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Securities and Exchange Commission v. BIC Real Estate Development Corp.

United States District Court, E.D. California

June 7, 2017

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
BIC REAL ESTATE DEVELOPMENT CORPORATION and DANIEL R. NASE, individually and d/b/a BAKERSFIELD INVESTMENT CLUB, Defendants, BIC SOLO 401K TRUST and MARGARITA NASE, Relief Defendants.

         MEMORANDUM DECISION AND ORDER DENYING VALLEY MORTGAGE INVESTMENTS, INC.'S MOTIONS FOR: (1) RELIEF FROM STAY ON NOTICING LOAN DEFAULTS FOR PROPERTIES HAVING UNMARKETABLE TITLE (2) PROVIDING INSTRUCTIONS TO THE RECEIVER (3) ATTORNEY'S FEES (ECF NOS. 183, 184)

          LAWRENCE J. O'NEILL, UNITED STATES CHIEF DISTRICT JUDGE.

         I. INTRODUCTION

         Valley Mortgage Investments, Inc. (“VMI”) is a non-party proposed intervenor that represents a group of lenders on thirty-six private money mortgage loans secured by real property held within the receivership. VMI moves this Court for (1) relief from stay on noticing loan defaults for eight properties held by the receivership that have unmarketable title; (2) an order providing instructions to the Receiver; and (3) attorney's fees for their motion to intervene, which was resolved by stipulation on January 23, 2017. For the reasons set forth below, the Court denies VMI's motions.

         II. BACKGROUND

         On March 11, 2016, the Securities and Exchange Commission (“SEC” or “Commission”) brought a civil enforcement action against BIC Real Estate Development Corporation (“BIC”) and its owner Daniel R. Nase (“Nase”) (collectively, “Defendants”) for securities fraud. The Complaint alleged that Nase and BIC raised millions of dollars from investors in the fraudulent offer and sale of unregistered securities. (Complaint (“Compl.”) ¶ 4.) BIC represented itself as a real estate investment company, buying real estate primarily located in Bakersfield, California, and renting or flipping it for profit. (Compl. ¶ 20.) In response to the SEC's investigation, but prior to the initiation of the SEC's action, Nase implemented a “liquidation plan” for BIC. (Id. ¶ 100-101.) The plan distributed some of BIC's assets (such as real property) to investors pro rata based on their ownership of BIC stock. (Id. ¶ 93.) As a result, some fractionalized interest in certain real properties held by BIC was conveyed to investors. (Id.)

         On April 8, 2016, the Court appointed David Stapleton as the permanent receiver (“Receiver”), and charged him with marshaling and managing the assets underlying the fraudulent scheme. (ECF No. 42.) Included in BIC's holdings were approximately sixty residential real estate properties primarily located in or near Bakersfield, California. (Compl. ¶¶ 20, 62.) On September 19, 2016, the Court approved stipulated procedures for the Receiver to sell residential real properties held by the receivership. (ECF No. 93.) Since that time, the Receiver has obtained Court approval to sell twenty-nine properties. The Receiver regularly provides progress reports to the Court.

         VMI is the assignee for a group of lenders on thirty-six private money mortgage loans secured by real property held in the receivership. (ECF No. 183-1 at 1.) VMI asserts that the current principal owed on the outstanding loans is in excess of $3 million. (Id.) The Court's April 8, 2016 order staying foreclosure prevents VMI or any other lender from foreclosing on the properties held in the receivership. (ECF No. 42.)

         VMI filed a motion to intervene in this case on September 14, 2016, citing concerns that loan and property tax payments had ceased on VMI-serviced loans held by the receivership. (ECF No. 91.) VMI also raised concerns with how the properties were being managed and marketed by the Receiver, asserting that their interests were not being properly protected. (Id. at 2.) On October 27, 2016, the Court entered an Order asking the Receiver to respond to VMI's allegations and encouraging the parties to meet and confer regarding VMI's concerns. (ECF No. 110.) On December 21, 2016, the Court issued an order noting that the parties had resolved most of the disputes raised in VMI's motion to intervene, except whether VMI was entitled to attorney's fees and costs associated with its motion. (ECF No. 142.) The order explained that the Court could not issue an advisory opinion with regard to the attorney's fees issue, and asked them to inform the Court whether or not they wanted a ruling from the Court on VMI's motion to intervene. (Id.) The parties entered into a stipulation, approved by the Court on January 23, 2017, in which they agreed that VMI's beneficiary demands for each property may include an attorney's fees and costs component payable to VMI, not to exceed $3, 000, which funds would be maintained by the Receiver. (Stipulation and Order re: VMI's Motion to Intervene (“Stipulation”), ECF No. 154.) Since that time, the Receiver has made monthly payments on the loans, and has paid all outstanding principal, interest, and other fees upon the closing of each sale of receivership real property. (ECF No. 204 at 6-7, Ex. A.)

         On March 31, 2017, VMI filed two motions. (ECF Nos. 183, 184.) The first motion requested partial motion to lift the stay to allow VMI to foreclose on eight properties for which the Receiver has not yet acquired marketable title, and for the Court to give certain instructions to the Receiver regarding the marketing of other properties held by the receivership. (ECF No. 183.) VMI's second motion requested payment of attorney's fees incurred during their motion to intervene in the amount of $48, 419.16. (ECF No. 184-1.)

         The factual basis for VMI's motion to partially lift the stay is primarily based on the declaration of its President, Mark Augustine, who made personal observation of two of the properties for which the Receiver has not yet acquired marketable title and noted that they were in a state of neglect and disrepair. (Declaration of Mark Augustine (“Augustine Decl.”), ECF No. 183-4.) One of the properties, located at 912 Meadows Street, has reportedly been occupied by squatters on at least two occasions and had been tagged as unsafe by Code Enforcement. (Id. ¶¶ 13-14.) Mr. Augustine discovered that another property, located at 715 Arvin Street, was occupied by an individual claiming to be a tenant and possessing a fraudulent rental agreement. (Id. ¶¶ 15-16.)

         In its opposition, filed April 19, 2017, the Receiver describes its attempts to secure and inspect the properties described in Mr. Augustine's declaration. (ECF Nos. 204 at 8-10.) Both the Receiver and the SEC also argue that these two anecdotal observations are not representative of how all of the receivership properties are being managed, and note that the Receiver has to make decisions about how to spend limited time and resources to ensure maximum recovery for the receivership estate as a whole. (ECF No. 204 at 9-10; ECF No. 206 at 8.) Both parties also noted that the Receiver may require the assistance of the Court in obtaining marketable title from the non-cooperating investors. (ECF No. 204 at 5; ECF No. 206 at 6.) Recently, the Receiver filed a motion seeking the Court's assistance in restoring all of the remaining property interests to the receivership. (ECF No. 220.)

         The factual basis for VMI's request for additional instructions regarding the marketing of properties held by the receivership is primarily based on Mr. Augustine's observation that several properties were listed without interior photos, were not available for public showings, were occupied by tenants, were listed for sale “as is” which can be an impediment to obtaining FHA financing, and were listed for prices at the top of the market despite having issues “not conducive to attaining an offer at or near the top of the market.” (Augustine Decl. ¶ 17.) VMI also pointed out that many VMI-serviced properties have been on the market for more than 100 days. (ECF NO. 183-1 at 4.) In its opposition, the Receiver contends that it has been marketing and selling the properties successfully in compliance with the sales requirements of 28 U.S.C. § 2001, et seq., as well as this Court's order approving the Receiver's sales procedures (ECF No. 93), and that no further instructions from the Court are necessary. (ECF No. 204 at 13.)

         VMI also generally asserts that the Receiver has been uncooperative in sharing information with them, despite their agreement to do so during the meet and confer process that took place in connection with VMI's motion to intervene. Specifically, VMI alleges that the Receiver has refused to provide rental rolls or to provide a plan for restoring ownership to the properties having unmarketable title, despite numerous requests. (ECF No. 183-1 at 7.) The Receiver disputes these contentions in its opposition. (ECF No. 204 at 9-10.)

         III. ...


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