A group of residents in Garden Oaks say the neighborhood’s bankruptcy negotiations have not been transparent. And while the Garden Oaks Maintenance Organization continues to work on a way to preserve its stash of funds through a newly-formed organization, some homeowners are left with little explanation of the complicated legal case.
Gary Ingram, Sue Schmidt, Trish Mehrkam, Cheryl Luck, and Peter Chang comprise the creditors’ committee independently appointed by the U.S. Trustee with the primary purpose of conducting due diligence with respect to GOMO’s finances and operations, and to work with GOMO and their attorney Johnie Patterson in developing a Chapter 11 bankruptcy plan acceptable to both the creditors and the court.
Creditors – More than meets the eye
The committee believes some misconceptions may have come out of last week’s Garden Oaks Civic Club meeting, where Patterson gave an update on the case.
For one, committee members say that the term “creditor” has incorrectly been used to mean all residents of the neighborhood, when it actually means someone with a claim against GOMO that may include those homeowners – past or present – who have paid the transfer fee. A transfer fee is a fee amounting to .75 percent of the purchase price or appraisal by HCAD that must be paid at closing.
According to the committee, over one third of potential creditors in the current case no longer live in Garden Oaks – they are spread over 35 states and represent buyer, sellers, developers and any others that have funded GOMO since its inception in 2002. And not all current residents have contributed a transfer fee.
Additionally, members resented the implication that they have not communicated with the community, when they say they have reached out to likely creditors in a letter encouraging they file their claim, explaining the focus areas, and soliciting inquiries and feedback to an email for the committee since their recent formation.
“We started getting criticism from the GOMO board saying we haven’t been communicating, but in fact it’s been a very rushed [attempt] to catch up [since the committee was formed May 29],” Schmidt said. “I think you can weigh that with the circumstances; in six weeks we’ve sent letters out to more than 1,100 creditors – we’re acting as fast as we can, given the constraints.”
Twists and turns
To date, Ingram says neither Patterson nor GOMO has approached the committee with any sort of outlined plan – which he believes is unusual for this type of case. And the committee says it is prepared to provide input on any such plan from GOMO, should one come forward, or will be prepared to submit its own plan they say addresses the interest of all parties at the conclusion of GOMO’s 120-day exclusivity period to file a plan that ends Aug. 9.
“We’ve got something in mind that would include most of the constituents we see in that creditor pool; whether or not they (GOMO) come forward with a plan that would be acceptable to a certain majority of creditors remains to be seen,” Ingram said. “This is about compromise. None of the parties – the committee, the debtor, nor the judge – can solely decide to push a plan through; it’s the creditors who get to decide what will happen moving forward. We don’t have any power to ram a plan down the community’s throat.”
“In an ideal world, we’d be working together during this exclusivity period with them on this plan,” Mehrkam added.
And time is of the essence, as administrative costs that include attorneys for both parties, court fees, and more come out of the $600,000 GOMO had sitting in their bank account for months as the result of collecting transfer fees.
In a court ruling last year, GOMO was found to have been improperly formed with regards to mandatory collection of transfer fees – prompting the Chapter 11 filing. However, committee members say the organization has continued to collect, and argue the continued collection not only ignores the finding but serves to add liability. They also believe it will just add creditors that will have to be administered in the case while producing no real income for the organization to fund their $8,700 in operating costs per month.
Further, the committee believes these administrative burdens and operating expenses only serve to diminish assets that could be potentially preserved to repay the creditors in the case; and they have filed a suit against GOMO requesting a ceasing of activity as a result. GOMO was given an opportunity, and still has the opportunity, to voluntarily cease collection of further ill-gotten funds and preserve all existing assets for the creditors without involving the court, according to the committee.
“It’s in the creditors’ best interests to preserve assets that can potentially go back to them. Our position is that they need to be preserved, so collection needs to stop until a plan is put forward,” Ingram said. “…. They’ve been in bankruptcy for three months now, and there’s really no hint of a plan that we’ve seen [from their side]. But it’s in the best interests for us and GOMO to come up with a plan that the creditors approve of as soon as we possibly can.”
Multiple attempts to reach Patterson for comment were unsuccessful.
In past meetings, Patterson has alluded to forming a new HOA while retaining and transferring the remaining assets into that correctly formed entity, which would legally be allowed to collect revenue.
However, the committee sees a couple of hurdles with that plan. They say it likely faces a difficult and uncertain approval threshold in the neighborhood, coupled with the fact that many creditors in the case extend far beyond the neighborhood, whom the committee believes will have no interest in a new HOA. Thus, their interest is in one goal, and one goal only – to refund all creditors to the extent possible, affording individual creditors the choice of whether or not to support a newly formed organization with that refund. But, they believe it shouldn’t be up to GOMO to make that choice for them.
“Should there be assets remaining beyond the satisfaction of creditors’ claims that are allowed by the court, then the committee would support a plan to put those to use for the neighborhood,” they said.
How to get involved
To participate in the decision on the plan, creditors need to file a Proof of Claim form 410 and evidence of their claim by Aug. 27 to the U.S. Bankruptcy Court, Case 18-60018, P.O. Box 61010, Houston, Texas 77208. Members of the committee can be reached with questions or feedback by email at GOCreditorsCommittee@gmail.com or by physical mail at Garden Oaks Creditors Committee, P.O. Box 10772, Houston, TX 77206.
“We’re encouraging people to file their claim, because that’s the only real ticket to being able to have a say in what the Chapter 11 plan going forward, along with the possibility of a refund,” Ingram said. “We’re focused on getting as many potential creditors into the case as we possibly can.”