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In re Victory Construction Co., Inc.

9 B.R. 549 (1981)

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In re Victory Construction Co., Inc.

United States Bankruptcy Court for the Central District of California
9 B.R. 549 (1981)

SS

Facts

In March 1980, Victory Construction Company, Inc. (Victory) (debtor) paid about $100,000 for a quitclaim deed to a piece of real property valued at $3 million. Victory was not engaged in business and had no assets or income. Victory borrowed the purchase money from its sole shareholder. The property was burdened by seven liens on behalf of various creditors. The seven liens secured debt amounting to $2.9 million. The liens, which required payments totaling $15,000 monthly, were in default. Victory was a sophisticated commercial actor. Victory knew that the creditors intended to foreclose but failed to negotiate an extension or stay of the creditors’ foreclosure efforts. Victory made no payments to the creditors. Victory knew that the interest rates on the liens were low compared to the market rate and sought to take advantage of the low rates to use the property in setting up a new business. Victory planned to use litigation to prevent the creditors from foreclosing. When a foreclosure sale date was set, Victory filed a Chapter 11 bankruptcy petition, resulting in an automatic stay of the foreclosure. The creditors sued to vacate the stay for cause due to Victory’s lack of good faith in filing the Chapter 11 petition.

Rule of Law

Issue

Holding and Reasoning (Ordin, J.)

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