Banks’ Behavior in Builder’s Bankruptcy: Litigation Over Reorganization
Remember our earlier posts about banks hacking a path towards foreclosing on Village Homes of Colorado?
Shown below are part of the more memorable responses filed by Village Homes and the Committee of Unsecured Creditors. By the way, those of you interested in these Pre-Preforeclosure properties, Village Homes provided a list of all homes in its inventory, along with the fair market value. Email adria@homebuilder-bankruptcy.com for a copy.
Village Homes’ 2/11/09 Response:
“There is a fundamental inconsistency in the position the Lender Group has taken regarding their assertion of a housing market decline in the RFS [Relief from Stay] Motion versus their position on the Debtor’s Sale Motion. The Lender Group objected to the Debtor’s proposal to sell homes quickly and resolve disputes over the proceeds at a later time. Apparently they were not worried about a declining market in that context, but now contend that the court should grant them relief from stay because of their fears about a declining market.
Do they really expect that the Short Sales they objected to will somehow turn in to higher priced sales if they are given relief from stay, and do so quickly enough to overcome the market decline they fear? If they really fear that home prices are going to decline, wouldn’t it be more logical to consent to all of the sales the Debtor currently has under contract, get them closed as quickly as possible, and then assert their interest in the proceeds in due course?
Most of the sales contracts the Debtor has for homes in its inventory were entered into pre-petition and are therefore at pre-petition prices. If the Lender Group’s claim that they are afraid of a declining market is true, they certainly won’t be able to sell homes at pre-petition prices like the Debtor can. If the Lender Group is taking the position that they can better market and sell the Property than the Debtor, the Debtor will prove the contrary at the hearing on the RFS Motion.”
Unsecured Creditors Committee 2/11/09 Response:
“The Committee is opposed to granting relief from stay on the Debtor’s main assets so early in this case. The Debtor has been in Chapter 11 for slightly more than two months. In that time, the Debtor has been constantly forced into litigation with its secured creditors, including RFC, rather than focused on a reorganization.”
This raises an important issue – at a time when banks are taking for TARP money, asking for more money, they are not working towards reorganization but spending their time litigating. The end-goal of the litigation is presumably foreclosure, so that the bank can quickly close out this position at minimal loss. Increasing foreclosures and fire sales mean lower real estate prices – good for some of us looking for cheap deals now, but what about the existing home owners, and the overall economy?
