Legal papers say that an Omaha nonprofit group that filed for bankruptcy protection after building a 264-unit apartment complex in Florida failed to disclose material information to the court and that insiders are seeking to recover proceeds from the case.
Lenox Mortgage filed papers with U.S. Bankruptcy Court in Omaha this week asking a judge to dismiss the Chapter 11 bankruptcy involving Waterstone at Panama City. That is the Florida apartment building constructed in 2008 with assistance from the U.S. Department of Housing and Urban Development. The financing was arranged by an Omaha nonprofit called Tapestry Group, which owns the building.
The Waterstone apartments filed for bankruptcy protection in April, citing a $25 million debt to mortgage lender Lenox, which had foreclosed on the property.
Now, Lenox is saying the filing was improper. Among the allegations in the motion to dismiss are that Tapestry’s interim president, Edward “Gene” Wilczewski, lacked the authority to sign the bankruptcy papers and that a company controlled by him is a creditor seeking $722,000 in the case.
Wilczewski is an Omaha real-estate developer. In the 1980s, he spearheaded a financially troubled residential development in west Omaha called the Knolls. Later, Wilczewski collaborated on an effort to build apartments in a wetlands area that attracted fierce opposition. In recent years, he emerged as an officer of Tapestry, whose website describes the group as a tax-exempt charity founded to “lessen the burdens of government” through housing development.
The motion to dismiss also says the bankruptcy filing failed to mention a civil lawsuit against Tapestry alleging fraud connected to a Louisiana apartment building. The filing also says Waterstone’s bankruptcy documents never mentioned the company is in contempt of court for failing to abide by the terms of a $510,000 judgment levied in U.S. District Court in Nashville, Tenn., for not paying a building contractor.
“Debtor’s conduct and circumstances justify dismissal of the case,” the motion reads.
Waterstone at Panama City plans to “adamantly oppose” the motion to dismiss the case, said Frederick Stehlik, the company’s bankruptcy lawyer, of the Omaha firm Gross & Welch. Stehlik said his side plans to file a legal response with the court by July 26. A hearing on the matter is scheduled for Aug. 5 in U.S. Bankruptcy Court in Omaha.
The filing to dismiss the bankruptcy shows that the Florida development isn’t Tapestry Group’s first brush with controversy, citing a 2011 lawsuit filed in Texas’ Tarrant County District Court. According to that suit, Springbrook Apartments in 2004 agreed to sell a Baton Rouge, La., building to Tapestry. As part of the deal, Springbrook’s suit says, Tapestry agreed to pay Springbrook about $1.4 million if it ever sold the property above a certain price.
In 2008, Springbrook said, such a sale happened, and Tapestry not only never disclosed the sale, it tried to hide it. The suit names Tapestry, along with Wilczewski and other people listed as officers of the nonprofit.
“Upon information and belief, rather than paying the note, defendants used the excess sales proceeds to fund other ventures,” the Springbrook suit reads.
Attempts to reach lawyers for Springbrook to determine the status of the suit were unsuccessful.
Wilczewski-controlled Merit Asset Management is among the Tapestry-related ventures mentioned in the Springbrook lawsuit, though no description is given of its size or scope. The company also appears in the motion to dismiss filed this week by Lenox Mortgage, alleged in the papers to be holding a civil judgment of about $14,500 against the Waterstone apartments.
Another Wilczewski-controlled company, the motion to dismiss says, is Charter Group of Arizona. Described in earlier court papers as a “consultant and market adviser” to the apartments, Charter Group has a bankruptcy claim of $722,3000 on Waterstone, the motion to dismiss says. Charter, the filing said, is controlled by Wilczewski and owned by his wife.
Tapestry tapped a HUD lending or loan-guaranty program in building the Waterstone apartments in 2008. The group described the project on its website as for people making too much money to qualify for low-income housing assistance but not enough to buy a home in the pricey coastal area of Florida.
Lenox, which bought the Waterstone mortgage from the original lender, said the bankruptcy filing’s omission of material details and Wilczewski’s standing as a large creditor should lead to the dismissal of the case; Lenox said in the filing it already has a first-priority security interest in Waterstone’s cash flows from rent and other sources.
“Bankruptcy’s powerful and equitable weapons should only be available to debtors with clean hands,” the motion to dismiss reads, citing language from previous cases.