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2670 West Ridge Road, LLC v. Real Estate Asset Purchase Corp.

September 2, 2010

2670 WEST RIDGE ROAD, LLC, DEBTOR-APPELLANT,
v.
REAL ESTATE ASSET PURCHASE CORPORATION, CREDITOR-APPELLEE.



The opinion of the court was delivered by: Siragusa, J.

DECISION & ORDER

INTRODUCTION

This Bankruptcy case is before the Court on Debtor 2670 West Ridge Road, LLC's ("Debtor") appeal from the order of the United States Bankruptcy Court for the Western District of New York (the "Bankruptcy Court"), dated December 17, 2009. The Bankruptcy Court lifted an automatic stay imposed by the filing of Chapter a 11 Bankruptcy petition by Debtor pursuant to11 U.S.C. § 362(a) ("§ 362").

Creditor Real Estate Asset Purchase Corporation ("REAPC") seeks to proceed with a foreclosure sale of the property located at and associated with 2670 West Ridge Road, LLC ("the Property") pursuant to the relief from stay under 11 U.S.C. § 362(d)(2). For the reasons stated below, the Bankruptcy Court's decision is affirmed.

FACTUAL BACKGROUND

The Debtor filed a petition of Bankruptcy under Chapter 11 on August 5, 2009. At that time, an automatic stay was issued against a foreclosure action previously instituted by REAPC on August 19, 2008. That foreclosure action was brought against Debtor in regard to the REAPC mortgage secured by the Property. On October 16, 2009, REAPC filed a motion in the Bankruptcy Court seeking relief from the stay. On December 14, 2009, an evidentiary hearing was held on that motion, before the Honorable John C. Ninfo, II, U.S. Bankruptcy Judge. The focus of that hearing was on whether a feasible reorganization plan existed that would allow Debtor to avoid the foreclosure action. On December 17, 2009, the Bankruptcy Court entered an order terminating the automatic stay, thus allowing REAPC to proceed with the foreclosure sale of the Property. Debtor appealed to this Court on February 24, 2010.

At the December 14, 2009, evidentiary hearing before Judge Ninfo, the following pertinent facts were developed. REAPC's mortgage was secured by the Property. The total amount of the claim under the foreclosure action was in excess of $3,000,000, including a prepayment premium in the amount of $412,639. Appraisals of the property done by both parties established that it had a value between $1,200,000 (REAPC's appraisal) and $1,330,000 (Debtor's appraisal).

Both parties acknowledged that the Debtor had no equity in the Property. Both parties also acknowledged that the Property was the only asset of Debtor 2670 West Ridge Rd, LLC. The Property was generating rental income in the amount of $12,000 per month. Debtor asserted that the property could generate $20,000 per month in rental income in the future. This was based on a new lease of part of the property to Sleep City as well as an amendment of an existing lease with Monroe Oxygen. Debtor asserted that the cost of repairs and maintenance on the property was $4,900 per year. Debtor asserted a bottom line rent roll*fn2 of $235,000 per year. Debtor acknowledged that based on the payments it would be obligated to make to Monroe County, unsecured creditors, and REAPC under its reorganization plan, it would have a cash shortfall during the first year of $47,600.

Debtor proposed covering that shortfall by contribution of future income from a limited liability company ("LLC"), located at the Property, in monthly supplemental payments of $4,000. The LLC was a dental practice whose sole member*fn3 was Dr. Robert Fallone, Jr. Debtor asserted that the net income of the LLC for the months of January through November 2008 had been $322,000 and that it had documents verifying that income. Debtor did not produce any evidence of the assets and liabilities of the dental practice, nor did Debtor produce any evidence of projected future income amounts for the dental practice. Debtor asserted that Dr. Fallone would be willing to sign a deed in lieu of foreclosure on the 2670 West Ridge Rd property, to be held in escrow and recorded in the event of default. Debtor offered no additional collateral under the reorganization plan. Additionally, Dr. Fallone offered no collateral under the reorganization plan to secure his obligation to fund the cash shortfall. (Excerpts from the transcript of Bankruptcy Hearing held 12/14/09 (Docket No.2, 1-37).)

STANDARDS OF LAW

Standard of Review on Appeal

Federal district courts have jurisdiction to hear appeals from final judgments, orders and decrees from U.S. Bankruptcy Court.

There are three possible routes of appeal from orders of bankruptcy judges under 28 U.S.C. § 158: (1) to the district courts; (2) to a panel of three bankruptcy judges, who are members of the bankruptcy appellate panel service created by the circuit judicial councils pursuant to 28 U.S.C. § 158(b)(1), if the district court judges for the district have authorized the referral of appeals, and if the parties to the appeal consent; or (3) directly to the court of appeals if certain rather detailed statutory criteria are satisfied. 1-5 Collier on Bankruptcy P 5.02 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.).*fn4

As the Second Circuit held in Capital Communs. Fed. Credit Union v. Boodrow (In re Boodrow), 12 ...


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