In re Bryan Road, LLC

• Decision Date: 12 February 2008
• Docket Number: No. 07-17922-BKC-JKO.,07-17922-BKC-JKO.
• Citation: 382 B.R. 844
• Parties: In re BRYAN ROAD, LLC, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

382 B.R. 844

In re BRYAN ROAD, LLC, Debtor.

No. 07-17922-BKC-JKO.

United States Bankruptcy Court, S.D. Florida, Fort Lauderdale Division.

February 12, 2008.

Andrew J. Nierenberg, Coral Gables, FL, for Debtor.

ORDER GRANTING FLORIDA COMMUNITY BANK'S MOTION FOR STAY RELIEF

JOHN K. OLSON, Bankruptcy Judge.

This case presents the interesting question of the enforceability of a prepetition workout agreement in which the Debtor consented, on the eve of a foreclosure sale, to stay relief in the event the Debtor subsequently filed a bankruptcy case. In part because I conclude that the agreement at issue here is enforceable, I will grant stay relief over the objections of the Debtor, the Creditors' Committee, and junior lien-holders so that the lender, Florida Community Bank (the "Bank"), may pursue its foreclosure proceedings in state court.

Background

The Debtor is the developer of a condominiumized "dry stack" boat storage facility located in Dania Beach, Florida, on a canal with access to the Intracoastal Waterway and the Atlantic Ocean. The facility contains some 210 boat storage spaces each of which constitutes a separate condominium unit, located in a warehouse-type building. The Debtor owned 191 of the units as of the petition date. According to the Debtor, the units were capable of storing vessels of between 28 and 52 feet in length, and with a maximum "rack" load capacity of 30,000 lbs. per vessel, and 37,000 lbs. per vessel for ground-level units. The Debtor has represented that it is the only such facility in South Florida, which survived unscathed in the 2005 hurricane season.

Legal description issues

The Debtor borrowed some $8.74 million from Florida Community Bank (the "Bank") in March 2006 pursuant to a note, and secured by a mortgage, security agreement, and assignment of rents. The mortgage and assignment of rents were duly recorded in the public records of Broward County, and the security agreement (which granted the Bank a security interest In substantially all of the Debtor's tangible and intangible personal property) was perfected by the timely filing of a UCC-1 financing statement in the Florida Secured Transaction Registry.

The legal description of the Debtor's property contained in the mortgage was as follows:

Parcel "A" of Bryan Road Warehouses as recorded in Plat Book 170, Page 112 of the Public Records of Broward County, Florida together with a 40 foot strip of land lying adjacent to and contiguous with the easterly boundary of said Parcel "A", and extending said 40 foot strip of land southerly to the center line of West Dania Beach Boulevard as reflected in Plat Book 170, Page 112, of the Public Records of Broward County, Florida.

It is this legal description (the "Plat Book Legal Description") which gives rise to the Debtor's challenge to the Bank's mortgage.

The Debtor recorded a Declaration of Condominium in the Public Records of Broward County on August 18, 2005. It is agreed between the Debtor and the Bank that the effect of this recordation was to convert the Debtor's property into 210 separate boat storage condominium parcels. The Debtor contends that because the Declaration of Condominium was recorded prior to the Bank's mortgage, the Plat Book Legal Description used in the Bank's mortgage was fatally flawed and did not operate to convey a perfected lien on the property. The Debtor relies for this proposition on Florida Statutes § 718.121(1), which provides:

(1) Subsequent to recording the declaration [of condominium] and while the property remains subject to the declaration, no liens of any nature are valid against the condominium property as a 'whole except with the unanimous consent of the unit owners. During this period, liens may arise or be created only against individual condominium parcels.

The Debtor contends that this statute means that because the Bank's mortgage did not describe "individual Condominium parcels" it is legally ineffective to create a lien against the property. The Debtor relies for this proposition on Bank One, Dayton, N.A. v. Sunshine Meadows Condominium Association, Inc., 641 So.2d 1333 (Fla.1994). I conclude that the Debtor's reliance on § 718.121(1) and Sunshine Meadows is misplaced.

Section 718.121(1) expressly provides that a lien which describes "the condominium property as a whole" is permitted with the consent of all of the condominium unit owners. The Bank asserts its lien only against condominium units owned by the Debtor, which was the owner of all of the condominium units when the mortgage was recorded and which remains the owner of the 191 units¹ upon which the Bank now seeks to foreclose.

The purpose of § 718.121(1) is made clear in Sunshine Meadows. Sunshine Meadows was a phase condominium. The developer executed a note and mortgage to Bank One on 1.43 acres of property in a proposed Phase II, which included common area space which was for the benefit of all unit owners in all phases of the project. When the developer defaulted, Bank One sought to foreclose as to the entire condominium property, including the undivided interests of each unit owner in common elements. The Florida Supreme Court held that the Bank One mortgage was ineffective against the unit owners, thereby protecting them from a lien granted by the developer against a part of the phased property, where unit owners (those in Phase I, for example) who did not consent to the Bank One mortgage and whose property rights in common elements would be impaired if the mortgage were foreclosed. It is clear that § 718.121(1) was designed to protect third party condominium unit owners from liens which would impair their units unless they consented to those liens.

The situation here is quite different. The Bank here seeks to foreclose its lien on the 191 condominiumized boat slip units owned by the Debtor and only upon those units; the Bank has released its lien on those units which have heretofore been sold by the Debtor. Since the Debtor was the sole owner of all 210 of the units, when the Bank's mortgage was given, the mortgage received the "unanimous consent of the unit owners." The mortgage thus constitutes a valid lien on the 191 condominium units still owned by the Debtor.

State court proceedings

Following the Debtor's default by failing to make contractual payments of principal and interest due October 28, 2006, and thereafter, the Bank commenced a foreclosure proceeding in the Circuit Court for Broward County, Case No. 07-001360 (the "Foreclosure Case"). Final judgment in the Bank's favor was entered in the Foreclosure Case on May 23, 2007. The Final Judgment describes the property using the Plat Book Legal Description, with the following addition:

a/k/a

DANIA BEACH BOAT CLUB, A CODOMINIUM, ACCORDING TO THE DECLARATION OF CONDOMINIUM RECORDED AT OR BOOK 40327, PAGE 905, PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA.

Less and except the following:

Unit No. 105A Unit No. 205D

Unit No. 207C Unit No. 102B

Unit No. 202D Unit No. 103B

Unit No. 209A Unit No. 202C

Unit No. 104B Unit No. 204C

Unit No. 501B Unit No. 207D

The Final Judgment set a foreclosure sale for July 25, 2007.

The Forbearance Agreement

On the morning of the foreclosure sale, the Debtor and the Bank entered into an agreement (the "Forbearance Agreement") which was approved by the Court in the Foreclosure Case and pursuant to which the foreclosure sale was rescheduled to September 26, 2007. The Forbearance Agreement also provided as follows:

(a) the Bank should be accorded relief from the automatic stay in the event the Debtor filed for bankruptcy protection as, consideration for the Bank entering into the Forbearance Agreement;

(b) the Final Judgment would continue to accrue interest at the rate set forth therein; and

(c) the Debtor, among others, waived all claims, counterclaims, defenses and causes of action against the Bank.

Among those present at the meeting between the Bank and the Debtor at which the Forbearance Agreement was executed was Andrew J. Nierenberg, Esquire, the Debtor's bankruptcy lawyer. Mr Nierenberg is a very experienced bankruptcy practitioner. He filed this chapter 11 case for the Debtor on September 25, 2007, the day before, the rescheduled foreclosure sale. The Debtor's case was expressly filed for the, purpose of delaying that sale.

The Bank filed its motion for stay relief [DE 19] on October 12, 2007. A preliminary hearing on the motion was held on November 5, 2007. At that hearing, the Debtor raised, for the first time, the issue that the legal description contained in the mortgage was insufficient because a declaration of condominium had been recorded prior to the recording of the mortgage. Following briefing and further argument, and as discussed above, I am satisfied that the legal description contained in the Bank's mortgage is legally sufficient. I am also satisfied that the Forbearance Agreement is enforceable in accordance with its terms.

There is considerable case law on the enforceability of prepetition agreements under which a debtor purports to consent to stay relief in the event of a subsequent bankruptcy filing. See, e.g., In re Desai, 282 B.R. 527 (Bankr.S.D.Ga. 2002); In re Excelsior Henderson Motorcycle Manufacturing Company, Inc., 273 B.R. 920 (Bankr.S.D.Fla.2002) and cases cited. As a general proposition, prepetition waivers of stay relief will be given no particular effect as part of initial loan documents; they will be given the greatest effect if entered into during the course of prior (and subsequently aborted) chapter 11 proceedings. Although I agree that stay relief provisions in prior chapter 11 plans are entitled to great respect because they have been negotiated in a plan context and approved after notice to all parties in interest, I conclude that the existence of a prior confirmed reorganization plan is not a condition precedent to the enforceability of a stay relief agreement. I agree with Judge Laney's analysis² in Desai...