11-10131 1 Ashbury Court Partners LLC (Doc. # 187)

1 Ashbury Court Partners LLC, 11-10131 (Bankr. D. Kan. Oct 6, 2011) Doc. # 187

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SIGNED this 05 day of October, 2011.



IN RE: )
1 ASHBURY COURT PARTNERS, L.L.C., ) Case No. 11-10131
) Chapter 11
Debtor. )



The debtor, 1 Ashbury Court Partners, L.L.C., (Debtor) operates a 116-unit apartment
complex at 1940 S. Woodlawn in Wichita, Kansas, that is now known as Siena Court Apartments
(formerly Ashbury Court Apartments). The present ownership purchased the apartments in
November of 2008 and borrowed the $2.4 million purchase money from Wells Fargo Bank (WFB).
WFB acted as an originator and servicer for the Federal National Mortgage Association, commonly


Case 11-10131 Doc# 187 Filed 10/05/11 Page 1 of 16

known as Fannie Mae. When Debtor defaulted on its loan obligations in the summer of 2010,
Fannie Mae foreclosed, triggering this bankruptcy filing on January 24, 2011. The Debtor filed a
series of chapter 11 plans. The third amended plan is before the Court and provides for a cure of its
default and the reinstatement of Fannie Mae’s loan.1 A trial on Fannie Mae’s objection to the
confirmation of this plan was held on August 25, 2011. The Debtor failed to bear its burden of proof
on confirmation and, accordingly, confirmation must be DENIED.


In the go-go financing days of 2007-2008, Ross Meyeraan and his West Coast partners were
looking for apartment opportunities in the Midwest. After scouring the Wichita, Kansas City, and
Tulsa markets, they settled on acquiring what is currently the Siena Court apartments from MAACO
Properties, a company controlled by Lew McGinnis. Assured by the information they received from
McGinnis that this property could be profitably run and concluding that rent conditions were
improving in Wichita, Meyeraan and his group, RTD Investments I, L.L.C. (RTD), secured
financing from Fannie Mae through Wells Fargo. They were short about $725,000 to close the loan
and needed additional capital. The group successfully raised another $400,000, but still needed
$325,000 which Mr. McGinnis was willing to lend so long as he retained the right to manage the
property. Armed with the necessary closing funds, Debtor and RTD closed the $2.4 million loan and
purchase in late 2008.2

Meyeraan returned to San Francisco, leaving McGinnis in charge. McGinnis ran the

1 Dkt. 129, Modified Second Amended Plan of Reorganization dated July 11, 2011.
2 RTD became the majority interest holder and managing member of Debtor, the
borrower under the loan documents. Meyeraan is the managing member of RTD.

Case 11-10131 Doc# 187 Filed 10/05/11 Page 2 of 16

property into the ground. He provided no reporting to the owners and the condition of the property
deteriorated. After a series of mishaps, including an arson incident in the fall of 2009 that damaged
20 units of the complex, Meyeraan and his partners raised an additional $400,000 to take McGinnis
out in early 2010. When RTD replaced McGinnis’s management with PIMCO (Property Investors
Management Company) in January 2010, RTD found that appliances were missing, tenants were not
paying rents, and it appeared that McGinnis had commingled rents from a number of his properties,
paying mortgage payments for one property with rents from another. PIMCO discovered that it was
only 52 per cent occupied, not 82 per cent as McGinnis had represented. Deferred maintenance
mounted as cash flow dried up and, by June of 2010, Debtor could not maintain its debt service to
Fannie Mae.

Through its property manager, Debtor requested forbearance and, in a June 29, 2010 letter
from WFB – now Fannie Mae’s servicer – that can only be described as cryptic, was granted the
right to defer the June payment while making all subsequent payments on time and making the June
payment up by not later than September 1, 2010.3 Debtor made partial loan payments in July and
August and, on August 13, 2010, Wells Fargo gave a notice of default and acceleration.4 It
accelerated the loan on August 23. Fannie Mae filed a foreclosure petition in Sedgwick County
District Court on November 1, 2010.

On January 24, 2011, the Debtor filed this case and obtained this Court’s order permitting
it to employ PIMCO as property manager.5 By June, PIMCO had been fired and replaced by

3 Ex. 4.

4 Ex. 5.

5 Dkt. 67.


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Premier Real Estate Management Inc. (Premier) who found the property in terrible disarray.6
According to Rosetta Parker, the head of Premier, conditions at the property were “bedlam.” Drug
dealers inhabited some of the apartments, and others had been stripped of furniture and appliances.
Many tenants were not paying, as demonstrated by the property’s $40,000 unpaid rent roll, and
evictions ensued. The Debtor also believed that it incurred a $50,000 to $75,000 loss through the
previous on-site individual property manager’s embezzlement of cash rents.7 By August of 2011,
Premier had re-established some semblance of stability, but the property’s occupancy was only 62
per cent. A highly credible witness, Ms. Parker thought that the property and occupancy could be
stabilized in fifteen to twenty months (December 2012), but noted that net revenues would run at
a deficit that, by November of 2011, would be nearly $<150,000>.8

Against this dreary background, the Debtor seeks to cure its defaults and reinstate Fannie
Mae’s loan which will mature in 2015 and require a substantial balloon payment or refinance at
payoff. This implicates several issues, beginning with quantifying the default, but ultimately turning
on whether the Debtor can marshal the operating capital to effect the cure, cover the $150,000
operating shortfall, and have the ability to repay the nearly $2.2 million at maturity on December
1, 2015. The parties addressed other issues at trial, but these issues matter the most.

The Loan and the Default

Under the terms of the Note dated November 14, 2008, the Debtor borrowed $2.4 million,

6 Dkt. 115.
7 This loss was discovered in May of 2011 and led to Premier’s employment as property
8 Ross Meyeraan stated that a “stabilized” property is one with 90% occupancy for a
period of 90 days.

Case 11-10131 Doc# 187 Filed 10/05/11 Page 4 of 16

to be repaid on a thirty-year amortization and to bear interest at 6.11 percent.9 The loan was to
mature on December 1, 2015. In the event of default, the Note would bear default interest of an
additional four percentage points or 10.11 percent. The Note was secured by a first Mortgage on
the property and an assignment of rents. Default interest kicked in any time a payment remained
past due for thirty days or for any period of time that the matured Note remained unpaid.10 If the
lender incurred any expenses as a result of any default, the Debtor was to repay those upon demand.
These expenses included attorneys fees, expert fees, and any “costs of investigation.” If the Note
was accelerated, the Mortgage provided for the collection “of all costs and expenses incurred” in
collection efforts. The Debtor was to deposit certain replacement reserves with the lender to cover
costs of repairs or improvements to the property or to assure reduction of the principal balance if
occupancy or rental income was insufficient.11 Finally, Debtor was obligated to make deposits for
property taxes, and insurance.12

Fannie Mae calculates the extent of the default through August 31, 2011 (exclusive of

9 See Ex. 1, Multifamily Note and Multifamily Mortgage, Assignment of Rents and
Security Agreement attached to Fannie Mae’s proof of claim no. 8. The Note called for monthly
principal and interest payments of $14,559.38. The total monthly payment for principal and
interest, taxes, insurance, and replacement reserve was approximately $21,000 according to
Wells Fargo witness Twilla Revelle.

10 See Note ¶ 8 at Ex. 1, p. 7.

11 See Mortgage ¶ 1(b) at Ex. 1, p. 31, where the replacement reserves are described in
the defined term, “collateral agreement.” No separate collateral agreement was introduced into
evidence at trial of this matter, but based upon Wells Fargo’s Annual Statement for 2010, Debtor
was paying $2,426.33 monthly to the replacement reserve until June of 2010. See Ex. DD.

12 See Mortgage ¶ 7(a) at Ex. 1, p. 40, where such taxes and insurance obligations and
deposits are termed as “impositions” and “imposition deposits.”


Case 11-10131 Doc# 187 Filed 10/05/11 Page 5 of 16

acceleration) as follows:13
Pre-petition default
Less: Partial payments $36,728.0515
Net Pre-petition default amount $201,715.77
Post-petition default
Less: Adequate Protection $69,977.3917
Net Post-petition default amount $136,726.70
Fees and Expenses (as of 7/13/2011)18 $81,360.14
Total Amount of Default to Cure $419,802.61

The Debtor denies that it is required to pay the default interest as a matter of law and objects to
paying Fannie Mae’s attorneys fees and costs. Debtor calculates the amount of the default to be
cured as follows:19

13 Ex. 2.

14 This figure is the default amount calculated from the alleged date of default, June 1,
2010, through January of 2011 and includes default interest of $62,438.25; taxes and insurance
advanced by Fannie Mae in the amounts of $20,035.77 and $17,172.24, respectively;
replacement reserves in the amount of $19,410.64; and late charges of approximately $2,900.
See Ex. 2.

15 These three (3) partial principal and interest payments are for the period July-
September, 2010 in the amounts of $10,728.06, $16,000, and $10,000, respectively. See Ex. 2.

16 This figure also includes default interest in the amount of $57,453.69, calculated
through August 31, 2011, taxes and insurance advanced, and replacement reserves. See Ex. 2.

17 Debtor’s adequate protection payments through June of 2011 were credited against the
indebtedness. See Ex. 2.

18 Fannie Mae’s expenses include charges totaling $11,500 for an environmental site
assessment, a physical needs assessment, an appraisal, and a broker’s opinion of value. The
balance of this line item is attributed to attorney fees, or $69,860.14. See Ex. 2.

19 Ex. DD.


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Pre-petition obligations
Less: Amounts actually paid $49,122.6621
Net Pre-petition Default amount $123,971.13
Post-petition obligations $149,250.4022
Less: Amounts actually paid $79,556.88
Net Post-petition Default amount $69,693.52
Total Amount of Default to Cure $193,664.65

In addition, Debtor complains of the sweep and transfer of the replacement reserve account balance
of some $41,323 on August 3, 2010 to Fannie Mae, but it appears that sum was later credited to
Debtor’s accelerated loan balance, rather than the cure amount.23 Wells Fargo’s representative
Twilla Revelle testified that if Debtor effects a cure of the default, these funds would be returned
to Wells Fargo for ongoing servicing of the loan.24 The difference in the cure amounts as calculated
by Fannie Mae and Debtor is $226,137.96 and is largely comprised of the disputed default interest
and fees and costs.25 The parties essentially agree on the principal and interest payments or adequate

20 This figure is for the 8 month period June 2010 through January 2011 and includes
regular principal and interest payments of $116,475.04, 2010 taxes in the amount of $20,035.77,
2010 insurance in the amount of $17,172.34, and replacement reserves of $19,410.64. See Ex.

21 This figure is comprised of $1,859.92 for tax escrow and $10,534.68 for insurance
escrow. The balance consists of three partial principal and interest payments in the amounts of
$10,728.06, $16,000, and $10,000 respectively. See Ex. DD.

22 Like the pre-petition obligations, the post-petition obligations include principal and
interest payments for the 7 month period February - August, 2011, insurance, taxes and
replacement reserves.

23 See Ex. 1, p. 4, Calculation of Payoff as of the date of bankruptcy filing, January 24,

24 See Ex. 1, p. 7, Note ¶ 4 and p. 40-41, Mortgage ¶s 7, 8 and 9.

25 Default interest totals $119,891.94 ($57,453.69 post-petition + $62,438.25 pre-
petition) and attorney’s fees and costs are $81,360.14. These two components account for
$201,252.08 of the difference.


Case 11-10131 Doc# 187 Filed 10/05/11 Page 7 of 16

protection payments made by Debtor during the period, except that Fannie Mae’s cure calculation
omits a $10,693 payment made by Debtor in July of 2011.26

What the Debtor Can Raise to Effect the Cure

Anthony Chara testified that he has been soliciting investors and funds on behalf of Debtor.27
He believes that he can aggregate investments of $375,000 to $460,000 within the thirty days
following trial to effect a cure. He testified about a list of 31 potential investors, only two of whom
had committed to fund a total of $30,000 to date.28 Ross Meyeraan says he is unable to personally
contribute any more funds to the project. None of this money would be addressed to treating the
looming $150,000 shortfall in operating revenue in November that Rosetta Parker testified to. This
need will arise just three months after the trial. Chara testified that he was soliciting loans from
individuals to cover the operating shortfall, but had received no commitments by the time of trial.
Even so, the contemplated terms upon which the additional $150,000 loan is being solicited are that
it will be due, with interest at a premium rate, in one year – November 2012.

The Debtor’s projections attached to the disclosure statement do not provide for the
repayment of the November 2012 loan, nor does it appear there will be sufficient revenue from
operations to accomplish that. Indeed, Ms. Parker’s budget projections do not even extend to
November 2012. The Debtor’s financial position is challenging at best.

26 Cf. Ex. 2 and Ex. DD. Fannie Mae’s cure calculation is dated July 14, 2011 so it may
be that the $10,693 July payment had not yet been received by Fannie Mae at the time it
calculated the amount necessary to cure the default. In the grand scheme of things, that payment
does not make or break Debtor’s ability to effect a cure of the default or substantially impact the
amount of the cure.

27 Chara’s company, Apartment Mentors, LLC, holds a 10% interest in the Debtor that it
received in exchange for raising capital to buy out Lew McGinnis’s interest in early 2010.

28 See Ex. T. Of the $30,000 committed for the cure, $10,000 was from Chara.


Case 11-10131 Doc# 187 Filed 10/05/11 Page 8 of 16

Value of the Property

The Debtor offered no evidence concerning the value of the apartments because it deemed
current value to be irrelevant given that it has proposed to pay Fannie Mae in full. Fannie Mae
contends that value is highly important because when the loan matures in December of 2015, Debtor
will have to make a hefty balloon payment or refinance the balloon obligation. Fannie Mae
presented the credible appraisal testimony of Michael DeHaas who described the property as a Class
C, 116 unit apartment complex that is presently worth $1.565 million.29 While current value may
not affect the Debtor’s intention to repay Fannie in full and on schedule, some understanding of
current value, current loan-to-value ratios, and recent trends in value is very important for assessing
the likelihood that the Debtor can refinance the payoff of nearly $2.2 million in 2015. DeHaas
testified that if 80 percent occupancy could be maintained,30 the value of the property might increase
by a maximum of 3 percent a year to about $1.753 million by 2015, still well short of the anticipated
balloon balance of $2.176 million. DeHaas further testified that loan-to-value ratios for properties
of this type were currently in the range of 50 -75 percent, meaning that a take-out lender might only
lend about $1.05 million against the apartments in 2015.31


The Debtor bore the burden to prove by a preponderance of the evidence that its plan met
all of the requirements of § 1129(a) and, if any class of debt rejected the plan, § 1129(b) as well.

29 Ex. 19. DeHass indicated that Class C property is typically characterized by lower
occupancy, deferred maintenance, and fewer amenities. Such property cannot command as high
rental rates compared to a higher class of property.

30 DeHass stated that for Class C property, stabilized occupancy is 80% rather than 90%.

31 See Ex. 20. According to DeHaas, the lower end of the loan-to-value ratio (here 60%)
would be used because of the property’s above average deferred maintenance.


Case 11-10131 Doc# 187 Filed 10/05/11 Page 9 of 16

Fannie Mae was alone in Class 2 and it rejected the plan. The Class 3 unsecured creditors accepted
the plan with one accepting ballot and no rejections.32 Thus the requirement of § 1129(a)(1) that
there be one impaired accepting class is met. The parties stipulated in the pretrial order to the
Debtor having met all of the other elements of § 1129(a) except § 1129(a)(1)(compliance with title
11 and chapter 11), (a)(8)(all classes have accepted the plan), and (a)(11)(the plan will not be
followed by further reorganization or liquidation--feasibility).

The Debtor argues that with the cure of its default, Fannie Mae’s claim is not impaired and,
therefore, it should be deemed to have accepted the plan. Were this so, all classes would have
accepted the plan and the requirements of (a)(8) would be met. If not, the Debtor would be entitled
to seek cram-down under § 1129(b) by demonstrating that the plan is fair and equitable as to all
classes as provided in § 1129(b)(2). Only if the cure proposed by the Debtor is adequate and only
if the Debtor can actually accomplish it is this argument effective. Ultimately, the Debtor failed to
prove its ability to pay either cure amount, meaning that it cannot meet the requirement of §
1129(a)(8) or (a)(11).

Sufficiency of the Cure

Section 1124(2) provides that a class of claims is impaired unless the plan provides for a cure
of the defaults to the holder of each claim in the class. How the default is to be cured is to be
determined in accordance with the parties’ agreement and applicable non-bankruptcy law.33 Kansas

32 Grounds Well, a lawn contractor, voted to accept the plan, but Fannie Mae objected to
its claim, thereby temporarily invalidating the ballot, see § 1126(a). The objection is pending.
Rock, Inc. accepted the plan. Its claim had been scheduled as contingent and unliquidated,
invalidating its ballot. However, on August 16, 2011, the Debtor amended the schedules and
removed those designations rendering Rock’s an allowed claim.

33 § 1123(d).


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law and the terms of the Note and Mortgage clearly authorize the collection of default interest here.
Debtor argues, however, that § 1124(2)(A)’s reference to a default “other than a default of a kind
specified in § 356(b)(2) . . . or of a kind that § 365(b)(2) does not require to be cured” expressly
writes default interest out of the cure amount here. Debtor bases this position on the language of
§ 365(b)(2)(D) that states that the cure of an executory contract or unexpired lease default does not
apply to a default “that is a breach of a provision relating to . . . the satisfaction of any penalty rate
or penalty provision relating to a default arising from any failure by the debtor to perform
nonmonetary obligations under the executory contract or unexpired lease. . . .” Debtor argues with
the support of a scant few cases that the phrase “the satisfaction of any penalty rate or penalty
provision relating to a default” in effect creates two kinds of defaults, one relating to default or
penalty interest and the other relating to penalties for nonmonetary defaults. Most courts and writers
do not read this phrase in that way: rather, the majority view considers that both the “penalty rate”
and the “penalty provision” language refer to and modify the words beginning with “relating to,”
meaning that only penalty rates that punish non-monetary default need not be cured. To hold that
this provision ruled out default interest where it is otherwise legally enforceable would be to write
§ 1123(d) out of the Code. That section was enacted in 1994 for the specific purpose of clarifying
(unfortunately in a not very clear way) that cure and reinstatement required more than simply rolling
back the clock as some courts had held.34

Accordingly, Fannie Mae is entitled to default interest from the date of default. What that
date is, however, is difficult to determine without a close reading of the Note, Forbearance

34 See In re Moody Nat. SHS Houston H, L.L.C., 426 B.R. 667 (Bankr. S.D. Tex. 2010);
In re General Growth Properties, Inc., 451 B.R. 323 (Bankr. S.D. N.Y. 2011).


Case 11-10131 Doc# 187 Filed 10/05/11 Page 11 of 16

Agreement and the Debtor’s manager’s letter requesting the forbearance.35 Paragraph 3(a) of the
Note states that monthly installments are due and payable on the “First Payment Date” and on the
first day of every succeeding month thereafter.36 The First Payment Date is defined as January 1,
2009. Paragraph 7 of the Note states that if the monthly installments are not paid by the tenth day
of the month, a penalty is imposed. Paragraph 8 relates to default interest and provides that if a
monthly installment is past due for thirty or more days, default interest accrues from “the earlier of
the due date of the first unpaid monthly installment or other payment due, as applicable, at the
Default Rate.” Paragraph 12 of the Note specifies that any forbearance by the lender “shall not . .
. preclude the exercise of . . . any other right or remedy.” This means that even if Fannie Mae agreed
to accept a late installment payment, it is not precluded from exercising any other contractual
remedy it had, including the imposition of default interest.

On June 9, one day before the grace period for the June payment expired, the Debtor’s
property manager sent a letter to Wells Fargo requesting “to forgo the June payment,” stating that
the payment would be made up by “paying extra in the future months.”37 Wells Fargo’s response,
the forbearance agreement, provided that the Debtor would be excused from timely paying the June
2010 payment, but also that the Debtor would be required to make “Loan Payments” at no more than
30-day intervals, and that the Debtor would “return the loan to current status” by September 1.38

35 Exhibits 1, 3, and 4.

36 Ex. 1, p. 6.

37 Ex. 3.

38 Ex. 4. The forbearance agreement contemplates that Debtor was to timely make the

regular monthly payments, plus such additional amounts to “make up” the missed June 2010
payment by September 1, 2010.


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Nowhere in the forbearance letter did Wells Fargo or Fannie Mae agree to waive the default interest
arising from the defaulted June payment. Instead, the letter made clear that the debtor was to make
the installment payments every thirty days and that the June payment was to be made up by
September 1, 2010.39 The Debtor did neither. It made partial payments on July 7 ($10,728.05),
August 12 ($16,000), and September 24 ($10,000). By Meyeraan’s own admission, Debtor never
made the full payment for July, August, or September. Nor did it catch up the June payment by
September 1.

Fannie Mae deemed the debtor in default before September 1 and made demand on August

13.40 An “Event of Default” is defined as Debtor’s failure “to pay or deposit when due any amount
required by the Note, this Instrument [Multifamily Mortgage, Assignment of Rents, and Security
Agreement], or any other Loan Document.”41 Fannie Mae’s demand letter asserts as a basis for
acceleration the Debtor’s failure to pay “certain installments due and payable under the Forbearance
Agreement.” The partial payment of the July principal and interest amount constitutes a further
Event of Default in addition to the default that occurred when the June payment was not made.
Even though the September 1 deadline for curing the June payment had not yet passed, the July
39 The Loan Documents were defined to include the Note, the Mortgage and Collateral
Agreement. See Ex. 1, p. 33 ¶ 1.(q). Payments under the Loan Documents included payments of
principal and interest in the monthly amount of $14,559.38 [Note, Ex. 1, p. 6, ¶ 3(c)],
“imposition deposits” for taxes and insurance (payable with the monthly principal and interest
payment) [Mortgage, Ex. 1, p. 40, ¶ 7], and replacement reserves under a Collateral Agreement
[Mortgage, Ex. 1, p. 31, ¶ 1.(b) and p. 41, ¶ 8].

40 Ex. 5.

41 Ex. 1, p. 55, ¶ 22.(a).


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default supported the demand and acceleration evidenced in the August 13, 2010 letter.42 A fair
reading of the Note, the Debtor’s forbearance request, and the Forbearance Agreement shows that
Fannie Mae became entitled to default rate of interest when the June payment remained past due for
30 or more days and that the default rate began to accrue “from the earlier of the due date of the
unpaid monthly installment or other payment due,” June 1, 2010.43

The language of the loan documents allows Fannie Mae to demand reimbursement for its
fees and expenses caused by the default and its efforts to collect the Note. It is neither unusual nor
unexpected for a lender to seek an appraisal and an environmental report as part of resolving a
default either by workout or collection. These are routine costs that should come as no surprise to
a borrower sophisticated enough to apply for and receive a $2.4 million commercial real estate loan.
Likewise that a borrower should be called upon to pay attorneys fees is hardly shocking. For the
purpose of this Order only, those fees are allowed at $69,860.14.44 In sum, the amount necessary
to cure Debtor’s default is $419,802.61, as modified to re-calculate default interest through August

42 See Ex. 1, p. 7, Note ¶ 6 which provides that upon an Event of Default, the Lender
may accelerate the indebtedness without prior notice to Borrower and “regardless of any prior

43 See Ex. 1, p. 7, Note ¶ 8.

44 As noted in footnote 18, the total attorney fees and expenses through July 13, 2011as
shown on Fannie Mae’s cure calculation (Ex. 2) is $81,360 with the $69,860 figure attributable
solely to attorney fees. In Fannie Mae’s submission of August 15, 2011 filed shortly before trial,
it claims attorney fees and expenses of $87,525.44 through August 10, 2011. See Dkt. 150. It
then filed an updated statement of fees and expenses for an additional amount of $34,749.20 for
the period August 11-23, 2011 in preparation for the confirmation hearing. See Dkt. 169. This
brings the total attorney fees and expenses through August 23, 2011 to $122,274.64. The Court
makes no determination of the reasonableness of the fees and expenses herein. For purposes of
determining the amount of the cure, the $81,360 figure of attorney fees and expenses is
considered. Given the Debtor’s inability to come close to effecting a cure of the $420,000
amount (inclusive of the $81,360 for attorney fees and expenses), it is unnecessary to consider
the revised and updated figures for attorney fees and expenses.


Case 11-10131 Doc# 187 Filed 10/05/11 Page 14 of 16

31, 2011.


Nothing presented by the Debtor suggested that it has or will shortly have the capacity to pay
the cure amount calculated above. Indeed, it does not appear that the Debtor can pay even the cure
amount it advocates. The debtor had less than $1,000 cash on hand according to its most recent
monthly report. And the cure is not Debtor’s only problem: there is the looming $150,000 operating
shortfall projected by Rosetta Parker. The Debtor intends to borrow $150,000 to cover that shortfall,
but the loans contemplated will be payable in November of 2012 and there is no reason to believe
that the Debtor will have the means to pay them (if it gets the loans at all).

To fund the cure and shortfall, the Debtor proposes to raise money from new investors or
borrow or both. Raising money from new investors is problematic for two reasons. First, the Debtor
did not show that more than two investors were committed to funding the cure and those two
investors, one of whom was Chara’s company, have only committed to the meager sum of $30,000.
The Debtor has prepared an offering circular, but even that document remains in draft form and both
Chara and Meyeraan said that the solicitation process remained in flux. Second, the contemplated
sale of additional interests in Ashbury might result in a change of control of the company or a
change of control in its principal owner, RTD. Done without Fannie Mae’s permission, such a
dilution is a further event of default under the loan documents. Indeed, it appears that there have
been transfers among the Key Principals already that changed the holdings in RTD in a way that
may violate the loan documents. Thus, raising the money to cure the monetary default may result
in a critical nonmonetary default.

Worse yet, the Debtor failed to show that it would be able to refinance the 2015 balloon


Case 11-10131 Doc# 187 Filed 10/05/11 Page 15 of 16

payment that will exceed $2.176 million. The property, which is highly distressed, is currently
worth $1.565 million. Current LTV ratios for properties like this one are 60 percent. In order to get
a 60 percent LTV loan for $2.176 million, Siena Court would have to appraise at $3.627 million,
more than double its current value. The Debtor offered no evidence that would support even a hope
of that occurring in four years, particularly in the current economic environment. Hope is not a plan;
even if it were, there is little hope to be found in this case.


The cure proposed by the Debtor is insufficient as a matter of law. But whether the Debtor
or Fannie Mae is right about the amount of the cure, the Debtor lacks the current resources to pay
the cure in any amount. And, even if it could cure the default, its prospects for covering the
November shortfall and refinancing the balloon are bleak at best. The Debtor failed to show that
it could cure the default on Fannie Mae’s debt or that its efforts will not be followed shortly by
additional reorganization or liquidation. Because the Debtor fails to cure under the provisions of
§ 1123(d), Fannie Mae remains impaired. The plan is unfeasible and fails to meet the requirements
of 1129(a)(11). Confirmation is therefore DENIED.

The Debtor shall have 21 days to amend its chapter 11 plan or move to convert this case to
chapter 7. If it does neither, the case will be dismissed on the 22nd day after the entry of this


# # #

45 Dismissal would moot Fannie Mae’s stay relief motion, dkt.70. If the plan is amended
or the case is converted, the Clerk will set the motion for a prompt evidentiary hearing.


Case 11-10131 Doc# 187 Filed 10/05/11 Page 16 of 16


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