Edgewater Walk Apts. v. MONY Life Ins. Co., 93 C 3612.
| Decision Date | 10 December 1993 |
| Docket Number | No. 93 C 3612.,93 C 3612. |
| Parties | EDGEWATER WALK APARTMENTS, an Illinois Limited Partnership, Debtor-Appellant, v. MONY LIFE INSURANCE COMPANY OF AMERICA, Appellee. |
| Court | U.S. District Court — Northern District of Illinois |
COPYRIGHT MATERIAL OMITTED
Joel H. Shapiro, Kamenear, Kadison & Anderson and Lawrence Jay Weiner, Scariano, Kula, Ellch & Himes, Chtd., Chicago, IL, for debtor-appellant.
David Perry Leibowitz, Steven Michael Hartmann and Michael P. O'Neil, Freeborn & Peters, Chicago, IL, for appellee.
AMENDED MEMORANDUM OPINION AND ORDER
Debtor Edgewater Walk Apartments has appealed a bankruptcy court order granting a motion by mortgagee MONY Life Insurance Company of America ("MONY") to modify the automatic stay pursuant to Section 362(d)(2) of the Bankruptcy Code. Bankruptcy court orders granting relief from the automatic stay are final and appealable. Matter of Boomgarden, 780 F.2d 657, 660 (7th Cir.1985) (citing In re Am. Mariner Indus., 734 F.2d 426, 429 (9th Cir.1984)). We have authority to review the order pursuant to 28 U.S.C. § 158(a).
Debtor-Appellant is an Illinois limited partnership whose principal asset is the beneficial ownership of a 192-unit apartment complex located in Tinley Park, Illinois ("Phase I" or the "Property"). (Edgewater Exh. 12.) Debtor's sole partners are Terry and Valerie Davis. (Stmt. of Fin. Affairs at ¶ 19.) Debtor has no employees.
Appellee MONY holds a first real estate lien, evidenced by a Mortgage Deed and Security Agreement ("Mortgage"), against the Property. (MONY Exh. 1 & 2.) MONY also holds an assignment of rents derived from the Property under an Assignment of Lessor's Interest in Leases ("Assignment of Leases"). (MONY Exh. 3.) The Mortgage and Assignment of Leases secure Debtor's obligations under a Note dated June 20, 1986. (MONY Exh. 1.) The initial principal amount of the Note was $5.7 million. (Id.)
Under the terms of the Mortgage, Debtor is responsible for payment of real estate taxes due on the Property. (MONY Exh. 2 at ¶ 2.) Debtor was required to escrow funds for payment of such taxes. (MONY Exh. 2 at ¶ 4.) Under the terms of the Mortgage, Debtor's failure to pay real estate taxes when due triggers MONY's right to accelerate the remaining principal due under the Note plus any accrued interest. (MONY Exh. 2 at ¶ 4.)
There are two mortgages on the Property in addition to the one held by MONY. David Tillinghast ("Tillinghast") holds a second mortgage on the Property and a second assignment of rents securing an outstanding loan of $1.15 million.1 Thrush Bond Investors, L.P. ("Thrush") holds a third mortgage on the Property and a third assignment of rents securing an outstanding principal balance of $1.0 million.2 These mortgages were acquired by Thrush and Tillinghast during March 1993.
The Property is presently managed by T.A.D. Associates, Inc. ("TAD"). (Edgewater Exh. 1 & 13.) TAD is primarily owned by Terry Davis. A ten percent interest in TAD is held by Tillinghast. (Tr. of Bankr. Ct. Hr'g of March 30, April 1, 14, 15, 16, 23, May 6, 7, 1993, at 854, Mony Life Ins. Co. of Am. v. Edgewater Walk Apts. (In re Edgewater Walk Apts., Ltd., No. 92 B 22023 (Bankr.N.D.Ill.) (Sonderby, J.) (hereafter, "Tr.").)
The genesis of Debtor's current predicament was its failure to pay the real estate taxes due on the Property for 1987 through 1991. According to the Trial Stipulation filed in connection with the state court foreclosure proceeding, MONY redeemed the 1987 and 1988 real estate taxes on the Property after they were purchased by a third party at a tax sale by advancing $741,872.95 in December 1990. (Mony Life Ins. Co. of Am. v. Chicago Title and Trust Co., No. 91 CH 4374 (Cir.Ct. of Cook County, Ill., Sept. 23, 1992) (O'Brien, J.), Trial Stip. at ¶ 5.) In January-March, 1993, MONY paid an additional $1,070,334.76 for 1989, 1990, and 1991 real estate taxes on the Property that had been purchased and/or paid by third parties. (Joint Pre-trial Stmt., C.L. Dkt. 57-A, Stmt. of Uncontested Facts at ¶ 33; MONY Exh. 39 & 41.)3
On March 19, 1991, MONY sent Debtor a notice of default for Debtor's nonpayment of the real estate taxes due for 1987 through 1990. (MONY Exh. 5.) MONY filed a Complaint to Foreclose Mortgage in the Circuit Court of Cook County on May 10, 1991. (Mony Life Ins. Co. of Am. v. Chicago Title and Trust Co., No. 91 CH 4374 (O'Brien, J.).) MONY's petition for foreclosure was granted on September 23, 1992. (MONY Exh. 13.) Debtor voluntarily filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code on October 2, 1992, thereby staying entry of the decree of foreclosure. (Voluntary Petition, In re Edgewater Walk Apts., L.P., No. 92 B 22023 (Bankr.N.D.Ill. Oct. 2, 1992).)
MONY filed a secured claim for $6,401,114.37 on March 13, 1993.4 (MONY Exh. 6 at 1.) MONY also filed a post-petition claim of $1,567,414.34 for post-petition interest, post-petition advances for the 1989, 1990, and 1991 real estate taxes on the Property, and post-petition attorneys' fees, costs, and expenses. (Id. at 2.)
Debtor did not file a plan during the 120-day exclusivity period granted to Debtor by the Bankruptcy Code, (see 11 U.S.C. § 1121(b) (1993)). (See 11 U.S.C. § 1121(d) (1993).) To date, Debtor has not filed a plan of reorganization.5
MONY filed its motion for relief from the automatic stay pursuant to section 362(d)(2) of the Code on January 19, 1993.6 .) MONY requested that the bankruptcy court dismiss Debtor's case pursuant to section 1112(b) of the Bankruptcy Code on the ground that the bankruptcy petition was filed in bad faith.7 (Id.) MONY requested alternatively that the court modify the automatic stay pursuant to section 362(d) of the Bankruptcy Code to permit MONY to proceed with the foreclosure action that had been pending in the Circuit Court of Cook County when Debtor sought protection under the Bankruptcy Code. (Id.)
The bankruptcy court held a hearing on May 14, 1993, three and one-half months after the expiration of the exclusivity period, to address MONY's motion. The bankruptcy court refused to dismiss the case. The court found that Debtor made a good faith showing that it intended to reorganize the Property and rejected MONY's argument that the timing of Debtor's bankruptcy filing evidenced an intent to delay MONY's attempt to enforce its rights as a secured creditor. Hr'g at 5, Mony v. Edgewater, No. 92 B 22023 (Sonderby, J.) (hereafter "Hr'g").) MONY has not appealed that finding.8
The bankruptcy court did find, however, that both elements of section 362(d)(2) were satisfied and thus granted MONY's motion to modify the automatic stay.9 (Id. at 24.) The court found that MONY met its burden of showing that the Debtor had no equity in the property by showing that the undisputed portion of MONY's prepetition claim far exceeded the property's fair market value, which the court found to be $5.6 million.10 (Id. at 15.) The court then found that although the property was necessary for reorganization, Debtor had failed to show that reorganization was feasible. (Id. at 16, 18.) Because Debtor challenges numerous findings by the bankruptcy court that relate to its feasibility finding, the court's analysis is set out in some detail here.
According to the bankruptcy court, Debtor was required to make two showings to defeat MONY's motion to modify the automatic stay.
To show that the property is necessary for an effective reorganization the debtor bears the burden of proof of establishing; sic one, that the property is necessary to its reorganization efforts; and two, there\'s a reasonable possibility of a successful reorganization within a reasonable time.
(Id. at 16 (citing In re 8th Street Village Ltd. Partnership, 88 B.R. 853 (Bankr.N.D.Ill.), as affirmed by 94 B.R. 993 (N.D.Ill.1988)).) The court then identified the series of factors to be used in assessing the probability of a successful reorganization:
A, whether the lender\'s allowed secured claim that sic can realistically be valued and paid over time with a discount factor equal to the market rate of interest from the debtor\'s net operating income generated by its property; B, whether some other means of proposing a confirmable plan are realistically contemplated, like new capital contributions; and, finally, C, whether debtors are moving meaningfully to propose a plan of reorganization.
(Id. at 18 (citing In re Ashgrove Apts. of DeKalb County, Ltd., 121 B.R. 752, 756 (Bankr.S.D. Ohio 1990)).)
(Id. at 19-20.)
The bankruptcy court made numerous factual findings in support of its conclusions regarding the rental-based plan. It found that the proposed interest rate "fails to approximate a market rate of interest for this type of property." (Id. at 20.) It found that the proposed plan failed to include any significant cash infusion to cover administrative expenses or fund capital...
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