In re Roxrun Estates, Inc.

• Decision Date: 01 July 1987
• Docket Number: Bankruptcy No. 86 B 12326 (TLB).
• Citation: 74 BR 997
• Parties: In re ROXRUN ESTATES, INC., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

74 B.R. 997 (1987)

In re ROXRUN ESTATES, INC., Debtor.

Bankruptcy No. 86 B 12326 (TLB).

United States Bankruptcy Court, S.D. New York.

July 1, 1987.

COPYRIGHT MATERIAL OMITTED

Jordan & Walster, Roxbury, N.Y., by Herbert Jordan, for RR Village Ass'n, Inc.

Frank Taddeo, Jr., New York City, special counsel to the trustee.

Mark Lewis Brecker, New York City, for LGP Gem Ltd.

DECISION AND ORDER ON MOTION FOR RELIEF FROM AUTOMATIC STAY

TINA L. BROZMAN, Bankruptcy Judge.

A townhouse village association which holds a prepetition judgment of foreclosure and sale against unimproved land which is property of the chapter 7 estate asks us to lift the automatic stay of section 362 of the Bankruptcy Code to allow enforcement of the judgment. The trustee opposes this relief and asks us, instead, to continue the automatic stay in effect but to allow motions concerning an appeal from the judgment in state court to proceed, in essence without requiring the debtor to post the supersedeas bond ordered by the state appellate court. In response to the cross-motion, the townhouse association suggested that we lift the stay for all purposes with respect to the pending litigation and foreclosure proceeding. The trustee urges that we should grant the more limited relief for a number of reasons, including that the "property is absolutely necessary for an effective reorganization . . . and that the Trustee will promptly submit a feasible plan of reorganization. . . ." Supplemental Memorandum of Law of the Trustee at page 12. The assertion of that defense, which is certainly curious in the context of a voluntary, chapter 7 liquidation, is typical of the quality of advocacy which has laced the trustee's efforts to oppose the motion to lift the stay.¹ An evidentiary hearing was conducted on June 16, 1987. At the close of the creditor's case, the trustee declined to adduce any evidence, resting instead on his counsel's cross-examination of the creditor's expert. For the reasons discussed below, we grant the motion to lift the stay for all purposes with respect to the litigation and foreclosure proceeding pending in the state courts.

I.

Roxrun Estates, Inc. ("Roxrun") is the owner of 130 lots in a planned unit development which it acquired in 1982 from Roxbury Run Corporation. The deed recites that the land is subject to the Offering Statement and Declaration of Covenants, Conditions and Restrictions of Roxbury Run Village ("Declaration") dated August 10, 1972 and recorded on that same date. Article IV, section 1 of the Declaration provides that the owner of each plot of land in the development shall pay to RR Village Association, Inc. ("RRVA") annual maintenance assessments, property tax assessments and any special assessments, which, "together with interest, costs and reasonable attorney's fees shall be a charge on the land and shall be a continuing lien upon the property against which each such assessment is made." Section 10 of the same article provides that RRVA may foreclose such liens where there are defaults "in a like manner as a mortgage lien on a real property" and grants to RRVA a power of sale in connection with such liens.

On May 2, 1985, RRVA instituted a foreclosure action against Roxrun in the Supreme Court of the State of New York based upon Roxrun's failure to pay maintenance assessments and special assessments for capital improvements which RRVA claimed were due. RRVA also filed on the same date a notice of pendency of the foreclosure action.

RRVA prevailed in the foreclosure action; on October 1, 1986, an order and judgment of foreclosure and sale was entered. The judgment awarded RRVA $169,230.99, plus interest computed at the 9% legal rate, plus additional assessments to become due between August 20, 1986 and the sale date. A sale was scheduled for December 8, 1986. Roxrun appealed and applied to the Appellate Division for a stay of the sale pending appeal. RRVA cross-appealed. On December 4, 1986, the Appellate Division issued a decision to consolidate the two appeals and to grant a stay conditioned upon the posting of a $100,000 undertaking.

Instead of posting the bond, Roxrun filed its voluntary, Chapter 7 petition several hours before the scheduled sale. In deference to the automatic stay, the referee adjourned the sale. As of the filing date, RRVA was due $178,111.99 in accordance with the terms of its judgment.

At about the same time as the bankruptcy petition was filed, RRVA moved to dismiss the appeals from the order and judgment of foreclosure.² By cross-motion dated December 16, 1986, Roxrun (and not the bankruptcy trustee), without leave of court, opposed that motion and asked the Appellate Division, among other things, to a) specify the contents of and financial responsibility for assembling the record on appeal b) reaffirm Roxrun's right to perfect all appeals c) declare that the requirement of the $100,000 undertaking was for the sole purpose of insuring that the value of the property would not be diminished during the appeal³ and d) expand its order of consolidation. LGP also cross-moved in opposition to RRVA's motion and in support of Roxrun's cross-motion.

RRVA responded to these cross-motions with letters asking the Appellate Division to hold the cross-motions in abeyance pending the appointment of a bankruptcy trustee because the appeals were stayed by the bankruptcy. The Appellate Division concurred. In February, 1987 it ordered the appeals be held in abeyance even though the trustee (without seeking bankruptcy court approval) had asked the Appellate Division to consider RRVA's motion to dismiss the appeals and the two cross-motions.⁴

By motion filed May 6, 1987, RRVA moved this court for an order to permit execution of the judgment of foreclosure and sale, contending that the debtor had no equity in the property, that RRVA's interest was not adequately protected and that there was good cause to modify the stay. The good cause was alleged to be that the filing was made solely to obtain the benefit of the automatic stay, which obviated the need to post the $100,000 bond which the Appellate Division four days earlier had imposed. The motion was supported by affidavits and a variety of documents, including an appraisal by one Perry White. RRVA submitted evidence that it was owed, in addition to the $178,111.99 prepetition amount, $17,221.62, (comprised of $6,009.12 in post-petition interest pursuant to the judgment and $11,212.50 in post-petition maintenance assessments) and $7,326.60 in unpaid and overdue real estate taxes. None of these calculations were controverted by the trustee. The trustee opposed the motion and cross-moved to lift the stay for the limited purposes of allowing the Appellate Division to determine RRVA's motion to dismiss the appeals and Roxrun's and LGP's cross-motions. The trustee contended that Roxrun has "potentially great equity" in the land because "an efficient developer could conceivably realize a profit margin of 5-10% . . ." (Affirmation of Frank Taddeo, Esq. dated May 25, 1987 at ¶ 20). The trustee also contended that the bankruptcy filing was not improper. Nowhere in his initial opposition did the trustee urge that RRVA was adequately protected.

The motions to lift the stay were first heard on June 2, 1987. During oral argument, the trustee's special counsel contended, for the first time, that RRVA's judgment of foreclosure constituted a voidable preference which the trustee would eventually seek to set aside. Because the trustee challenged the validity of RRVA's appraisal and because RRVA's counsel did not have his appraiser present to testify, RRVA consented to a continuation of the automatic stay to allow it to bring in its appraiser.⁵ A valuation hearing was set for June 16, 1987, with the understanding that no adjournments would be granted. RRVA consented to a limited modification of the automatic stay to permit the Appellate Division to rule prior to the valuation hearing on one prong of Roxrun's motion, namely, the request that the Appellate Division limit the purpose of the $100,000 bond. The Appellate Division did rule, denying Roxrun's motion and refusing to modify its order. Roxrun's "backer," Isaac Pollak, who is the sole shareholder of both Roxrun and LGP, refused to post the bond.

On June 16, 1987, notwithstanding that RRVA's motion was made some six weeks earlier and that the trustee was specifically advised on June 2 that no further adjournments would be granted, the trustee asked this court to "commence" the valuation hearing that day and then "continue" it for several weeks to allow the trustee to retain an appraiser. The application was denied, the court noting that the trustee had had ample time since the motion was made to prepare his case. The evidentiary hearing was conducted, RRVA calling Mr. White and the trustee calling no witnesses.⁶

Perry White, a 23 year resident of Roxbury, New York, the town in which Roxrun's land is located, is a real estate salesperson and branch manager of a real estate office in Roxbury. He is also the owner of a real estate consulting business, a member of the Delaware County Planning Board and a former chairman of the Town of Roxbury Planning Board. He has several years' experience in the sale of unimproved property in Roxbury and has performed for a fee many appraisals of land, improved and unimproved, in the Roxbury area, including improved sites in the development of which Roxrun's property is a part. In preparing his appraisal of Roxrun's land he visited Roxrun's property once for an extended period of time and visited comparable sites as well. The court found Mr. White to be a particularly articulate and credible witness.

Roxbury is a town of 2,500 people located in a rural, mountainous area of Delaware County. Much of its land is or was farmed. The town contains two hamlets of higher density. One of these hamlets is the Roxbury hamlet, where Roxrun's property is located.

Roxrun's lots,...