Politics & Government

Bankrupt Mobile Home Park 'Busy Preparing' to Sue City

Capistrano Terrace Ltd. tells a bankruptcy court judge it might use settlements from suits against the city of San Juan Capistrano and its insurance carrier to pay off creditors.

The owners of a bankrupt mobile home park on Valle Road are gearing up to sue the city.

A new motion filed Friday in bankruptcy court shows the park owners, Capistrano Terrace Ltd., considering the move to help pay off more than $3.7 million in debts.

In addition to suing the city as part of their Chapter 11 reorganization, the owners plan to sue the park's insurance company. Additionally, they intend to shutter the park by this time next year if a proposal by the park's residents to buy it themselves is not successful.

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The owners outlined these steps in asking a bankruptcy judge for more time to file a comprehensive reorganization plan.

They've been "busy preparing for litigation," the motion states. "The proceeds of [the litigation] will likely be a large part of the expected source of funding for any potential plan."

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The San Juan Capistrano City Council is scheduled to meet Tuesday night in closed session to discuss the owners' threat of a lawsuit.

The meeting's agenda says the claim involves the city’s rent control, park closure and building/property maintenance regulations. The claim hasn't been filed yet, and must first be denied by the city before a lawsuit can be filed.

In mid-July, Capistrano Mobile Terrace filed for Chapter 11 bankruptcy protection in the midst of efforts to shutter the park entirely. At the time, owners said the city's strict rent control laws had kept them from collecting the money needed to make major repairs.

But when the owners applied for city approval to close the park, the application was put on hold because they owed the city as much as $7,000 in administrative fees.

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Meanwhile, the park's lack of repairs to failing infrastructure sparked a lawsuit by some residents. The residents were offered a settlement by the park's insurance carrier a couple of hours before the owners filed for bankruptcy, leaving the settlement entangled in bankruptcy court.

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Park residents—who have aired their objections to the park's closure—have hired their own attorneys and formed an Unsecured Creditors Committee "to act as a bridge with the court."

A successful purchase, for a price substantially lower than residents were willing to pay just a couple of years ago when the owners were solvent, would negate the closure application and enable the 300 residents to remain in their homes, said resident Rus Calisch.

However, if the owners' court motion to extend their reorganization-plan deadline fails, they said they would immediately cease talking with the unsecured committee and file a plan for reorganization "that will not result in a sale of the park to the tenants."

On Sept. 28, the president of Capistrano Terrace Ltd., Ray Poulter, sent letters to the residents advising that as part of the partnership's bankruptcy process, the park would be closed Oct. 15, 2012, and "changed to vacant land until there is a determination of its ultimate use."

Calisch said: "The residents, many of whom are low-income seniors, including some who have lived in the park since the '70s, were left wondering what would become of their homes and nest eggs. Park owners have been threatening to close the park since 2005."


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