Lynnkohn LLC Files Bankruptcy
Last updated Wednesday, August 20, 2008 10:12 PM CDT in News
By Kim Souza
The Morning News
SPRINGDALE - Less than 24 hours before the Legacy Building in downtown Fayettevillle was to go on the auction block, Lynnkohn developer Brandon Barber filed Chapter 11 bankruptcy in Washington County to stop the sale.
An order of stay was issued by the U.S. Bankruptcy Court, leaving the lead lender, Legacy National Bank, waiting a little longer for a payday on the property's $18.7 million outstanding mortgage.
The bankruptcy filing included a complaint filed against Legacy National Bank and Flake & Kelley Management Inc. totaling $10 million. The complaint, also filed Wednesday in Washington County, alleges deceptive trade practices, two counts of fraud, breach of contract and breach of fiduciary duty against the bank and management company.
"The lawsuit and its allegations are without merit," said Marshall Ney, legal counsel for Legacy National Bank.
"The combined efforts of the lawsuit and bankruptcy by Barber's company are nothing more than a desperate attempt to prevent the Aug. 21 sale of the Legacy Building and resulting deficiency against the Barbers and Kaffkas," Ney said.
Counsel for Lynnkohn did not return two phone messages left Wednesday afternoon on an answering machine at the Knight Law Firm in Fayetteville.
"It's not uncommon for people facing foreclosure to file bankruptcy, it's one sure way to buy more time," said Jeff Collins, real estate market analyst with Street Smart Data Services.
Unfortunately for the lenders, the recent filings are another hurdle they must clear before they can take possession of the property and move forward, he said.
With a minimum 90-day delay, the property wouldn't be eligible for sale until mid-November, typically not the best time to market residential real estate, Collins added.
The legal entanglements involving the luxury condo project have spanned more than three years as Barber and partner Seth Kaffka first battled the city of Fayetteville for permission to build the seven-story building. Then the duo faced more than a dozen liens totaling roughly $1.5 million filed by subcontractors against the property, putting the building in legal limbo for more than a year. One day ahead of the July 23 trial date, Lynnkohn reached undisclosed settlements and the trial was canceled.
"These settlements have cleared the way for the primary lender, Legacy National Bank, to foreclose," said Ney at the time.
A foreclosure judgment totaling $18.7 million was signed by Washington County Circuit Court Judge William A. Storey and filed by Ney on July 23.
Legacy National Bank loaned Lynnkohn $16.7 million on the project in December 2005 and $2.7 million in March, court records indicate.
Three other banks participated in the loans in a subordinate capacity: First National Bank of Fort Smith, Metropolitan National Bank and the First National Bank of Green Forest, according to court records.
Ney said the guarantors of the mortgage loan - Brandon and Keri Barber, along with Seth and Laura Kaffka - would have 10 days to bring the loan current. That day came and went without payment to the bank. The nonpayment set up the auction which was scheduled for today, but is now postponed as the bankruptcy court sorts through the Lynnkohn's assets.
The Chapter 11 bankruptcy allows a company to reorganize its finances free from the threat of creditors' lawsuits. Unless a court rules otherwise, a debtor remains in control of the business and its assets while the court oversees payments.
According to the 40-page bankruptcy filing, Lynnkohn claims assets of $35.6 million and debts of $31.61 million. The filing indicates Brandon Barber as sole owner of Lynnkohn LLC. Neither Seth and Laura Kaffka, nor Kerri Barber is mentioned in the bankruptcy filing.
Brandon Barber's filing disputes debts totaling $3.49 million owed to subcontractors who completed contract work and provided supplies at the Legacy Building. Another $200,000 was listed as unsecured and undisputed debt.
Both Legacy National Bank and the FDIC, acting as receiver for the failed ANB Financial, hold secured claims totaling $21.57 million and unsecured claims of $2.27 million.
Bank of Fayetteville holds a secured claim totaling $1.7 million on the Sloan Estates residential subdivision, while Chambers Bank holds $1.31 million claim on the same property. First Federal Bank holds a secured claim totaling $690,000 for a mortgage at 205 and 207 Church St. in Fayetteville.
The filing included more than 80 creditors holding unsecured nonpriorty claim totaling $3.87 million.
By The Numbers
Lynnkohn LLC Balance Sheet
Assets
$25.36 million - real property stated in the filing
$10 million - personal property stated in the filing
$35.36 million - total assets
Liabilities
$27.56 million - creditors holding secured claims
$175,008 - creditors holding unsecured priority claims
$3.87 million - creditors holding unsecured nonpriority claims
$31.61 million - total liabilities
Source: Federal Bankruptcy Filing
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