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Judge tosses Hamlin's 'bad faith' bankruptcy petition

Hamlin filed a notice of bankruptcy with three minutes to spare on the eve of a scheduled foreclosure sale.

Dale Hamlin may have reached the end of the line when it comes to saving his Carriage Park development.

The creator of the ridgetop development on N.C. 191 suffered what could be a game-ending defeat in U.S. Bankruptcy Court on May 27 when a judge granted a motion by his biggest creditor and threw out the Chapter 11 bankruptcy petition Hamlin filed hours before a scheduled foreclosure sale.
“I’ve got an attorney that would have to answer that so I’ll tell them to give you a call,” Hamlin said when asked about his next steps.
The foreclosure order resulted from civil complaints filed by Arendale Holdings Corp., a Jacksonville, Fla.-based development company that had loaned Hamlin $9.7 million in 2011. Hamlin failed to make payments on the loan by Dec. 31 of each year since then as required under the terms, Arendale said.
After a hearing, Henderson County Clerk of Superior Court Kim Gasperson Justice entered a foreclosure order on the Carriage Park property that Hamlin put up as collateral loan and set a foreclosure sale on the courthouse steps for April 8. Hamlin had filed a Chapter 11 bankruptcy petition at three minutes before 5 p.m. on April 7, blocking the property sale.
Six days later, Arendale filed a motion asking the court to dismiss the Chapter 11 petition on the grounds that it was filed merely to block the foreclosure sale.
In the petition Carriage Park Associates “valued its real property, its only asset, at $10,000,000 but reveals that it owes debts of $13,651,677.59 which are secured by perfected liens on the real property,” Arendale said. “Further, Arendale asserts that the amount of its claim is significantly higher than what is listed in the debtor’s petition, and that the petition fails to list the other outstanding judgment liens” other creditors had gotten through lawsuits. “On the other hand, the debtor has no operating capital and is generating no revenue.”
The chance that Hamlin could turn things around is virtually non-existent, Arendale attorney Chad Sharkey said.
Hamlin’s “only apparent source of revenue would be from the sale of lots,” Sharkey said. “However, those lots are already subject to the perfected security interest of Arendale (as well as the liens of multiple judgment creditors) and the debtor has no equity whatsoever in the real property. Further, any future lot sales by (Hamlin) are speculative at best, especially considering that (he) has only managed to sell 17 lots within the past five years.”
Hamlin and his attorney, Trade Elkins, have argued that Arendale has unfairly hamstrung his ability to sell lots and has taken the proceeds when he did make sales. Elkins could not be reached for comment on Tuesday.
The judge agreed with Sharkey that the Hamlin bankruptcy petition met the court’s two-pronged standard for dismissal — “objective futility” of reorganization and “subjective bad faith.”
Carriage Park Associates “cannot present a confirmable or viable plan for reorganization,” he said, “as it has no operating capital, it cannot generate any income not already subject to the lien of a third party, and has no other assets to offer to adequately protect its creditors.”
“In short, the sole purpose of the Debtor’s eleventh hour filing is to again put off the foreclosure after having exhausted its abilities to delay in the state courts,” the Arendale attorney wrote.
Sharkey cited a bankruptcy judge’s decision in a 1988 case in Florida, in which the judge said: “Bad faith is shown if the purpose of a Chapter 11 debtor is to hold a single asset ‘hostage’ in order to speculate that such asset may increase in value … at the creditor’s risk.”
Allowing the property to remain shielded from foreclosure and other civil actions by the Chapter 11 protection would cause Arendale “irreparable harm,” in part because of “erosion control violations worsening on the property.”
The financial disputes that have encumbered Hamlin’s property do not affect the privately owned homes and most of the improved common areas, which are owned by the homeowners association. Sharkey has said that Arendale, as a proven developer, would be able to sell lots and complete the last phases of Carriage Park.