FOR THE NORTHERN DISTRICT OF CALIFORNIA
LONE OAK PARK, a
California limited partnership, No. 1-87-00426
ORDER ON MOTION FOR RELIEF FROM STAY
The debtor is a limited partnership formed to develop a subdivision project in Napa, California. Its sole
significant asset is the real property. Movants Briant and Julia Woolley are the former owners of the
property who sold the property to the debtor in August of 1985 for $315,250.00. The Woolleys received
$100,000.00 cash and a note for $215,250.00 secured by a deed of trust to the property; the balance due
on the note, now in default, is approximately $255,000.00. The Woolleys seek relief from the stay on two
grounds, lack of adequate protection and bad faith on the part of the debtor in filing its petition.
From the testimony presented by the parties, the court believes and finds that the total present value of
the property is approximately $320,000.00, using a value of $130,000.00 for the single family residence and
its lot and $190,000.00 for the remaining 16-lot development. This figure, based on appraisal testimony,
squares fairly well with the selling price two years ago. The court therefore finds that the equity cushion
provides the Woolleys with adequate protection for now and the immediate future.
This court is very sensitive to bad faith issues, and has in other cases not hesitated to grant relief from
the automatic stay on bad faith grounds where there have been sequential filings or where the debtor is a
fictitious entity formed and vested with property on the eve of foreclosure. In this case, however, the
Woolleys sold the property to the debtor and the debtor paid a substantial down payment. The allegations
of bad faith are therefore somewhat difficult to understand.
The Woolleys rely on Matter of Little Creek Development Co.
(5th Cir.1986) 779 F.2d 1068, but that
reliance seems misplaced. Firstly, in that case the Court of Appeals reversed
the lower courts' grant of relief
on bad faith grounds, so that the examples of bad faith contained in the opinion are purely dicta. Secondly,
even applying the dicta does not mandate the relief sought. While the debtor's project is certainly distressed,
there is no evidence upon which the court can base a finding that there is no hope of rehabilitation. In this
circuit at least, a valid plan of reorganization may consist of the sale of the debtor's real property, even if
it is the debtor's sole asset. In re Del Rio Development, Inc.
(9th Cir.BAP 1983) 35 B.R. 127, 128. The
court accordingly declines to grant relief on bad faith grounds.
While the court has found some equity in the property, it is not sufficient equity to hold the Woolleys at
bay forever. Interest continues to accrue on their note, and they will be subject to significant commissions
and other expenses if they again become the owners of the property through foreclosure. The automatic
stay will therefore be modified effective January 1, 1988, to allow the Woolleys to proceed with their
foreclosure unless their rights are otherwise modified by the terms of a confirmed plan before that date.
IT IS SO ORDERED.
Dated: July 23, 1987 ____________________