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Nipomo developer files $26M Chapter 11

By   /   Friday, July 18th, 2008  /   Comments Off on Nipomo developer files $26M Chapter 11

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Erik Benham, one of two developers behind Maria Vista Estates in Nipomo, has filed for bankruptcy protection, listing $26 million in debt to Los Angeles-based Security Pacific Bank.

Benham, who listed a Santa Maria address in the proceedings, has yet to disclose the precise amount of his assets, declaring only that they range between $10 million and $50 million. He filed for protection under Chapter 11 of the bankruptcy code, which protects him from creditors’ lawsuits while he reorganizes his finances.

Benham’s filing is the latest turn in long string of troubles for Maria Vista Estates, a 77-unit development on 84 acres near Nipomo. Benham’s Chapter 11 filing came at nearly the same time the housing tract’s contentious Chapter 11 proceedings, roiling since March 2007, were converted to Chapter 7, known as a “straight” bankruptcy because it usually involves liquidation rather than reorganization.

Reached by phone, Benham declined to comment because of ongoing litigation.
In late 1999, Benham began developing property in Maria Vista Estates, building three models of homes, the smallest of which was 2,100 square feet. The company eventually billed the units as “upscale living” that was “incredibly low priced,” starting at $500,000.

Benham had brought on a partner, Mark Pender, and built about 25 homes, with 15 more nearly complete, when the company ran into a problem: water. The Nipomo Community Services District refused to let the project hook up to its system, saying that the developers hadn’t met the district’s technical design requirements, according to court documents.

Maria Vista couldn’t sell the homes until the district set up the water meters. In early 2007, Benham sued the water district in an effort to get the water meters set up, according to court documents.

According to published reports, the developers argued that the water district was inconsistent in how it applied its standards to Maria Vista Estates. But the water district stood by its decision, and San Luis Obispo County Superior Court Judge Charles Crandall ruled in its favor in March 2007.

“Maria Vista Estates has not established that the district has been arbitrary and capricious in its refusal to approve and accept the water and sewer improvements, and thereby set the water meters,” Crandall wrote in his ruling, according to published reports.

Shortly before Crandall’s ruling in the water board case, Maria Vista Estates filed for Chapter 11 protections, eventually listing debts of about $35 million. The company owed the most money – between $22 million and $26 million in various estimates – to Security Pacific Bank, which it had tapped to finance construction on its property.

Security Pacific Bank took up its name in 2005 and is not related to Security Pacific National Bank, which was acquired by Bank of America in the early 1990s.
Maria Vista Estates came up with a reorganization plan to sell its homes and use the money to pay off its creditors. In early July 2007, after the company had worked with a new engineer, the water district turned on 27 water meters.

By September 2007, the development had sold three lots, according to documents it filed in bankruptcy court. The company estimated the worth of its homes, partially completed homes and remaining lots at $49 million.

But Security Pacific Bank had opposed the company’s plan, claiming it was designed to prevent the lender from going after its money in civil court.

Although the bankruptcy code protects companies from creditor lawsuits, a judge can allow creditors to take action against debtors under certain conditions. In April, the bank had argued it should be allowed to sue Maria Vista Estates because its reorganization plan wasn’t workable, according to court documents.

Disagreement gridlock

By early May, Pender and Benham were at odds on how to proceed with Maria Vista Estates’ reorganization, according to court documents filed by Pender’s attorneys. Pender filed a new proposal for reorganization.

Pender also moved for a trustee to take over the company because he and Benham were equal partners Maria Vista Estates, which made their disagreement a gridlock.

“[T]he plans are significantly different: The Pender plan liquidates the assets with an auction process that commences immediately and would be completed over the next four to eight months; Pender believes that Benham’s plan attempts retail sales over a period of 20 months and then, if necessary, commences an auction process,” Pender’s attorneys wrote in court documents.

Pender’s efforts failed. U.S. Bankruptcy Judge Robin Riblet gave Pacific Security Bank the go-ahead to pursue a civil action against the company. Riblet also converted Maria Vista Estate’s case from Chapter 11, a reorganization, to Chapter 7, a liquidation.

As Maria Vista Estates’ saga unfolded in bankruptcy court, Pender and Benham faced a separate civil lawsuit against them in San Luis Obispo County.
Pender and Benham had personally guaranteed Maria Vista Estates’ loans from Pacific Security Bank. The development company had already defaulted on those loans in 2006, according to published reports, and the bank took the firm to court before the company had filed bankruptcy in March 2007.

In September 2007, Crandall, the San Luis Obispo County judge, granted a summary judgment for more than $23 million against Pender and Benham. That case is on appeal, with opening briefs due in August.

epeated phone messages to Pender’s attorney and Security Pacific Bank’s attorneys were not returned.

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