Opinion
Case No. 11-01008-PB7
01-15-2013
In re ROBERT OTIS GRIFFITH, Debtor.
WRITTEN DECISION - NOT FOR PUBLICATION
ORDER ON TRUSTEE'S MOTION TO
ENTER INTO SHORT SALE
AGREEMENT
This matter came on for hearing on shortened notice on the trustee's motion to approve a short sale. In a nutshell, the first position mortgage holder would be paid in full. The same entity holds the second position, and has agreed to accept $19,000 in payment of a debt of about $456,000. In addition, the third position lienholder has agreed to accept $20,000 for a debt on paper of $1.5 million, although the debt is capped at about one-third that amount. The estate would receive a carve-out of $100,000, from which it will pay some or all of the $20,000 payable to the third position lienholder.
Despite the tortured history of this property, the debtor -and only the debtor - opposes the short sale, arguing the property should go through a full marketing which debtor believes would yield "greater that 4 million..." The trustee shows the first is owed $3,402,099; the second $456,000; and the third $1.5 million, which is capped by agreement at $488,000. The total debt on the property for just the three senior lienholders is $4,346,099, before considering costs of sale and commission, which usually totals approximately 8% of the sales price, absent agreement otherwise. Those expenses have to be subtracted from the gross sales price to determine the net yield. Assume a sales price of $4.2 million, as Mr. Griffith hypothesizes, approximately $336,000 in expenses would be incurred, leaving a net yield of approximately $3,864,000, which is significantly less than the total debt against the property, which is over $4,346,000.
For the foregoing reasons, the debtor lacks standing to challenge the proposed sale in this Chapter 7 case because the estate is insolvent.
Independent of the Court's ruling on standing, the Court concludes the trustee's motion should be granted on its merits.
According to the declaration of Shannon Vencill of the U.S. Trustee's office, filed in support of the motion to dismiss this case, a Notice of Default was recorded against the subject property on December 21, 2009. Subsequently, a Notice of Trustee's Sale was recorded against the subject property on April 22, 2010. On September 27, 2010 debtor filed a petition under Chapter 13, with the assistance of counsel. On October 14, debtor filed his missing schedules. Schedule D showed that debtor had over $4.1 million in secured debt, making him ineligible for Chapter 13 under 11 U.S.C. § 109 on the face of the petition. The Chapter 13 trustee objected to confirmation of debtor's plan for that reason. Confirmation was denied on December 22, 2010, and the order was entered January 12, 2011.
Less than two weeks later, using the same counsel, debtor filed the instant petition under Chapter 11, on January 24. Notwithstanding that debtor had filed schedules in the prior Chapter 13, the instant case was again filed "bare bones." Before the first meeting of creditors was held, the U.S. Trustee moved to dismiss for lack of participation in the Chapter 11 process, combined with the problems in the Chapter 13 case. In this case, neither debtor nor counsel appeared for the Initial Debtor Interview, nor did they provide requested documentation. A creditor opposed dismissal and sought conversion to Chapter 7 instead. Following a hearing, the Court ordered the case converted, and Mr. Akers was routinely appointed as Chapter 7 trustee.
Debtor thereafter changed counsel, and Schedules were finally filed on May 18, 2011. A month later, debtor moved to dismiss the Chapter 7 case which, after hearing, was denied for reasons stated on the record. On August 3, 2011 the trustee filed a notice of intent to abandon the subject property, stating that the property was worth $4,250,000, while the debt on it exceeded $4,045,000, before expenses of sale, leaving no equity for creditors. Meanwhile, pre-petition debtor rented the property to Steven Marshall in or about 2009. Mr. Marshall is the proposed purchaser.
On or about August 30, 2011 the trustee withdrew his notice of intent to abandon, although he had received no opposition. Then, around November 7, 2011 the trustee applied to employ Coldwell Banker to market the property, with a listing price of $3,800,000 to $4,000,000. The employment was authorized, nunc pro tunc to October 5, 2011.
On July 19, 2012 debtor substituted himself, and his counsel withdrew. The next day the trustee filed an emergency motion to require debtor to vacate the subject property and for authorization for the U.S. Marshal to assist in reestablishing possession. According to trustee's counsel's declaration, he had been advised by the tenant, Mr. Marshall, that debtor had broken into the residence and changed the locks, and had posted a 3-day Notice to Quit. Debtor filed an opposition, with support from Michael T. Pines, who was an attorney undergoing disbarment proceedings. The Court granted the trustee's motion after hearing. Debtor also filed a state court unlawful detainer proceeding against Mr. Marshall in July 2012. The trustee removed the proceeding to this Court.
In the meantime, around June 29, 2012 the Court authorized the trustee to employ a different broker, who specialized in short sales. This motion is the end result of that process. In his declaration opposing the instant motion, debtor states:
"In July 2012, I became aware that the Trustee was attempting to sell my property to Mr. Marshall for around $3.5 million..."One of the debtor's main complaints is that the trustee did not require Mr. Marshall to pay rent over most of 2012, and some of 2011. The trustee responded that any rent paid would be the cash collateral of the lenders, and would not be available to the estate or unsecured creditors unless some separate form of adequate protection was provided. The trustee represents that all those considerations factored into the terms ultimately arrived at, which are embodied in the proposal pending before the Court.
CONCLUSION
For all the foregoing reasons, the Court finds and concludes that the trustee's motion to approve the proposed short sale should be, and hereby is approved. The Court finds that the trustee has exercised sound business judgment and obtained for the estate a benefit made available by agreement of the secured lenders. Further, the Court finds and concludes that debtor lacks standing to object to the proposed sale. In addition, debtor's conduct delaying and interfering with the trustee's possession, custody and control of property of the bankruptcy estate independently supports approval of the sale.
The Court also finds and concludes that the record establishes that Mr. Steven Marshall has proceeded in good faith within the meaning of 11 U.S.C. §363(m) and is entitled to the protection thereof.
Lastly, the trustee has requested that the Court waive the 14 day stay of Rule 6004(h), Fed. R. Bankr. P. For the reasons set out above, the Court finds that waiver is warranted, so no 14 day stay thereunder will apply.
IT IS SO ORDERED.
_________________
PETER W. BOWIE, Chief Judge
United States Bankruptcy Court
In re Bankruptcy Case No(s). 11-01008-PB7 Adversary No(s).
CERTIFICATE OF MAILING
The undersigned, a regularly appointed and qualified clerk in the office of the United States Bankruptcy Court for the Southern District of California, at San Diego, hereby certifies that a true copy of the attached document, to wit:
ORDER ON TRUSTEES MOTION TO ENTER INTO SHORT SALE AGREEMENT
was enclosed in a sealed envelope bearing the lawful frank of the bankruptcy judges and mailed to each of the parties at their respective addresses listed below: Gary Rudolph
Sullivan, Hill, Lewin, Rez & Engel
550 West C Street, Suite 1500
San Diego, CA 92101
Robert Otis Griffith
3525 Del Mar Heights Road, #331
San Diego, CA 92130
Gregory A. Akers
P.O. Box 26219
San Diego, CA 92196
David L. Speckman
Speckman & Associates
1350 Columbia Street, Suite 503
San Diego, CA 92101
Chris Minier
2030 Main St. Ste. 1200
Irvine, CA 92614
Steven Marshall
c/o Chris Minier
2030 Main St. Ste. 1200
Irvine, CA 92614
Said envelope(s) containing such document was deposited by me in a regular United States Mail Box in the City of San Diego, in said District on January 15, 2013.
_________________
Molly Dishman
Judicial Assistant to the Honorable Peter W. Bowie