Bankrupt attorney avoids foreclosure

Hawkins able to sell 213 St. Paul Place to one of his firms

Commercial real estate

May 20, 2000|By Rona Kobell | Rona Kobell,SUN STAFF

In a transaction even attorneys involved in the case called unusual, a judge signed an order yesterday allowing a bankrupt attorney to sell a bankrupt downtown office building to another financially troubled company he co-owns - at a steep discount.

U.S. Bankruptcy Judge James F. Schneider's signature on the order avoids a foreclosure sale on 213 St. Paul Place - a run-down, five-story office building that once housed Kurt L. Schmoke's 1995 mayoral campaign and is leased to two city-funded agencies.

But the order further commingles the troubled entities of Arnold V. Hawkins, an attorney who has filed for three bankruptcies and whose title company, Harbor Title Guarantee Co., was recently shut down by the Maryland Insurance Administration.

Until recently, those four Hawkins-owned companies shared space on the fifth floor of 213 St. Paul Place, which Hawkins purchased for $385,000 in 1995. Regent Estates managed the building, collecting rents from Baltimore Substance Abuse Systems and the Office of the State's Attorney for Baltimore City. Choice Realty handled real estate sales. Harbor Title issued title insurance and conducted real estate closings. Hawkins & Associates practiced law.

Hawkins declined to comment for this article, but court records show his troubles escalated in January, when he defaulted on the property's loan. He now owes First Union National Bank $305,362. The Baltimore Community Development Financing Corp. holds the second mortgage, and Hawkins owes it about $70,000.

Regent Estates filed for bankruptcy early last month.

On April 24, Choice Realty also filed for Chapter 11 protection. By that time, Harbor Title was out of business. The Maryland Insurance Administration revoked its charter to issue insurance in February, when it learned of a lawsuit by Harbor Title's underwriter, Fidelity National Title Insurance Company of New York. Fidelity alleged that Harbor Title diverted $1 million in insurance premiums and escrow funds. Under federal and state laws, it is illegal to divert escrow funds for any reason.

On May 8, Hawkins filed for personal bankruptcy in Prince George's County.

Now, another Hawkins affiliate, Midas Realty Investments Inc., has offered to buy 213 St. Paul Place for $325,000 - significantly less than the $441,000 the property was assessed at in 1998. Hawkins' bankrupt Choice Realty owns half of Midas Realty.

Hawkins' attorney, Kenneth Davies, said he knows little about Midas, or how the company plans to finance the sale. But the deadline for Midas to come up with financing has passed, and Davies expects Midas to close on the property by the end of the month.

Edmund Goldberg, the attorney for the U.S. Trustee's office who is overseeing both the Regent and Choice bankruptcy cases, called the sale "unorthodox," but said it was legal because the relationship between Hawkins and Midas was disclosed.

Typically, the trustee's attorney looks out for unsecured creditors in bankruptcy cases. But in the Regent case, the claims are so small that Goldberg said he considered the sale "a wash."

Still, selling a property in bankruptcy back to its owner is not common, said Nancy Alquist, a partner with the law firm Ballard Spahr Andrews and Ingersoll who also serves on the board of directors of the Bankruptcy Law Association for the U.S. District of Maryland.

"The circumstances are unusual, but there isn't necessarily anything inappropriate or unlawful about it," Alquist said.

When a debtor in a bankruptcy case files a motion to sell, Alquist said, the court reviews the buyer's financial records to determine ability to fund the purchase.

The court typically won't let the buyer use loans to complete the deal if its finances are questionable.

However, Goldberg said, the court has so many cases that it often can't complete background checks. And in the case of Midas, he said, it didn't.

"I know nothing about Midas Realty," he said. "We have to take these matters as we find them."

The sale motion says only that Midas Realty owns "a shopping center in Southern Maryland." State records confirm that Midas owns the Acton Square Shopping Center in Charles County, which it bought from another Hawkins company, Green Acres Investments Inc. Maryland Permanent Bank and Trust Co., Green Acres' lender, plans to hold a foreclosure sale on the shopping center Tuesday.

Goldberg and Hawkins' attorney both said they were not aware of the Acton foreclosure. But Midas' bid for 213 St. Paul Place was the only one on the table, and it offered to pay First Union in full at settlement.

The Community Development Finance Corp. is not as lucky. The nonprofit funding agency, which was established by Schmoke in 1989 to issue loans in Baltimore, will get only $13,000 under the terms of the sale.

The CDFC's attorney, Michael Brown, said Hawkins defaulted on the CDFC loan "fairly early." Brown would have liked to get more money from the deal, but said his client has little leverage in the case.

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