Lender’s Bankruptcy Leaves Questions Of Condo’s FutureThe Centerpoint condo development in Phoenix has been left high and dry due to the bankruptcy of its lender, Mortgages Ltd. The question that remains is what to do with this multi-million dollar project.
The two-tower 375 unit condo development was slated to open last fall, and now its developer, Tempe Land Co, LLC, is attempting to obtain new
financing in order to push the project to its completion. However, the developer isn’t the only one trying to get a piece of the action.
The U.S. Trustee’s Office and some of the lender’s investors are attempting to wrest control of the project in efforts to convert the Chapter 11 reorganization to a Chapter 7 liquidation. If successful, the direction of this project could soon change.
Under Chapter 11, where the developer now finds itself, a debtor’s managers usually remain in control of the business while making all possible efforts to repay its creditors. On the other hand, if reorganized to Chapter 7, the managers lose control of the company and all assets are sold in order to help pay back creditors.
The lender claims that the developer used some of the funds obtained through the bankruptcy to pay expenses that were not approved by the court. Now, Mortgages Ltd. wants to see the developer held in contempt of court. A total of $2.8 million in financing were obtained through the lender’s bankruptcy. Now, the U.S. Trustee’s Office is involved.
The Trustee’s Office is in place to ensure the creditors in bankruptcy cases receive fair treatment and recommends that a Chapter 7 proceeding is in everyone’s best interests, in part due to the fact that the Tempe Land Co. has not been able to obtain new financing.
The Chapter 11 reorganization plan would include a proposal to obtain $45 million from a new lender, and the eager willingness for the Tempe Land Co. to finance the rest of the construction. Because they have not yet been able to file their Chapter 11 reorganization plan, the Tempe Land Co. says that converting the case now is premature.
The developer rejects the notion that funds were ever misused and states that if they were to secure the necessary financing, it would take about three months to finish the first tower of the two-tower
condo development. Several construction contractors are also hoping that the developer can finish the contract, some of whom have filed motions opposing the bankruptcy conversion.
Buyers are also keenly interested in the outcome of the whole situation. One of the condo buyers who paid about $80,000 in non-refundable costs for a 630 square foot unit doubt that a Chapter 7 liquidation would yield enough funds to repay creditors, including individuals who have already paid deposits for the units.
A hearing on the lender’s contempt motion against the developer is scheduled this week while the U.S. Trustee’s Chapter 7 hearing is scheduled for later this month.