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Village Green I, GP v. Federal National Mortgage Association

United States District Court, W.D. Tennessee, Western Division

December 1, 2014

VILLAGE GREEN I, GP, A Nevada General Partnership, Appellant,
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION, Appellee

For Village Green I, GP a Nevada general partnership, Debtor, In Re: John L. Ryder, LEAD ATTORNEY, Harris Shelton Hanover Walsh, PLLC, Memphis, TN; Michael F. Rafferty, HARRIS SHELTON DUNLAP COBB & RYDER, Memphis, TN.

Jed G. Weintraub, Miscellaneous, Pro se, Memphis, TN.

For Village Green I, GP, a Nevada general partnership, Appellant: John L. Ryder, LEAD ATTORNEY, Harris Shelton Hanover Walsh, PLLC, Memphis, TN.

For Federal National Mortgage Association, doing business as Fannie Mae, Appellee: Daniel H. Slate, LEAD ATTORNEY, PRO HAC VICE, BUCHALTER NEMER, PC, Los Angeles, CA; Mark Warren Bailey, Jr., LEAD ATTORNEY, HUSCH BLACKWELL, LLP - Memphis, Memphis, TN.

OPINION

S. THOMAS ANDERSON, UNITED STATES DISTRICT JUDGE.

Appellant Village Green I, GP (" Village Green") appeals the decision of the United States Bankruptcy Court for the Western District of Tennessee to lift the automatic stay and dismiss Village Green's chapter 11 petition sua sponte . Although the parties have requested oral argument, the Court finds that oral argument would not assist the Court in reaching its decision. For the reasons set forth below, the decision of the Bankruptcy Court is AFFIRMED.

BACKGROUND

I. Factual Background

This is the third appeal in this matter from a decision of the United States Bankruptcy Court for the Western District of Tennessee. The Court has set out the factual and procedural background of the case in its previous opinions in Federal National Mortgage Association v. Village Green I, GP, 483 B.R. 807 (W.D. Tenn. 2012) (" Village Green I ") and in Federal National Mortgage Association v. Village Green I, GP, No. 13-2643-STA, 2014 WL 288974 (W.D. Tenn. Jan. 27, 2014) (" Village Green II "). A recitation of the full background of the case is appropriate here.

Village Green owns the Village Green Apartments located at 3450 Fescue Lane, Memphis, Tennessee (" the property"). The property is a 314-unit apartment complex situated in the Hickory Hill neighborhood of Memphis. Village Green purchased the property in December 2005 for $10, 820, 000.00. The note originally matured on October 1, 2013; however, the note was payable at a thirty-year amortization rate. The unpaid principal balance accrued interest at a rate of 5.98% per annum. Village Green paid principal and interest of $55, 040.41 per month plus a monthly replacement reserve payment of $7, 195.83 and an additional amount for the monthly escrow of taxes and insurance. Village Green owed Fannie Mae a total monthly payment of $85, 471.85.

At closing, Village Green's equity holders provided $2, 140, 437.59 of capital along with $8, 964, 818.04 of assumed debt owed to Fannie Mae. At the time of the purchase, Village Green executed an Assumption and Release Agreement with the prior owner of the property whereby Village Green assumed all of the obligations of the prior owner as set forth in the Multifamily Note, as secured by the Multifamily Deed of Trust, Assignment of Rents and Security Agreement. Village Green further assumed the Replacement Reserve and Security Agreement, the Assignment of Management Agreement, the Operations and Maintenance Agreement, and the Completion Repair and Security Agreement.

Thereafter, Village Green executed a Master Lease with EP Village Green Operator, LLC (" EP Operator"), pursuant to which EP Operator collected all rent, paid all bills and remitted a basic rent to Village Green. Subsequent to the execution of the Master Lease, EP Operator retained Lexington Asset Management, LLC to manage the property.

Village Green began experiencing financial difficulties in 2009 at a time when the broader economy suffered a downturn and affected the United States at large. The poor economy resulted in a disproportionately high unemployment rate in the Memphis area, specifically among African-Americans who make up the majority of the tenants at the property. Village Green's tenants started to lose their jobs, resulting in failures to pay rent, evictions, and a high rate of tenant turnover at the property. Village Green concluded that under the circumstances, its losses at the property were beyond its control.

At that time Village Green approached the loan servicer seeking a modification of the financing for the property. The loan servicer indicated that Fannie Mae would not discuss modification of a loan so long as Village Green was current with its payments and that Village Green would need to miss a payment in order to be classified as " special servicing." Village Green did not make its December 2009 payment. Following Village Green's missed payment, Fannie Mae sent Village Green a " pre-negotiation" letter and requested certain documentation. Fannie Mae did not, however, engage in any dialog with Village Green or otherwise attempt a loan modification. Fannie Mae only stated the amount owed to bring the loan current and gave notice of its intent to conduct foreclosure proceedings. Fannie Mae also accused Village Green of failing to maintain the property, though there was no evidence that Fannie Mae ever performed an inspection of the property.

II. Procedural History

In due course Fannie Mae filed suit in the Chancery Court for Shelby County, Tennessee, seeking appointment of a receiver. When the Chancery Court denied Fannie Mae's request, Fannie Mae initiated foreclosure. Village Green filed its Chapter 11 case on April 16, 2010, to halt the foreclosure proceedings. Village Green made substantial pre-petition, post-default payments to Fannie Mae, consisting of the escrow for taxes and insurance, partial payment of the replacement reserve escrow, and partial payment of principal and interest. The Bankruptcy Court eventually confirmed Village Green's Fifth Amended Plan of Reorganization as modified by the Supplemental Amendment to its Fifth Amended Plan of Reorganization (hereinafter " the plan"). Village Green's plan classified Fannie Mae's secured claim in one class and provided for two separate classes of unsecured claims.

Class 2 consisted of Fannie Mae's secured claim in the stipulated amount of $5, 400, 000.00. The plan proposed to pay Fannie Mae deferred cash payments at an interest rate of 5.4% per annum in equal monthly installments for a term of one hundred and twenty (120) months. The monthly installments were calculated based on an amortization period of thirty years from the effective date of the plan. The plan anticipated a balloon payment obtained through refinancing at the conclusion of the ten-year repayment period.

Class 3 consisted of general unsecured claims which Village Green would pay in two equal installments. The first installment would be due thirty (30) days from the plan's effective date and the second installment sixty (60) days after the plan's effective date. The creditors making up Class 3 were Village Green's accountant with an unsecured ...


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