June 9, 2008 — Jeffrey and Dawn Prosser's home and land in Shoy's Beach on St. Croix will not be foreclosed upon soon, U.S. Bankruptcy Judge Judith Fitzgerald ruled Monday on St. Thomas.
The ruling to revisit the foreclosure question in December came during the first of a scheduled four consecutive days of hearings on St. Thomas regarding the bankruptcy of Prosser, former owner and CEO of Innovative Telephone, and of his wholly owned corporations. Prosser owes the Rural Telephone Finance Cooperative and other creditors well more than $400 million, although the exact amount is among the issues in dispute.
Prosser and the court-appointed trustees managing the bankruptcy sale of his properties are often at odds, but are in rare agreement on this issue. The dispute hinges on who owns — and who may foreclose on — the home in question.
FirstBank's lawyers say the bank has a $1.5 million mortgage on the property, which they define as including Plots 4, 4-A, and 10-AA, "all of Estate Anna's Hope." The bank's lawyers say the bank no longer gets mortgage payments, and the property, appraised at $2.8 million isn't properly insured, so the bank is legally entitled to foreclose. If FirstBank foreclosed, it would sell the house and apply the proceeds to its unpaid mortgage, meaning Prosser's other creditors would not get that money. But Prosser declared bankruptcy, and most property is automatically exempt from foreclosure during a bankruptcy.
FirstBank's lawyers argue that Dawn Prosser owns the land and that she is not part of the bankruptcy case, so the bank can foreclose.
"Dawn Prosser is on record as the owner of properties on which FirstBank has a mortgage," said Justin Holcombe, an attorney for FirstBank. "It is solely owned by Dawn and so is not part of the bankruptcy. We contend under the law the property should lie solely with Dawn."
Not so fast, say several contractors: The mortgage is on only those three plots of land, and the whole development consists of five plots (also Plots 5 and 10A), with most of the construction on 10A. There is no way that anyone would buy the three mortgaged plots alone, they argue; any potential buyer would want the whole spread. Further they say that the property should, in fact, be included in the bankruptcy case.
The contractors making these points are Artisan Design Group, Jerry Mann Interprises, Charlie's Stone Consulting, Roiter's Mechanical Services and Artisan Stone & Woodworks. They collectively have $638,408 in liens against the property.
The contractors added another possible complication to the matter by citing a Dec. 12, 2007, title search prepared by Island Title Service Corporation of Christiansted that included a $1 million mortgage on the property by Merrill Lynch Credit Corporation dating back to Nov. 24, 1993. The mortgage was given to Dawn and Jeffrey Prosser.
Prosser's lawyers, Robert Craig and A. Jeffrey Weiss, have argued that since Prosser has a "possessory interest" in the property, it should be included in the estate, and not foreclosed on.
"How is that possessory interest not entitled to the protection of the automatic stay and not part of the estate?" Fitzgerald asked Holcombe.
"In the case law we are citing, his possessory interest is not one entitled to automatic stay," Holcombe said.
"He lives there and, as far I can tell, she didn't make any contribution toward this property at all," Fitzgerald said. "The contributions all came from Mr. Prosser or one of his companies. Mr. Prosser is entitled to the automatic stay. I am going to deny the motion for now."
The court will revisit the question Dec. 8, she said.
For the rest of the day-long hearing there was little obvious movement. Attorneys for Prosser's creditors tried to get James Carroll, court-appointed trustee for Prosser's personal estate, to state that jewelry, wine, art and houses were all undervalued by Prosser in his financial statements. Craig successfully kept many of these claims out of the court record , arguing that Carroll is not an expert on wine, art or jewelry and his conclusions are only impermissible hearsay evidence.
"(Carroll) cannot say an expert told him a higher value," Fitzgerald said. "You have got to bring the expert in."
In the fall Prosser stopped providing information to the court, citing his Fifth Amendment right against self-incrimination. His creditors argue this is not acceptable in bankruptcy court. At the end of Monday's hearing, Fitzgerald added this question to the week's docket. However Fitzgerald rules on this question could have a major impact on the future course of the proceedings. The court will also look at the extent to which the bankruptcy law protects Prosser real and personal properly from seizure, and the extent to which certain assets belong to the Prosser children, rather than to the bankruptcy estate.
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