Zions Bank is the new owner though it hopes not for long of the hilltop SunCrest property in Draper, a U.S. Bankruptcy Court judge ruled Thursday.
Following a two-day hearing, Judge William T. Thurman ruled that Zions Bank's $25.3 million bid, accepted at a Monday auction, was reasonable and appropriate under market circumstances. He accepted the bid because an advertised sale period netted no buyers, and because the bid was more than three times higher than the next highest bid at auction, among other reasons.
"The sale, I find, is the most viable option under the circumstances," Thurman said. "The sale brings finality to a very chaotic situation in the marketplace."
But Zions Bank, which had been SunCrest's secured lender, has no plans to develop the property, said Rob Brough, Zions' executive vice president of marketing and communications: "Our plan now is to market it and look for a qualified developer we can sell the property to."
The ruling also satisfied Draper city, attorney Steve McCardell told the court. The city earlier this week objected to the sale unless the buyer planned to make good on contractual agreements with the city to complete the subdivision's infrastructure.
But the ruling disappointed those creditors to which SunCrest owes millions of dollars, according to David Leta, attorney for the unsecured creditors committee. He said he planned to discuss the ruling with the committee "and see what they want to do."
Leta was seeking authority to pursue claims against Zions and owner WB Land Investment. The judge was hearing motions on that matter late Thursday.
SunCrest filed for bankruptcy last April, leaving about $40 million in unpaid loan debt to Zions Bank. The bank in 1999 issued $58 million in loans to the development.
The bankruptcy followed dozens of lawsuits, geological instability and ongoing conflict with the city over infrastructure costs. SunCrest has more than 1,000 homes, but 2,452 unsold lots remain.
At auction Monday, Zions bid $25.3 million, and $25 million of that amount was a credit bid for the secured debt owed to the bank. The Zions bid also includes $250,000 cash and the assumption of the cost of curing contract defaults that may run to as much as $19 million, according to court documents. The next highest bid was $7 million.
Zions senior vice president over special assets Gena Jones on Wednesday told the judge that the sale would be better than foreclosure. Zions attorneys said efforts to sell SunCrest were unsuccessful, that the value of the property is likely declining in this market, and letting Zions take over unfinished obligations would best serve homeowners.
But Leta disagreed. He said in an interview that the bank's bid was too low and would leave creditors without the $10 million to $11 million they are owed. If Zions sells the property to a developer, Zions alone would receive the proceeds, he said. "There's nothing in this proposed deal for us."
Leta said the property is better off in foreclosure, because creditors could get some proceeds from the estate.
At Wednesday's hearing, Leta attempted to poke holes in the bank's bid, and an expert witness testified Zions' appraisal was deflated. But the judge threw out the testimony at Zions' request, because the expert, Roland Robison, received the bank's appraisal before Monday's auction, in violation of a court order.Meanwhile, Draper city leaders have said a new developer would have to build a new water tank and spend $4.6 million to build pipeline in the development. The developer also would need to finish a promised recreation center and manage a neighborhood market, as well as repair or rebuild SunCrest Drive, which has worn out, due to shoddy construction and the use of improper soils.