A federal bankruptcy court judge this week cleared the way for existing contracts on seven luxury townhouses at the elegant Hillandale development on Reservoir Road to go to settlement. Several sales are expected to be finalized before Christmas.
In addition, unless he receives written opposition to an expansion of that order, Judge George Francis Bason will permit the Texas-based Hillandale Development Corp. to go ahead with efforts to sell the six remaining town houses, the gatehouse, undeveloped lots and the old Archbold mansion, the landmark on the 43-acre site.
The finished town houses have generally sold for between $299,000 and $425,000. According to court testimony, that $425,000 unit is being used as a model.
The proceeds from any sales must go into an escrow account, according to attorney Daniel Litt, who represents First Savings Bank of Arkansas, holder of a $25 million first trust on the project. First Savings Bank has been trying to foreclose on the financially troubled Hillandale development since early summer.
But Saudi European Bank, holder of a $4.3 million second trust on the project, tried to force the development company into involuntary bankruptcy in July, just minutes before a foreclosure auction was to begin in Georgetown. That court effort virtually put a stay against First Savings Bank's foreclosure efforts. Soon after that, Hillandale Development Corp. asked the court to allow the corporation time to reorganize under Chapter 11 provisions of the bankruptcy code.
In September, Bason gave the developer 60 days to come up with a rescuer or a joint-venture partner, after ruling against a motion filed by lawyers for the Arkansas bank asking that the stay against foreclosure be removed.
Hillandale Development Corp. has approximately 30 days left of those 60 days. The corporation has notified the court that negotiations with the same two unnamed potential investors or purchasers are continuing and that they are hopeful of having a plan before the court prior to the deadline.
However, late this week, First Savings Bank attorneys planned to file another motion in the same bankruptcy court seeking relief from the same stay. "Since the judge has ruled on the original motion, First Federal is free to file another identical motion to try to proceed with foreclosure," explained one attorney.
Prior to the decision to allow the seven existing contracts to go to settlement, all parties involved, including Saudi European Bank, agreed that the money generated from the sales would go into escrow. The fate of those dollars will be decided when the deadline for Hillandale Development Corp.'s finding a rescuer expires or Hillandale is rescued. "It all depends on if they can find someone to buy them out," said one investor who asked not to be quoted.
During an August hearing on the Arkansas bank's request for relief from the stay, appraisers said the total current Hillandale package is worth approximately $19 million. That is $6 million less than First Savings Bank's first trust. According to Litt, the continuing delays cost his client $10,000 a day in interest.
Judge Bason was to mail letters notifying creditors of the possible sale of units in the Hillandale package, other than those with current contracts as soon as possible.
Litt said "unless there is written opposition" to the idea, the sales may proceed after a certain period of time. He said the judge's action solves the problem of having Hillandale Development and First Savings Bank not being able to produce clear titles on those seven units. Saudi European Bank had blocked those sales by refusing to grant clear titles. Several of the units are occupied under pre-settlement agreements.
"It simply transfers Saudi's attachments, based on its second trust, to the money itself, and not the units," Litt explained.
Jim Rogers, an independent real estate broker hired by Hillandale Development Corp. to market the units and the other properties, predicted this week that he could have some of those seven units go to settlement before the end of the year. "There is no question now that we can go to settlement," Rogers said. But he added, "I'll really believe it for sure when I have the money in my pocket." He was referring to commissions he will receive once the sales are closed.
His attitude may be the safest way to look at Hillandale. Things have changed overnight, warned one lawyer who is not involved in the case. According to another broker who was on hand for the midsummer auction that was cancelled, "I just wish this thing would get simple. I have a client that is interested in part of this thing, but I am not sure how much longer he'll wait." The broker asked not to be identified.
Attorneys for First Savings Bank will soon have the legal right to once again mail out letters of intention to foreclose on the Hillandale property. Judge Bason told Litt that it would be all right to mail the letters within 30 days after his September decision. This would be a safeguard and a timesaver in the event that Hillandale Development Corp. is unable to come up with a rescuer in time to meet the bankruptcy court's deadline and the judge decides to allow the bank to foreclose.
The luxurious Northwest development across from Georgetown Hospital is part of the crumbling financial empire of Texas oil and real estate legend Clint Murchison, former owner of the Dallas Cowboys professional football team.
There was also good news this week in court for owners of existing town houses at Hillandale. Thirty-six residents have pooled their funds and hired a lawyer to represent them in this long court fight.
After the first units are sold, First Savings Bank will be able to use some of those funds that will be placed in escrow to help restore what has reportedly become lax security at the development, as well as replace existing defective overhead wiring that is causing problems with street lights.
In addition, First Savings Bank will be able to use some of the money to finish up the remaining six town houses that have not been sold. The bank will be reimbursed at the time each repaired unit is sold, as long as repair costs do not exceed 10 percent of the sales price.