Attorneys for the bankrupt Hillandale Development Corp. and those representing First Savings Bank of Arkansas, holder of a $25 million first trust on the corporation's luxury Northwest Washington town-house development, are asking a federal bankruptcy judge to allow contracts on seven dwellings to proceed to closing.
Many of those contracts are now several months old. Judge George Francis Bason is expected to rule on the motion Nov. 13.
Both the debtor and the foreclosing institution would like to see the sales go to settlement as quickly as possible, according to Daniel Litt, attorney for First Savings Bank.
But Saudi European Bank, holders of a $4.7 million second trust on the Hillandale project, will not agree to grant clear titles to the units. The bank is blocking sale of the properties in hopes of recovering at least a portion of its investment. The judge, however, has the power to override the Saudi bank and order the sales closed. James Cope, attorney for Saudi Bank, was out of town this week.
The Hillandale residential development is located on prime Washington real estate across from Georgetown Hospital on Reservoir Road.
Many of the units that Litt said should go to settlement already are occupied under pre-settlement agreements. "Those contracts have been signed, and those buyers are waiting," he said.
Litt said he is worried that the buyers may give up because they cannot get clear titles. He said he wants to make sure "good contracts are not lost."
Litt said First Savings Bank and Hillandale Development intend to place the funds generated by the closings into an escrow account pending the eventual outcome of Hillandale Development Corp.'s efforts to reorganize under Chapter 11 provisions of the bankruptcy code.
On Sept. 28, Bason ruled that Hillandale Development Corp. had made a strong enough case to warrant his granting the Dallas-based corporation 60 days to try to reorganize. Lawyers for the company told the judge in closed chambers that there were two specific potential investors or joint-venture partners waiting in the wings to bail out the company's Washington project. During court testimony, attorneys for Hillandale Development said the only collateral the corporation has is the Washington project.
The Hillandale development is one of many financially troubled projects across the nation that are part of the apparently crumbling financial empire of Texas oil and real estate magnate Clint Murchison, former owner of the Dallas Cowboys.
Litt said the federal judge agreed with his client's claim that the Washington property is worth only $19 million in today's market. That is $6 million less than the first trust held by First Savings Bank, and that amount does not include any interest payments due. Litt said the delays are costing First Savings Bank as much as $10,000 a day.
Litt has filed an appeal on behalf of the Arkansas bank to overturn Judge Bason's September ruling against lifting a stay banning the bank from proceeding with foreclosure on Hillandale.
Saudi European Bank blocked a foreclosure auction that was to be held last July by filing a petition in federal court to force Hillandale Development into involuntary bankruptcy. That action triggered an automatic stay, which blocked the auction and foreclosure.
Soon thereafter, Hillandale Development Corp. filed for a Chapter 11 bankruptcy. First Savings Bank then asked the bankruptcy court to remove that stay, but Bason decided to give Hillandale Development time to produce a rescuer.
In September, Bason told lawyers for First Savings Bank that they would be free to file again for relief from that stay after the 60-day period ends if Hillandale fails to produce a reorganization package that is acceptable to the court.
The 60 days run from Oct. 12, rather than the Sept. 28 date when Bason made his ruling, because the action was not actually entered by the judge until the October date.