Opinion
Case No. 08-10814-TC, Case No. 08-17061-TJC.
October 17, 2008
Lawrence D. Coppel, #00180, Gordon, Feinblatt, Rothman, Hoffberger Hollander, LLC, Baltimore, Maryland, Counsel for Centra Bank.
Merrill Cohen, Bethesda, Maryland, Counsel for Chapter 7 Trustee for the estates of the Debtors.
STIPULATION AND CONSENT ORDER AUTHORIZING DISPOSITION OF CERTAIN INVESTMENT ACCOUNT COLLATERAL AND PROVISION OF ADEQUATE PROTECTION TO CENTRA BANK
Merrill Cohen, Chapter 7 trustee (the "Trustee") for the bankruptcy estates of Dale E. Ausherman and Candace J. Ausherman (collectively, the "Debtors"), and Centra Bank ("Centra") hereby stipulate and agree as follows:
Stipulations
1. Dale Ausherman filed a voluntary petition under Chapter 11 of the United Sates Bankruptcy Code (the "Bankruptcy Code") on January 18, 2008. By Order entered April 18, 2008, this Court converted Mr. Ausherman's Chapter 11 case to a case under Chapter 7 of the Bankruptcy Code.
2. Candace Ausherman filed a voluntary petition under Chapter 7 of the United States Bankruptcy code on May 25, 2008.
3. The Trustee has been appointed Chapter 7 Trustee for the estates of each of the Debtors.
4. Prior to the petition date in Mr. Ausherman's case, Centra made a commercial loan to SC AFIG 2, LLC (the "Borrower" or "LLC") in the original principal amount of $1,000,000, which loan was evidenced by a Commercial Promissory Note dated April 8, 2005 (the "Centra Loan"). As evidenced by a Note Modification Agreement and a Loan Modification Agreement, each dated October 31, 2005, the principal amount of the Centra Loan was thereafter increased to $2,000,000.
5. The Debtors each own a 50 percent interest in the Borrower, and each guaranteed repayment of the Centra Loan. Because the Debtors' interests in the Borrower constitute property of the Debtors' respective estates, such interests are subject to administration by the Trustee.
6. The purpose of the Centra Loan was to enable the Borrower to purchase improved residential real property in the Myrtle Beach, South Carolina area so that the Borrower could lease or sell such properties.
7. As security for the repayment of the Centra Loan, the Borrower granted Centra first priority mortgage liens on the residential real properties acquired with the proceeds of the Centra Loan. As of the May 25, 2008 petition date in Mrs. Ausherman's case, Centra held first priority mortgage liens on eleven (11) such properties owned by the Borrower (collectively, the "Properties"). With respect to each of the Properties, the Borrower has made "sub-notes" and executed a mortgage in favor of Centra in a specified amount corresponding to the borrowing under the Loan for each Property. The balance due to Centra under the Centra Loan as of May 25, 2008 was $1,614,745.40.
8. As further security for the repayment of the Centra Loan and their guaranty thereof, the Debtors also executed a Commercial Security Agreement dated April 8, 2005, and a Consumer Security Agreement dated October 31, 2005 (collectively, the "Security Agreements"). Pursuant to the Security Agreements, the Debtors granted Centra a first priority security interest in, inter alia, all property in certain investment accounts at Merrill Lynch, titled in the names of the Debtors as joint tenants and designated as account no. xxx-xx636 ("Account 636"), and the account at Merrill Lynch titled in the name of Candace Ausherman and designated as account no. xxx-xx048 (Account 048), and all proceeds and products thereof, including, but not limited to, cash or stock dividends, conversions, or replacements (collectively, the "Undisputed Account Collateral"). Upon the execution of certain Control Agreements with respect to the Accounts 636 and 048 dated April 8, 2005, by and between the Debtors, Centra and Merrill Lynch, Centra perfected its security interest in the Undisputed Account Collateral. In addition, on February 17, 2005, a Collateral Account Control Agreement was executed by the debtors with respect to an account at Merrill Lynch titled in the names of the debtors as joint tenants and designated as account no. xxx-xx-xx565 ("Account 565 or "Disputed Account Collateral"). Account 565 presently holds a municipal bond having a face amount of $100,000.00. This Stipulation is without prejudice to Centra's right to assert that Account 565 is also subject to its perfected security interest and without prejudice to the Trustee's right to contest such assertion. Account 636, Account 048 and Account 565 shall be collectively referred to as the "Accounts". Nothing herein shall be construed as granting Centra a perfected security interest in Account 565 to the extent such perfected security interest did not exist on the applicable petition date of each case.
Pursuant to a Stipulation and Consent Order by and between Centra Bank and Dale Ausherman, entered by this Court on April 8, 2008, Mr. Ausherman caused the common stocks comprising Account 636 to be sold and reinvested the proceeds of sale in a Merrill Lynch money market account to protect Centra's collateral from risk of loss due to market volatility.
Pursuant to an agreement between Centra and Mrs. Ausherman, the securities in Account 048 were sold and substantially all of the net proceeds of sale were transferred to Centra on account of the Centra Loan prior to the filing of Mrs. Ausherman's bankruptcy case.
9. As of July 31, 2008, the value of Account 565, together with the funds on deposit in the money market funds in Accounts 636 and 048, was approximately $314,532.44.
10. The Trustee and Centra have agreed that the Trustee should be authorized to sell the municipal bond in Account 565 for its fair market value and transfer all funds from the Accounts to segregated interest bearing accounts in the name of the Trustee at Bank of America. Centra's liens shall attach to the new accounts and all funds deposited therein to the same extent, validity and priority as such liens had in the Accounts on the petition dates of each case.
11. The Trustee and Centra also agree that the Trustee should cause the LLC to market the Properties for sale, and that the Trustee should have authority in certain circumstances to make disbursements of the Undisputed Account Collateral to Centra to facilitate such sales. The Trustee and Centra agree that the LLC may sell a Property without obtaining Centra's consent if the sales price for the Property exceeds the amount of the corresponding sub-note and mortgage on the Property, but that the LLC must obtain the consent of Centra in order to sell a Property for less then the amount necessary to satisfy in full the corresponding sub-note and mortgage amount. In the event the Trustee and Centra agree that a Property should be sold for less than the amount necessary to satisfy in full the corresponding sub-note and mortgage amount, and the LLC does not have sufficient funds to satisfy such sub-note and mortgage amount, the parties agree that the Undisputed Account Collateral should be paid by the Trustee to Centra, to the extent necessary to make up the shortfall, within five (5) business days following the closing of such sale.
12. If all of the Properties are sold and a balance remains due on the Centra Loan, then the Trustee shall disburse to Centra any funds remaining from the Undisputed Account Collateral to the extent necessary for payment of the Centra Loan in full.
13. If a balance remains due on the Centra Loan after payment of the funds remaining from the Undisputed Account Collateral and it is determined by the Court, or agreed by the parties, that Centra holds a perfected lien in the Disputed Account Collateral, then the Disputed Account Collateral shall be paid to Centra to the extent necessary for the payment of the Centra Loan in full.
14. Until the earlier of the (a) payment of the Centra Loan in full, or (b) payment to Centra of the Undisputed Account Collateral and the Disputed Account Collateral in their entirety, the Trustee shall provide Centra with copies of all statements from Bank of America for the account(s) into which such collateral has been deposited within five (5) business days from their receipt.
15. Any funds remaining from the Undisputed Account Collateral or Disputed Account Collateral after payment of the Centra Loan may be retained by the Trustee.
Order
WHEREFORE, on the basis of the foregoing Stipulations, it is, by the United States Bankruptcy Court for the District of Maryland, hereby
ORDERED, that, as adequate protection of Centra's security interest in the Account Collateral pursuant to 11 U.S.C. §§ 361 and 363, the Trustee shall be, and hereby is, authorized to sell the municipal bond in Account 565 at its fair market value and to transfer all funds in the Accounts to a segregated interest bearing depository account(s) at Bank of America; and it is further
ORDERED, that the liens of Centra in the Accounts shall attach to the accounts to be opened by the Trustee at Bank of America to the same extent, validity and priority as such liens had as of the petition dates of these cases. Such liens shall be deemed to be perfected without any further notice or action by Centra or any other party; and it is further
ORDERED, that, except as set forth under this Stipulation and Consent Order, the proceeds of the Accounts shall remain in their entirety in the Bank of America depository accounts to be opened by the Trustee until further Order of the Court; and it is further
ORDERED, that, as adequate protection of the interests of Centra, the Trustee shall be authorized to make disbursements to Centra from the accounts in which the Undisputed Account Collateral will be deposited to facilitate sales of real property owned by the Borrower to the extent that the net sales proceeds of such a sale would be insufficient to satisfy in full the sub-note and mortgage pertaining to such Property, and upon the closing of such a sale the Trustee is hereby authorized and directed to make such disbursement to Centra; provided, however, that the Borrower, acting through the Trustee as sole member, shall not sell any of the Properties for less than the amount necessary to satisfy in full the sub-note and mortgage with respect to such Property without the express, written consent of Centra; and it is further
ORDERED, that all other terms of the Stipulation are hereby approved and binding upon the parties as though set forth in this Order in their entirety; and it is further
ORDERED, that this Stipulation and Consent Order shall survive the conversion of this case to a case under any Chapter of the Code, and the terms of this Stipulation and Consent Order shall be binding on any subsequently appointed trustee for or other representative of the estate of the Debtor or Candace Ausherman.