In re Tolco Properties, Inc.
| Decision Date | 16 September 1980 |
| Docket Number | Bankruptcy No. 80-00805. |
| Citation | 6 BR 482 |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re TOLCO PROPERTIES, INC., a Virginia Corporation, Debtor. |
Robert E. Eicher, Richmond, Va., for North Carolina Mutual Life Ins. Co.
William D. Bayliss, and Paul S. Bliley, Jr., Richmond, Va., for Tolco Properties, Inc.
This matter comes on upon the filing by North Carolina Mutual Life Insurance Company (NCM), Plaintiff herein, of a Motion to Dismiss under Chapter 11 of the Bankruptcy Code pursuant to § 1112 thereof. Plaintiff's Motion was filed on June 6, 1980, the same day that the Debtor, Tolco Properties, Inc., (Tolco) filed a Voluntary Petition in Bankruptcy under 11 U.S.C. Chapter 11. On June 23, 1980 NCM filed its Brief in support of its Motion to Dismiss and a response to the Motion to Dismiss was filed by the Debtor on July 3, 1980, with a Brief in support thereof. Upon notice to all parties a hearing was had in the matter on August 8, 1980. Upon the foregoing the Court renders the following opinion.
Tolco Properties, Inc., the Debtor and Defendant herein is a Virginia corporation which has as its only asset property known as Triangle Shopping Center (Property). Mr. R.W. Tolleson is the President of Tolco. North Carolina Mutual Life Insurance Company (NCM) is the holder of a promissory note made by Tolco payable to NCM in the amount of $625,000 plus interest, dated June 13, 1975. This note is secured by a first deed of trust covering the Property in Louisa County, Virginia. In 1977 the Property was conveyed by Tolco to Mr. and Mrs. R.W. Tolleson and remained in the names of Mr. and Mrs. Tolleson until just prior to the filing of the Petition herein by Tolco in June of 1980 at which time Mr. and Mrs. Tolleson reconveyed the Property to Tolco.
Reviewing the loan payment history of Tolco as to NCM's loan, the evidence indicated that Tolco defaulted on its note in 1976 and NCM exercised its right to receive rents at that time. The default was subsequently cured and the loan was reinstated. In 1978 Tolco again defaulted and foreclosure proceedings were instituted by NCM. These proceedings were enjoined by an injunction granted in Louisa County, Virginia. The default was again cured and the loan reinstated. In 1979 a third default occurred and foreclosure proceedings were again instituted. A second injunction to stay the foreclosure was entered in Louisa County based on the anticipation of a refinancing of the loan. This refinancing did not materialize and upon expiration of the injunction the foreclosure proceedings were resumed. On May 21, 1979 Tolco filed in this Court a Chapter XI proceeding under the Bankruptcy Act of 1898, as amended.1 Upon motion of the Debtor the Chapter XI petition was dismissed on May 30, 1979. A further default was caused by Tolco in December of 1979 whereupon NCM exercised its right to receive rents directly to NCM. Foreclosure proceedings were once more commenced and again stayed by the current Chapter 11 petition before this Court being filed on June 6, 1980.
The Property, commonly known as Triangle Plaza Shopping Center consists of approximately 7.44 acres of land with improvements thereon situated to the south of Virginia State Route 22 and located in Louisa County, Virginia. In February of 1979 an appraisal of the Property was made for Mr. R.W. Tolleson by Mr. Joseph B. Call III (Debtor's Exhibit No. 1). The appraisal, based on the income approach (which the appraiser believed was the most indicative of current fair market value), indicated that the fair market value of the Property was $875,000. An updated appraisal in February of 1980, again using the income approach, gave a fair market value of the Property at $900,000 (Debtor's Exhibit No. 2). In both appraisals the appraiser used "economic rents" as the basis for determining the annual rental value of the Property. It was shown that these rental values were somewhat higher than the actual rental values currently in effect. Specifically the appraisal shows an estimated market rental value for the area occupied by the A & P Store to be $55,782 per year while the actual rent, based on the rental agreement with the Great Atlantic & Pacific Tea Company (A & P) is $47,100 annually. Further, the evidence indicated that while both the parking lot and the sewage disposal system were in a state of disrepair at the time of the updated appraisal of February 1980, that appraisal did not take into consideration these conditions and presumed that these conditions had been rectified.
The evidence revealed that the parking lot of the Property remains in a current state of disrepair. The lot was paved in the year 1974-75 and there is a current outstanding bill of $2,500 due and payable to Barton & Boyd for that paving work. Mr. Tolleson testified that when this outstanding bill is paid, Barton & Boyd has agreed to rehabilitate the parking lot at a proposed figure of $12,000. NCM presented evidence by way of a proposal submitted by Barton & Boyd to A & P and sent to Mr. Tolleson in a letter to him from A & P indicating that it would cost approximately $33,527 to repave the parking lot (Plaintiff's Exhibit No. 3).
The evidence indicated that the sewage disposal system is in a defective condition and remains a problem as of this date. Mr. Tolleson testified that it was initially believed that it would cost between $30,000 and $40,000 to repair the system. However, subsequent information received by Mr. Tolleson indicated that the sewage disposal system could be repaired for a cost of between $10,000 and $15,000. Evidence was brought out that there is currently litigation in the state court over the sewage disposal system and the possible enjoining of the use of the sewage system due to its defective condition. Such an enjoining of the sewage disposal system would necessarily force a termination of the activities of the tenants and a cessation of rental income.
Mr. Tolleson testified that the County of Louisa real estate assessment was over $1,000,000. The appraisal of Mr. Call indicated that the 1979 County of Louisa real estate assessment was $1,021,700. The only offer Tolleson has received since fall of 1979 when the Property was listed with a real estate agent, was for $775,000 from CRT, Inc., a competitor. This offer was refused by Mr. Tolleson and no other offers have been made.
The Property is encumbered by the following deeds of trust and/or liens:
According to the testimony of Mr. Tolleson the 1979 unpaid real estate taxes for the Town of Louisa and the County of Louisa are in dispute. Although all taxes over the amount of $3,300 are by lease agreement payable by the tenants of the Property, this presupposes full occupancy and payment by tenants of their pro-rata portion.
With the exception of the first deed of trust to NCM and the second deed of trust to Emerson Spies, all the above liens are personal obligations of R.W. Tolleson and wife and are not obligations of Tolco; however, they are liens against the real estate owned by the Debtor.
Mr. Tolleson testified that Tolco is now in the process of negotiating a $220,000 "wraparound" deed of trust. There will be a $25,000 fee for this loan if it is approved, leaving an available balance of $195,000 to apply to the outstanding deeds of trust and liens. Mr. Tolleson indicated that Tolco would use this money to reinstate the deed of trust to NCM; to pay off the deed of trust in favor of Emerson Spies; to pay off the deed of trust in favor of First & Merchants; to pay for the repaving of the parking lot; to repair the sewage disposal system; to pay for general landscaping of the area; to pay off the county taxes and possibly the town taxes. Mr. Tolleson indicated that it will not be used to pay off the third deed of trust in favor of Mr. Gaffney as this is currently being paid off through other sources. Mr. Tolleson was not sure if this money would be used to pay off the U.S. tax lien, however, before the second "wraparound" deed of trust could enjoy a second position behind the deed of trust of NCM, all inferior liens would have to be released, that being a requirement of the "wraparound" deed of trust.
It was established that the annual fixed rent based on leases currently in effect generate approximately $90,000, not including the fees charged to tenants for maintenance and sewage and water. Based on 1979 figures, tenants of the Property remitted to Tolco $1,153 for their required maintenance fee and further remitted $2,686 for water and sewage cost. All but one of the leases have overage percentage rent, although A & P was the only tenant that generated sufficient income to create an overage rent of $728 in 1979.
As to Tolco's expenses in regard to the Property, it was established that the yearly debt service currently to NCM, based on $5,754 a month is $69,048 per year. If the second "wraparound" deed of trust is consummated, the yearly debt service based on a monthly figure of $7,150 would equal $85,800 per year.
Mr. Tolleson testified that he has been in contact with two other...
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