Developer Turns to Bankruptcy to Save Washington Heights Project
Most residents of Rockland County and New York City view bankruptcy solely as a means for eliminating burdensome debts. However, a bankruptcy proceeding can often be used for other purposes, as a recent filing in the bankruptcy court in the Southern District of New York has demonstrated.
Rutherford Thompson acquired a site in the western Washington Heights neighborhood in 2006 with the intention of constructing a 23-story 114-unit residential condominium building. The recession put his initial plans on hold, and he has recently been attempting to sell the site. One of his lenders, Amalgamated Bank, purchased all of the $30 million debt against the site and scheduled a foreclosure auction. The auction threatened to end Thompson’s interest in the project without providing any compensation.
A few days before the auction was scheduled to take place, Thompson caused a Chapter 11 petition to be filed on behalf of the entity that is the legal owner of the site. The developer said that he was taking this action to buy time in the hope that he could find a buyer for the site and thereby save some of his investment. The site is now on the market as the Chapter 11 proceeding moves forward, but the outcome cannot be easily predicted.
This case shows how a bankruptcy proceeding can be used to protect assets from the claims of creditors. The filing of the Chapter 11 petition invoked the automatic stay, thus stopping the foreclosure sale in its tracks. Anyone who might be considering using a bankruptcy filing for a similar purpose may wish to consult an experienced bankruptcy lawyer for advice on the procedures and likely outcome.