opportunity to present evidence and examine witnesses concerning the value
and use of the Property. After considering the pleadings, the exhibits, and the in-
court testimony, the Court makes the following findings of fact in conformance
with Federal Rule of Bankruptcy Procedure 7052.
Liens on the Property
At the August Hearing, it was established that the following mortgages are
owed on the Property:
1. A $950,000 loan from BOA secured by a first mortgage on parcel
numbers 9731, 9732 and 9739 of the Property (the “$950,000 Loan”). See BOA
Exhibits one and two. 	On December 30, 2005, Bank of America confessed3
judgment against the Debtor in the Court of Common Pleas in Bucks County,
Pennsylvania on the $950,000 Loan in the total amount of $1,096,838. BOA
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The Motion for Relief alleged that the Debtor borrowed an additional $200,000 from BOA.4
See Motion, pg. 3. However, the Bank was unable to prove at the August Hearing that payment
was due on this loan. Therefore, the Court will not consider this alleged debt as a lien on the
Property.
5
Exhibit 7. As of August 12, 2008, the payoff amount of the $950,000 Loan was
$1,306,483. BOA Exhibit 9. Mr. Ripley has not made a payment on this loan in
over three years.
2. A $400,000 loan from BOA secured by a first mortgage on parcel
number 9733 of the Property (the “$400,000 Loan”). See BOA Exhibits 3 and 4. 4
As of August 12, 2008, the payoff amount of the $400,000 Loan was $487,690.
BOA Exhibit 10.
3. A mortgage on parcel numbers 9731 and 9732 of the Property in the
face amount of $500,000 recorded in September 2005 and owed to Madison
Bank. See Motion for Relief, ¶ 21,a and the Debtor’s Objection, ¶ 21,a.
4. A mortgage on all four parcels of the Property in the face amount of
$1,200,000 recorded in February 2006 and owed to Ohio Casualty. See Motion
for Relief, ¶ 21,b and the Debtor’s Objection, ¶ 21,b.
The Cataldo Property
Both Ohio Casualty and Madison Bank’s loans are cross collateralized on
the property of the Debtor’s neighbors, Stephan A. and Lisa M. Cataldo, who own
a 12 acre piece of property next to the real estate owned by Mr. Ripley. See
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Mr. Cataldo testified that he has filed for Chapter 7 bankruptcy.5
6
Response of Ohio Casualty, pg. 2 (the “Cataldo Property”). In addition,
Mr. Cataldo owes W achovia Bank $480,000, which is secured by a mortgage on
his property, and Mr. Stein (his real estate agent) approximately $200,000.
W achovia was scheduled to foreclosure on Mr. Cataldo’s property October 10,
2008. 	Mr. Cataldo testified that he has in the past and plans in the future to5
market his property together with the Ripleys. Mr. Cataldo and Mr. Ripley have
been friends and business partners for over 30 years.
In April 2006, the Cataldos and the Ripleys had a tentative agreement with
McKee Properties, Inc. (“McKee”) to purchase both pieces of land. The Ripleys’
Property was to be sold for $4,840,000 and the Cataldo Property for $1,660,000.
See Agreements of Sale, Debtor Exhibits 15 and 16. According to Mr. Ripley’s
testimony, these agreements with McKee, which would have allowed for a full
payoff of the Bank’s claims at the closing, fell through because the Bank would
not allow the Ripleys to come current and pay the rest at the closing of the deal.
The Appraisal Testimony
W illiam Bott, a professional real estate appraiser, testified for the Bank
that, as of his inspection on July 31, 2008, the Property is worth $1,835,000. This
is the third time that Mr. Bott has appraised the Property. He determined the
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Seven lots at $155,000 each equals $1,085,000. The barn and additional “outbuildings” are6
valued at a total of $750,000, bringing the total value of the Property to $1,835,000. See
Exhibit BA 14, preface, pg. 3.
7
Property to be worth nearly three million dollars in late 2006 and $1,995,000 in
November of 2007. The Property, according to Mr. Bott’s appraisal report, is
improved with a single family dwelling, an apartment over the garage, a barn, and
miscellaneous “outbuildings.” See Exhibit BA 14, pg. V. Mr. Bott considered
what the “highest and best use” of the Property is in calculating the value.
Mr. Bott performed an analysis of the flood plain and the lot width and determined
that there are seven lots for vacant land. According to Mr. Bott, the Property
contains 27.4 acres of developable land, 9.5 of which are in a flood plain.
Currently, the Property is zoned as “R-IA, Residential,” which requires a
two acre minimum lot size. Each of the seven two acre plots are worth
approximately $155,000, according to Mr. Bott. 	Mr. Bott conceded that it would6
be possible to obtain “cluster zoning” - which requires only a one acre minimum
lot size - on the Property, but noted that cluster zoning may mean that the each
plot of land is worth around 15-20% less than it would be otherwise. In addition,
converting the Property to cluster zoning, according to the testimony of Mr. Bott,
would require both 45% more open land space and the extension of public water
and sewer lines. These requirements would mean that the conversion from R-IA
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“Exposure time” is defined in Mr. Bott’s appraisal report to mean “the length of time the7
property interest being appraised would have been offered on the market prior to the
hypothetical consummation of a sale at the market value on the effective appraisal date . . .”
Exhibit BOA 14, pg. 3.
8
to cluster zoning, according to Mr. Bott, would produce only one additional lot of
land and yet cost a great deal of additional time, money, and work.
Mr. Bott therefore said that he considers the R-IA zoning - maintaining the
seven, two acre plots - to be the most profitable use of the Property because of
the additional value of using the larger size lots and the efficiency of working with
the land as it is, rather than assuming the costs and risks of additional water,
sewer, and road projects. See Exhibit BA 14 at pg.2 5 (“the . . . R-1A Zoning . . .
would preserve the flood plain and other resource protected areas of the site . . .
the subject may have the potential for one additional home site [under Cluster
zoning], but with significantly higher development cost related to contracting for
and extending public water and sewer to the site.”). Mr. Bott said that his
estimates assume that the Property will take about a year to market and sell and
that this is a reasonable “exposure time” in the market. 	Mr. Bott did concede that7
if the Debtor obtained approvals to subdivide the Property, the value of the
Property would likely increase. It is possible that these approvals could be
obtained within a year.
Robert Showalter, an expert civil engineer with almost 40 years of
experience, testified regarding both the use of the Property for the Debtor and
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There will also be certain (unspecified) costs for obtaining approvals on the Property.8
However, Mr. Showalter testified that the costs of obtaining such approvals will be paid by any
developer who purchases the Property.
9
how use of the land may ultimately be valued by a potential purchaser of the
Property. Mr. Showalter is not an appraiser, though he has testified previously
regarding property valuations. Mr. Showalter, who was initially hired on this
project by Mr. Ripley and Mr. Cataldo three years ago, is familiar with the
Property and its zoning. He has performed flood plain, wetland, impact, and
traffic analyses, which he deems critical to determining the amount of land that is
available for development. Mr. Showalter prepared plans in preparation for the
McKee Agreement of Sale (which, as described above, ultimately fell through).
Mr. Showalter testified that the Property (not including the Cataldo
Property) is worth approximately $4,000,000, or $2,860,000 when one deducts
the necessary improvement and engineering costs. 	The exhibit provided by8
Mr. Showalter shows $2,860,000 to be the “net value” of the Property. See
Exhibit D9, pg. 2. The total figure of approximately four million is calculated in the
following way (see Id.):
Lot 	Value 	Notes
Historical Farm House 	$650,000
Barn Lot 	$450,000
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10
Nine Lots at $275,000
per lot
$2,250,000 	• 	This is the “Improved
Lot Value”
• 	Mr. Showalter
calculates 9 times
$275,000 to be
$2,250,000; the Court
calculates it to be
$2,475,000.
Two additional lots at
$325,000
$650,000
TOTAL 	$4,000,000
Mr. Showalter estimates that the total improvement and engineering costs would
be $1,140,000. He arrives at this figure by calculating that each of the 13 lots
would cost approximately $80,000 to improve - for a total of $1,040,000 - and that
the engineering costs would be about $100,000. See Exhibit D9 at pg. 2.
Mr. Showalter directed the Court to his current sketch plan, Exhibit D9,
which calls for the Property to be divided into 13 lots of at least one acre, allowing
for 45% of the land as open space under a B7 single-family cluster zoning. Of
these 13 lots, 11 would be new lots, one lot would contain the existing historical
farmhouse and an area of 1.4 acres, and one lot would contain the existing
historical barn with an area of 1.68 acres. See Exhibit D9 at pg. 1. The other 11
lots would vary in size from one acre to 1.47 acres. Id. According to
Mr. Showalter, this design would have many benefits, including preserving the
Neshaminy stream and walking trail, which are important to the Township. Also,
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Mr. Showalter noted that the Cataldo Property could potentially add additional lots to the9
development and does not have the same resource restrictions as the Ripley property.
11
Mr. Showalter emphasized that the “D9 Plan,” as he called it, is the simplest and
fastest one to accomplish because it will receive approval “by right,” which means
that because it meets the requirements for zoning and construction, the D9 Plan
will necessarily receive zoning approval and there will be no need for additional
hearings, which would add time and potentially cost to the project. Further, while
this analysis and pricing does not specifically take the Cataldo Property into
account, Mr. Showalter noted that this type of zoning and planning would work
well for the Cataldo Property. Therefore, a buyer who is interested in purchasing
both the Ripleys’ and the Cataldos’ properties could incorporate the D9 Plan into
his or her purchase. 9
Even though approvals with regard to the D9 plan are “by right,” they still
need authority; the needed stamps of approval can take anywhere from six
months to a year and a half to obtain. However, Mr. Showalter testified that the
necessary groundwork on this project has been done. In addition, the Property is
far more valuable as an approved development plan than as a mere undeveloped
piece of land.
W hile Mr. Showalter did recommend the “D9 Plan” as the fastest and
simplest way of marketing and selling the Property, he also noted that a
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12
substantial amount of due diligence has been performed with regard to the “B15"
historical preservation cluster zoning option (the “B15 Option”), if a developer
should choose to go that route. The B15 Option was initially developed for the
McKee Group. It called for a development of townhouses and had the added
benefit of preserving a 500 or so year-old tree that is beloved by the Township.
Mr. Showalter offered that he considers the B15 Option ultimately to be the best
use of this Property. However, the B15 Option does not have “by right” approval;
it is a conditional use approval, which requires additional hearings and thus would
cost additional time and possibly money to the project.
The Liquidating Plan of Reorganization
At the August Hearing, Mr. Ripley submitted for consideration a Liquidating
Plan of Reorganization (the “Plan”). See Exhibit D1. Since the hearing, a plan
substantially similar to the one provided at the August Hearing has been filed in
Mr. Ripley’s bankruptcy case. Docket entry no. 65, filed September 3, 2008. The
Plan calls for the sale of the Property to take place within one year from the date
of the filing of the Plan, and in no event later than September 1, 2009. Exhibit D1
at pg. 16; docket no. 65 at pg. 15. The Plan further provides:
If the Debtor does not obtain a binding agreement of
sale for the [Property] by July 16, 2009, the [Property]
will immediately be listed with a real estate auctioneer
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13
who will advertise and market the real estate for an
auction to take place no later than September 16, 2009.
If the Debtor obtains an agreement of sale for the
[Property] by July 16, 2009, but the buyer does not close
by September 1, 2009, the [Property] will immediately
be listed with an auctioneer as set forth above with the
auction to take place no later than sixty (60) days after
such listing. If a sale is not consummated as outlined
above, the [Property] will be auctioned and all proceeds
will be used to satisfy the allowed claims. To the extent
the auction does not yield enough money to satisfy all
claims in full, the creditors will share pro-rata in the
distribution.
Id. The Debtor also filed a Disclosure Statement and Motion to Approve the
Disclosure Statement on September 3, 2008. See docket entry nos. 66, 67,72,
and 73.
II. STANDARDS FOR LIFTING THE AUTOMATIC STAY
The automatic stay is “one of the fundamental debtor protections supplied
by the Bankruptcy Code.” In re Atlantic Med. Mgmt. Servs., Inc., 387 B.R. 654,
662 (Bankr. E.D. Pa. 2008) (citing University Medical Center v. Sullivan (In re
University Medical Center), 973 F.2d 1065, 1074 (3d Cir. 1992)). See also In re
Ellis, 339 B.R. 136, 140 n.7 (Bankr. E.D. Pa. 2006) (noting that the automatic stay
gives the debtor “a breathing spell from his creditors by stopping all collection
efforts, all harassment and all foreclosure actions. It permits the debtor to
attempt a repayment or reorganization plan or simply to be free of the financial
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14
pressures that drove him into bankruptcy.”). Specifically, Section 362(a)(3) of the
Code stays “any act to obtain possession of property of the estate or of property
from the estate or to exercise control over property of the estate.” Further,
Section 362(a)(4) stays “any act to create, perfect, or enforce any lien against
property of the estate.”
A court may lift the automatic stay “[o]n request of a party in interest and
after notice and a hearing, the court shall grant relief from the stay . . . (2) with
respect to a stay of an act against property under subsection (a) of this section, if-
(A) the debtor does not have an equity in such property; and (B) such property is
not necessary to an effective reorganization.” 11 U.S.C. § 362(d)(2) (emphasis
added). Whether to terminate or modify the bankruptcy stay under section 362(d)
is within the discretion of the bankruptcy court and is a determination made by
examining the totality of the circumstances. In re Milstein, 304 B.R. 208, 211
(Bankr. E.D. Pa. 2004) (citations omitted). See also In re Rambo, 2004 W L
231011, at *2 (Bankr. E.D. Pa. Jan. 29, 2004). The party requesting relief from
the automatic stay has the burden of proof with regard to the issue of the debtor’s
equity, and the party opposing such relief has the burden of proof that the
property is necessary to an effective reorganization. Nazareth Nat’l Bank v.
Trina-Dee, Inc., 731 F.2d 170, 171 (3d. Cir. 1984); 11 U.S.C. § 362(g)(1-2).
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The Bank was thus incorrect when it asserted at the August Hearing that the equity10
determination in this matter should be made simply by comparing the current value of the
Property to the amount of BOA’s lien on the Property.
15
A debtor lacks equity in property for purposes of section 362(d)(2) when
“the debts secured by liens on the property exceed the value of the property.”
3 Collier on Bankruptcy, ¶ 362.07[4][a] at 362-98 (15th ed. 2002). In other words,
in making a determination on equity, a court “focuses on a comparison between
the total liens against the property and the property’s current value . . . all
encumbrances are totaled to determine equity whether or not all lienholders have
requested relief from the stay.” In re Indian Palms Assoc., LTD., 61 F.3d 197 (3d
Cir. 1995) (emphasis added). See also Sutton v. Bank One, Texas, N.A., 904
F.2d 327 (5th Cir. 1990); Stewart v. Gurley, 745 F.2d 1994, 1195 (9th Cir.
1984). 10
If the movant demonstrates that the debtor has no equity in the property,
then the debtor has the opportunity to prevent modification of the automatic stay
by showing the court that the property is necessary for an effective
reorganization. See In re Epic Capital Corp., 290 B.R. 514, 520 (Bankr. D. Del.
2003). The Supreme Court has outlined the standard necessary for
demonstrating whether property is necessary for an effective reorganization:
W hat this requires is not merely a showing that if there
is conceivably to be an effective reorganization, this
property will be needed for it; but that the property is
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16
essential for an effective reorganization that is in the
prospect. This means . . . that there must be “a
reasonable possibility of a successful reorganization
within a reasonable time.”
United Savings Assoc. of Texas v. Timbers of Inwood Forest, 484 U.S. 365, 376-
77 (1988) (emphasis in original). According to the Third Circuit, the debtor must
show that “a proposed or contemplated plan is not patently unconfirmable and
has a realistic chance of being confirmed.” John Hancock Mutual Life Ins. Co. v.
Route 37 Business Park Assoc., 987 F.2d 154, 157 (3d Cir. 1993). As one court
noted “[w]hile the debtor need not demonstrate that substantial consummation of
its plan is guaranteed, a reasonable possibility of a successful reorganization
cannot be founded solely on speculation.” In re Dupell, 235 B.R. 783, 790 (E.D.
Pa. 1990) (citation omitted). See also Laddeck v. Laddeck, 2001 W L 423026, at
*8 (Bankr. E.D. Pa. Apr. 11, 2001). Proposed plans must be viable to be
confirmed in order to prevent the “confirmation of visionary schemes.” In re
American Sweeteners, Inc., 1999 W L 1068446, at *3 (Bankr. E.D. Pa. Nov. 22,
1999) (citing 5 Collier on Bankruptcy, ¶ 1129.02[11] at 1129-59 (15th ed. 1994)).
The question presented by the Bank’s Motion is therefore twofold. First,
does Mr. Ripley have equity in the Property? 	Second, is the Property necessary
for an effective reorganization? 	If the answer to either question is yes, the Motion
must be denied. The questions will be taken in turn.
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The value of the Property is a very difficult question, particularly where, as here, two skilled11
professionals have reached different conclusions regarding valuation. See, e.g. In re Prussia
Assoc., 322 B.R. 572, 580 (Bankr. E.D. Pa. 2005) ( quoting the “oft noted proposition that the
appraisal of real estate is an inexact science.” ).
This figure is derived by adding the following amounts: the current payoff amounts on the12
$950,000 Loan and the $400,000 Loan, see Exhibits BOA 9 and BOA 10, ($1,306,483 and
$487,690, respectively), plus the Real Estate Taxes of $5,963, plus the $531,406 owed to
Madison, plus the $1,200,000 owed to Ohio Casualty. See Amended Schedule D, docket
no. 64. Note that the amount found to be owed to the Bank at trial ($1,794,173: $1,306,483
owed on the $950 Loan plus $487,690 owed on the $400,000 Loan) is higher than the amount
that the Debtor lists as a debt to the Bank on Amended Schedule D ($1,781,229) and thus the
Court’s calculation of the Total Secured Debt at $3,531,542 is higher than that asserted by the
Debtor, which is $3,518,599. See Amended Schedule D.
17
III. VALUATION
The first question can be answered in the negative. The Court concludes
that - given the many secured creditors with claims against it - the Debtor does
not at this time have equity in the Property. While the Court finds that making a
specific dollar valuation regarding the Property to be difficult, if not impossible, at
this point, 	such a determination is also unnecessary, for the Debtor’s calculation11
of equity fails on its own merits.
As discussed above, in order to calculate a debtor’s equity in his property,
a court must determine the current market value and then subtract all
encumbrances on the property (as opposed to just the lien the secured creditor
who holds a first mortgage). See In re Indian Palms Assoc., LTD., 61 F.3d 197
(3d Cir. 1995). 	In this case, the amount of secured debt on the Property totals
$3,531,542 (the “Total Secured Debt”). 	Mr. Showalter - the Debtor’s own12
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There is no question that the Debtor lacks equity in the Property if one accepts the13
conclusion of Mr. Bott, who testified that the Property is currently worth $1,835,000. This figure
is far less than the $3,531,542 that the Debtor owes to his secured creditors.
18
witness - testified that the Property would be worth $4,000,000 only after
$1,140,000 was spent on engineering and improving. While Mr. Showalter
indicated at the August Hearing that the costs of improving the Property may be
paid by a developer rather than by the Debtor, both his testimony and his written
report make clear that the “net value” of the Property - i.e. the value of the
Property to the Debtor and his estate - is $2,860,000. Exhibit D9, pg. 2. In other
words, Mr. Showalter estimates that the current market value of the Property at
this time is $2,860,000, which is substantially less than the $3,531,542 the Debtor
currently owes on the Property. 	For this reason, the Court determines that13
Mr. Ripley lacks equity in the Property. See California Diesel & Equipment, Inc.
v. Sun Exploration and Production Co., 990 F.2d 1256, 1993 W L 77276 (9th Cir.
Mar. 18, 1993) (holding that costs to improve property were necessarily sellers
costs and would not be imposed on the buyer of property); In re River Valley
Fitness One Ltd. P’ship, 2006 W L 618442, at *15 (Bankr. D.N.H. Mar. 7, 2006)
(reducing valuation analysis by cost of improvements); In re Zeigler, 320 B.R.
362, 379 (Bankr. N.D. Ill. 2005) (same).
The Court must deduct the value of planned improvements and assess the
Property as is because “[p]roperty to be assessed, whatever may be its
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19
character, is to be taken and valued in the actual condition in which the owner
holds it.” In re Mocco, 222 B.R. 440, 462 (Bankr. D.N.J. 1998) (citations omitted).
Mr. Schowalter’s figure of $2,860,000 - the value of the Property without
improvements - simply does not come close to giving Mr. Ripley equity in the
Property, given that he owes his secured creditors $3,531,542 at this time. The
Court therefore finds that the Debtor lacks equity in the Property. Part two of the
test for whether to lift the automatic stay pursuant to 11 U.S.C. § 362(d)(2) must
therefore be examined.
IV. REORGANIZATION
Despite the Court’s conclusion that Mr. Ripley lacks equity in the Property, the
stay will not be lifted at this early stage in the Debtor’s bankruptcy because the
Property is necessary for an effective reorganization pursuant to 11 U.S.C.
§ 362(d)(2). Mr. Ripley presented at the August Hearing, and has since filed,
what this Court considers to be a potentially viable bankruptcy plan (the “Plan”).
The Plan, as more fully detailed above (see Section I, pg.12-13) calls for selling
the Property and distributing the proceeds to the secured creditors. The Plan
calls for obtaining a binding agreement of sale on the Property by July 16, 2009.
As a preliminary matter, it is clear that the Property is necessary to effectuate the
Plan; the Property is Mr. Ripley’s sole valuable asset and the one which is
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secured by his four primary creditors. See In re Indian Palms Assoc., LTD., 61
F.3d 197, 209 (3d Cir. 1995) (“[i]n a single asset bankruptcy case . . . the property
will almost always be necessary for reorganization for the very reason that it is
the debtor’s sole asset, and relief under 362(d)(2)(B) will be available only if the
bankruptcy court concludes that reorganization within a reasonable time is not
feasible”).
Thus, the question becomes whether the Plan is viable. The Bank
contends that the Plan and this case are “going nowhere” and should be cut off
sooner rather than later in order to pay the secured creditors in the most timely
way possible. Mr. Ripley, on the other hand, argues that he is on the cusp of
getting necessary building approvals for the Property. When these are obtained,
the Debtor asserts, the value of the Property will increase greatly. Thus,
according to the Debtor, there is a benefit to selling the Property in an organized,
timely way and marketing it carefully, rather than selling the land in a rushed
manner out of bankruptcy. The former, contends Mr. Ripley, will create more
value for secured creditors and means that the Plan is confirmable.
Here, the Court agrees with the Debtor. The Plan appears at this early
stage to be viable. If there is one thing that everyone agreed on at the August
Hearing it is that the Property is in a desirable, central location and that the land
can and will ultimately be developed. See Appraisal Report of Mr. Bott, Exhibit
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Due to the current downturn in the real estate market, lifting the stay at this point could14
provide the Bank with the windfall if it were to purchase the Property now at a discount and sell
it in a year or so at a significant profit.
21
BA 14, at pg. 7 (“the subject is located in one of Philadelphia’s most desirable
suburban communities. Its proximity to regional highways and employment
centers, residential amenities, and highly regarded public school system have
made and should continue to make Doylestown Township a premier residential
market.”). Thus, there seems to be no reason to rush to sell the Property,
particularly in the current volatile real estate market. 	The Debtor and14
Mr. Showalter have done a great deal of work researching and planning how best
to develop the Property. It would be a waste not to see that labor come to fruition
by allowing these parties to attempt to market this Property in the way that they
deem to be most fitting and profitable. Lifting the stay at this point could
potentially eradicate much of the work that has been done with regard to the
development of the Property up to now.
In fact, Ohio Casualty, which is owed $1.2 million by the Debtor and is third
in line to get paid (behind BOA and Madison), argues that, at a minimum, there
will be equity in the Property by the time the Debtor intends to sell it in a year and,
therefore, that Mr. Ripley should be given a chance to reorganize. See Response
to the Motion for Relief, docket entry no. 29. (Counsel for Ohio Casualty also
appeared at the August Hearing to argue against lifting the automatic stay.) In
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other words, one of the Debtor’s secured creditors is expending significant funds
to stave off stay relief and allow the Debtor to market the Property because it
believes it will be worth more if the Debtor is allowed to complete his
development and marketing plans for this land. And, as Ohio Casualty’s
Response point’s out, because Ohio Casualty and Madison Bank’s mortgages
are cross-collateralized on the Cataldo Property, “Mr. Ripley and Mr. Cataldo may
intend to coordinate the sales of their respective contiguous properties in order to
maximize the development potential thereof.” (Ohio Casualty Response, ¶ 7). As
previously discussed, such a plan could well also add to the value of the
Property.
In addition, the Debtor’s Plan calls for the Property to be marketed and sold
within less than a year. The Plan lays out specific contingency arrangements for
what will happen if an agreement of sale is not signed by July 16, 2009. This, the
Court finds, means that there is “a reasonable possibility of a successful
reorganization within a reasonable time.” United Savings Assoc. of Texas v.
Timbers of Inwood Forest, 484 U.S. 365, 376 (1988). The Debtor has satisfied
the Court that “a proposed or contemplated plan is not patently unconfirmable
and has a realistic chance of being confirmed.” John Hancock Mutual Life Ins.
Co. v. Route 37 Business Park Assoc., 987 F.2d 154, 157 (3d Cir. 1993).
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The Court’s reluctance to lifting the stay also stems from the fact that
Mr. Ripley’s case was filed about six months ago and he was able to retain
counsel just four months ago. See docket entry no. 37. It is simply too soon to
declare that the Debtor has no chance of proceeding successfully with his
bankruptcy remedies and that BOA should therefore be allowed to pursue its
rights in state court. See In re Dupell, 235 B.R. 783, 795 (Bankr. E.D. Pa. 1999)
(“[a] bankruptcy court should be reluctant to deprive a debtor of the benefits of
Chapter 11 relief before it has an adequate opportunity to utilize its rehabilitative
features”); In re American Sweeteners, Inc., 1999 W L 1068446, at *3 (Bankr.
E.D. Pa. Nov. 22, 1999) (same). Further, it is unlikely, or at least unclear, that the
Bank would receive payment on its debt any faster if the stay were lifted. Mr. Bott
testified for the Bank that it would take a year to market and sell the Property.
Similarly, the Plan proposed by the Debtor calls for there to be an agreement of
sale in place by July 2009. In either case, the Bank would not receive payment
until at least next summer. Thus, not only is it premature at this point to lift the
stay, but it does not appear that doing so would have the intended effect of
getting the movant more immediate payment on its secured debt.
The Bank also erroneously assumes that the Debtor’s lack of equity in the
Property necessarily means that his Plan is not feasible. This is not so for at
least three reasons. First, if lack of equity meant that a plan of reorganization
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While the Motion did not seek adequate protection and this subject was not dealt with at any15
length at the August Hearing, the Court notes that lack of adequate protection can, under
certain conditions, be a basis for lifting the stay. See 11 U.S.C. § 362(d)(1), (noting that the
stay may be lifted “for cause, including the lack of adequate protection of an interest in
property”). It is not disputed that Mr. Ripley is not currently making payments to BOA on his
loans. However, adequate protection may be provided in a variety of ways, including by the
creation of a “viable plan of reorganization which meets the debtor’s statutory obligations to the
(continued...)
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would necessary fail, the test outlined in 11 U.S.C. § 362(d) would not be a two-
part test. Second, other courts have denied a motion to lift the stay under similar
factual circumstances, holding that a debtor who lacks equity in property may still
need the property for an effective reorganization. See, e.g., In re Epic Capital
Corp., 290 B.R. 514, 520 (Bankr. D. Del. 2003) (“even if there is no equity, a
debtor need only establish though prima facie evidence that the collateral will
likely play a significant role in the reorganization.”) (citation omitted). See also In
re Dupell, 235 B.R. 783, 795 (Bankr. E.D. Pa. 1999) (refusing to lift the stay and
allowing the debtor a chance to file and pursue a plan of reorganization despite
there being no equity in the property). Third, the Debtor adequately explained at
the August Hearing how the marketing and sale of the Property is feasible. Given
the extensive amount of planning work that has already been done with regard to
the Property, and the fact that the cost of approvals will be paid by a prospective
developer, the Court concludes that the Debtor’s Plan to market and sell the
Property within a year - despite the fact that he currently has no equity in the
Property - is in fact feasible. 15
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(...continued)15
secured creditor.” In re American Sweeteners, Inc., 1999 WL 1068446, at *2 (Bankr. E.D. Pa.
Nov. 22, 1999) (citation omitted). See also In re Dupell, 235 B.R. 783, 789 n.10 (E.D. Pa.
1990) (citation omitted). Thus, because the issue of adequate protection has not been properly
raised by BOA and because the Debtor appears to be providing the Bank adequate protection
by having proposed a viable plan of reorganization, the Court will not order an additional
hearing to be held on adequate protection at this time.
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V. CONCLUSION
For reasons discussed above, the Court concludes that it is premature and
unwarranted to lift the automatic stay pursuant to 11 U.S.C. § 362(d)(2) at this
time. Therefore, the Motion is denied. While the Debtor lacks equity in the
Property, the land is necessary for an effective reorganization. The Debtor has
presented the Court with a plan of reorganization which the Court deems to be
viable. It is reasonable to propose that the Property can be marketed and sold
within approximately one year.
Dated: October 16, 2008 	______________________________
J EAN K. F ITZ S IMON
United States Bankruptcy Judge
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