Denied: Getting a Refund of Deposits
There were at least 2 home buyers with 6-figure amounts in deposits who filed motions in the bankruptcy court against the developer of Peninsula Boynton Beach (Waterbrook Peninsula). Joseph Altman was trying to get back escrow deposits in the amounts of $109,760.00 and $123,670.00. E. Lee Moore wanted a refund of $109,760.00.
The premise for getting a refund was simply stated: the units had not been delivered and completed within 2 years from the time the buyers signed the sale contract. To date, a certificate of occupancy had not been issued. What the buyers wanted was a court order compelling the developer to reject the contract, declaring a breach of contract and ordering a return of the deposits.
Waterbrook Peninsula’s response was mainly procedural – that the motions should be denied because “compelling Debtor to assume or reject the executory contract at this time was premature” in light of its ongoing efforts to propose a plan which will provide a return to creditors. Note that the developer had also gotten an extension of the exclusivity period (the time frame within which it had to file and confirm a reorganization plan).
Finally, the developer argued that a motion to compel rejection was hardly the “proper mechanism for determining a breach of contract action…[t]o determine an issue such as breach upon a motion to compel rejection would be a denial of Debtor’s due process”.
Unfortunately, our view is that the current bankruptcy regime is likely to be on the side of Waterbrook Peninsula. The Bankruptcy Code does allow a debtor-in-possession to decide whether to assume or reject an executory contract up till the time of plan confirmation.
When the new bankruptcy legislation (BAPCPA) was passed in 2005, the limitation on the time period for assuming or rejecting executory contracts was confined to non-residential real property leases only.The time frame for that is 60 days, and the rationale underlying the legislation was that courts routinely extended the time for assumption.
With such extensions, landlords would be confronted with great business uncertainty as to whether their leases were going to be assumed or rejected. In today’s environment, a strong case can be made that home buyers who had put down deposits are facing the same situation, with their money held hostage by home builders and developers.
PS. Both motions were denied (without prejudice) in Dec’08.
