In Re 801 South Wells Street Ltd. Partnership

192 B.R. 718, 35 Collier Bankr. Cas. 2d 483, 1996 Bankr. LEXIS 193, 28 Bankr. Ct. Dec. (CRR) 851, 1996 WL 94857
CourtUnited States Bankruptcy Court, N.D. Illinois
DecidedMarch 1, 1996
Docket19-05633
StatusPublished
Cited by20 cases

This text of 192 B.R. 718 (In Re 801 South Wells Street Ltd. Partnership) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re 801 South Wells Street Ltd. Partnership, 192 B.R. 718, 35 Collier Bankr. Cas. 2d 483, 1996 Bankr. LEXIS 193, 28 Bankr. Ct. Dec. (CRR) 851, 1996 WL 94857 (Ill. 1996).

Opinion

MEMORANDUM OPINION

ERWIN I. KATZ, Bankruptcy Judge.

This case presents the question of whether the Court, in an involuntary proceeding under § 303, should retain jurisdiction to resolve a dispute between junior and senior mortgagees over the entrepreneurial opportunity to redevelop the Debtor’s sole asset, an apartment building. Resolution of the dispute will not affect either the Debtor or the estate, since the Debtor has stipulated that it has no equity in the building and no intent to reorganize. There are no unsecured creditors except for the Debtor’s principals.

This matter is before the Court on the Motions of Secured Creditor LW-SP2 (“LW”) and 801 South Wells Street Limited Partnership (“Debtor”) for dismissal of this involuntary bankruptcy proceeding pursuant to 11 U.S.C. § 1112(b), or for abstention pursuant to § 305(a). The Court makes the following Findings of Fact and Conclusions of Law.

I.FINDINGS OF FACT

1. The property located at 801 South Wells Street, Chicago, Illinois (“Property”), is a ten-story loft apartment building with 99 rentable units. The Property was built in 1912 for industrial use and was remodeled into apartment units in 1989. It is located just south of the Chicago Loop and is west of Printers Row.

2. Debtor holds title to the Property through an Illinois land trust. The Property is encumbered by three mortgages:

(a) The First Mortgage is currently held and owned by LW as the assignee. It is dated August 29, 1989, and serves as collateral for notes in the original aggregate principal amount of $9.2 million, with Enterprise Savings Bank as the original mortgagee;
(b) The Second Mortgage is currently held and owned by Wells Street Corporation (“WSC”) as the assignee. It is a wraparound mortgage, security agreement, and assignment of rents dated May 30, 1984, and serves as collateral for a note in the original principal amount of $1.6 million, with Ben Franklin Savings as the original mortgagee; and
(e) The Third Mortgage is currently held and owned by 801 Associates Limited Partnership (“Associates”). It is a purchase money wraparound mortgage, security agreement, and assignment of rents dated August 29, 1989, and serves as collateral for a note in the original principal amount of $1.9 million.

3. All three mortgages are non-recourse.

4. The Property is the Debtor’s only significant asset.

5. On August 29, 1989, WSC’s predecessor, Ben Franklin Financial Corp., entered into a Mortgage Subordination Agreement with Enterprise Savings Bank. Paragraph 11 of the WSC Mortgage Subordination Agreement provides:

So long as the First Mortgage shall remain a hen against the Premises or any part thereof, the Subordinating Lender and any other holder of the Junior Mortgage shah not collect or cause a receiver to collect any of the rents, issues or profits of the premises.

The “First Mortgage” is identified in the Agreement as the original Enterprise mortgage, which is the First Mortgage now held by LW. “Subordinating lender” is defined on page 1 of the Agreement as WSC.

6. On August 29,1989, Associates entered into a separate Mortgage Subordination Agreement with Enterprise Savings Bank. Paragraph 11 of the Associates Mortgage Subordination Agreement provides:

*722 So long as the First Mortgage shall remain a lien against the Premises or any part thereof, the Subordinating lender and any other holder of the Junior Mortgage shall not collect or cause a receiver to collect any of the rents, issues or profits of the premises.

The “First Mortgage” is identified in the Agreement as the original Enterprise mortgage, which is the First Mortgage now held by LW. “Subordinating Lender” is defined on page 1 of the Agreement as Associates.

7. On August 29,1989, Associates entered into a Inter-Creditor Agreement with Enterprise Savings Bank. Paragraph 5 of the Inter-Creditor Agreement provides:

In consideration of the agreement of Enterprise as set forth herein, Associates, on behalf of itself and its successors and assigns and any other legal holder of the Second Note and Second Mortgage, does hereby irrevocably waive the right to assert any defense to the foreclosure by Enterprise of the lien of the First Mortgage or the exercise of any other remedies available to Enterprise under the Loan Documents or otherwise.

The “Second Note and Second Mortgage” are defined on page 1 of the Agreement as the Associates Note and Mortgage. The “First Mortgage” is defined on page 1 of the Agreement as the Enterprise Mortgage, which is the First Mortgage now held by LW.

8. The LW Mortgage, the Associates Mortgage, and the WSC Mortgage are all in default. In September of 1993, WSC’s predecessor commenced a foreclosure proceeding in the Circuit Court of Cook County, Illinois. In April of 1994, LW filed a counterclaim to foreclose its First Mortgage.

9. Upon LW’s motion, the state court appointed a receiver to manage the Property and collect the rents. Pursuant to an agreed order entered by this Court, the receiver continues to operate the Property. The receiver paid, and managed to keep current, the Debtor’s obligations stemming from operation of the Property.

10. On October 3, 1994, the Circuit Court of Cook County granted a partial Summary Judgement in favor of LW in the foreclosure action against WSC on the issue of the priority of LWs mortgage.

11. On July 25, 1995, the Circuit Court of Cook County granted a partial Summary Judgement in favor of LW in the foreclosure action against Associates on the priority of LWs mortgage.

12. On October 6, 1995, before a final judgment was entered by the Circuit Court in the foreclosure proceeding, Associates and WSC filed an involuntary bankruptcy petition. This Court, sua sponte, entered an order for relief on January 9,1996.

13. On November 20, 1995, Associates and WSC filed a Joint Plan of Reorganization and Disclosure Statement. On November 28, 1995, the proponents filed an Amended Plan of Reorganization and Amended Disclosure Statement. The Plan proposes, subject to conditions precedent, to convert the Property into condominium units which will be sold to the public. The Debtor’s interest would be extinguished and replaced by an entity to be created and controlled by WSC and Associates. This entity would reap the financial rewards of the condominium sales after conversion.

14. Debtor’s Schedule D lists the following secured creditors: LW, Associates, WSC, and the Cook County Collector (“County”). The County is a secured creditor for real estate taxes which, as a matter of Illinois law, have priority and will be paid out of the proceeds of any foreclosure sale. See Ill. Ann.Stat. ch. 110, ¶ 15-1512(b)(Smith-Hurd 1984 & Supp.1992). Debtor’s Schedule F lists the following unsecured creditors: Marshall Bennett Enterprises, Williams Realty Co., Marshall Bennett, Emory Williams, Jr., and Thomas Snitzer.

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Bluebook (online)
192 B.R. 718, 35 Collier Bankr. Cas. 2d 483, 1996 Bankr. LEXIS 193, 28 Bankr. Ct. Dec. (CRR) 851, 1996 WL 94857, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-801-south-wells-street-ltd-partnership-ilnb-1996.