Ralph Leo Brutsche and Associated Case in US District Court

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re
RALPH LEO BRUTSCHE,
Debtor. 	No. 11-11-13326 SA
MEMORANDUM OPINION REGARDING
MOTIONS FOR RELIEF FROM AUTOMATIC STAY
and MOTION FOR USE OF CASH COLLATERAL
This matter came before the Court for final hearing on the
Motions for Relief from Automatic Stay filed by Los Alamos
National Bank (“LANB” or “Bank”)(doc 64) on October 17, 2011 and
the Grevey-Liberman creditors (“GL”)(doc 71) on October 20, 2011.
There is a substantial overlap in the collateral of the two
creditors and both motions were handled together. 	Debtor filed
objections to both motions on November 7, 2011 (docs 91, 92).
This matter also came before the Court for final hearing on
the Debtor’s Amended Motion to Use Cash Collateral filed on
November 2, 2011 (doc 83). 	LANB filed an objection on November
11, 2011 (doc 95) and a Supplemental Objection on December 13,
2011 (doc 120).
Debtor is represented by his attorney Arland & Associates,
LLC (William J. Arland III, Edward A. Mazel and James A. Askew).
LANB is represented by its attorney Thuma & Walker, P.C. (Thomas
D. Walker and Samuel I. Roybal). 	GL is represented by its
attorney Modrall Sperling Roehl Harris & Sisk, P.A. (Paul Fish).
The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§ 1334 and 157(b); these are core
proceedings pursuant to 28 U.S.C. § 157(b)(2)(A) and (G); and
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this Memorandum Opinion constitutes findings of fact and
conclusions of law as may be required by Rule 7052 F.R.B.P. 	For
the reasons set forth below, the Court finds that the Motions for
Relief from Automatic Stay should be granted and the Motion to
Use Cash Collateral should be denied.
BACKGROUND
Debtor filed his voluntary individual Chapter 11 petition in
this Court on July 22, 2011 (“petition date”). 	He continues as a
Debtor-in-Possession pursuant to 11 U.S.C. § 1107. 	Debtor is an
experienced residential subdivision developer that has worked in
the Santa Fe, New Mexico area for at least twenty years of his
fifty-plus years in the business. 	Since 1991 he has worked on a
high-end subdivision that lies between the City of Santa Fe and
the Santa Fe Ski Basin. 	Over the years, the project has
consisted of different names and phases, e.g. Summit North, South
Side, High Summit, but all basically are stages of one grand
project under the umbrella name of Santa Fe Summit, or “Summit.”
Individual lots are secluded and cost from $300,000 to over
$1,500,000. 	Houses in the area of the Summit typically range in
value from $700,000 to over $3,000,000. 	The lots are in the
mountains next to Santa Fe at an altitude of approximately 7,500
feet going up to 8,200 feet, which results in a heavily wooded
Ponderosa pine-forest environment. 	The views generally are
spectacular. 	The existing houses in the Summit are mostly owned
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1Existing homes compete with vacant lots in the current
market. 	Deposition of Ray Rush, December 14, 2011, p. 41, l. 25
(continued...)
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by wealthy individuals including business people and retirees.
Many of the houses are also the owners’ second or third homes.
Although Debtor has not built many houses recently, he is known
for building quality, large showcase type homes that cost in the
millions of dollars. 	He has all the required licensing to build
houses, roads, utilities and subdevelopment infrastructure.
Unfortunately for the Debtor the national economy and Santa Fe’s
economy, have hit hard times.
Debtor owns thirty-one lots that are “fully developed,”
meaning that all plats have been approved and filed, all
infrastructure work is done, and utilities are available. 	He
also owns 18 “partially developed” lots which plats have been
approved and filed, but require about $225,000 in additional
infrastructure work to be fully developed. 	And, he owns 49
“undeveloped” lots which are neither platted nor approved nor has
infrastructure been done. 	GL has a first mortgage on the
partially developed and the undeveloped lots. 	LANB has a second
mortgage behind GL on its collateral and a first mortgage on the
other lots. 	A few lots free of liens are owned by either Debtor
or his non-filing spouse. 	Interspersed with Debtor’s lots are
lots sold to third parties over the past twenty years; some have
houses 1
, others do not 2,
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1(...continued)
- p. 42 l. 17:
Q. 	Are existing homes competition right now for lots
on which people could build homes?
A. 	Yes.
Q. 	Why?
A. 	Because you can, in today’s market, under some
circumstances, buy a house less expensively than
you can buy it and build it.
Q. 	Of similar quality?
A. 	Yes.
Q. 	Even in the price range in which you deal?
A. 	Yes.
Q. 	How many homes are presently for sale in the Santa
Fe market for a listing price of a million dollars
or more?
A. 	I have no idea. 	It’s hundreds. 	Many hundreds.
Q. 	How many homes are for sale in the Santa Fe market
that are listed for sale at $2 million or more?
A. 	I think there’s 60-plus.
2See Deposition of Dermot Monks, December 13, 2011, p. 33,
l. 6 to p. 35 l. 9:
Q. 	Is there competition for the lots at the Summit,
outside of the Summit that is, in terms of
proximity to the city, and 	views?
A. 	Yes.
Q. 	Where would you find a competitive product for the
Summit?
A. 	There would be Sierra del Norte, the Hills of
Bishops Lodge, Vista Pinada Ancha, Cerros
Colorados, Monte Sereno became a big competition
in there. 	The Summit’s further out in a different
terrain, but there’s always been competition for
the Summit. 	There’s a lot of competition.
Q. 	Right now, how many lots do you think are
available that you would consider to be
competitive with the Summit?
A. 	There’s around 400, or so.
Q. 	Are most of those owned by individuals, not by the
developer, or is it a mix?
A. 	Most would be individuals.
Q. 	Are most of those actually listed for sale with a
(continued...)
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2(...continued)
broker?
A. 	Yes.
Q. 	In fact, is that really what you’re talking about,
is listed lots for sale?
A. 	Yes.
Q. 	I think we talked about, there are lots listed for
sale by individual owners in the Summit, aren’t
there?
A. 	Yes.
...
Q. 	(By Mr. Walker) I use the word “premier lots.”
Are there any lots for sale in the Summit you
would consider to be among the best lots in the
Summit?
A. 	Yes.
Q. 	Can you tell me which ones?
A. 	Well, I actually have two lots, Lots 4 and 5, of
High Summit III, that we purchased for 740,000 at
a discount, and that was around 2005, I believe,
maybe 2006. 	We currently have them listed at
300,000 and 360, with special bank financing. 	And
little interest. 	No contracts. 	I have another
one listed, Lot 26, that was purchased at 250,
it’s been on the market for about nine years at
395, and it was just lowered to 250. 	Then there’s
a variety of other lots for sale in there, and I
could go through each one, if you like.
Q. 	When you say, the lots sole in 2005 for $740,000,
you mean Lots 4 and 5 each sold of $740,000?
A. 	Correct.
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but both types offer competition to sales by the Debtor. 	Debtor
testified that over the years he had acquired 820-830 acres in
High Summit, which he divided up into eight phases of Santa Fe
Summit. 	Then he acquired the “Tesuque Creek” tract, which became
a part of Summit, and then he more land in High Summit and the GL
property. 	In all, he had 15 “phases” with 283 lots. 	He
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3Some 52 lots appear to be missing in action. 	Of the
original 283, if 133 were sold, 150 were not sold. 	Debtor claims
ownership of 31 fully developed lots, 18 partially developed lots
and 49 undeveloped lots. 	Debtor claims to own some free and
clear as does his wife, but not 52. 	What exactly was the
disposition of those lots (assuming the Court has reached a
correct conclusion) is not material for purposes of this
decision.
4Debtor seeks to use cash collateral to build a model home
on a lot on which LANB has a first mortgage. 	The Court assumes
that since the stay is being modified this would no longer be an
issue. 	In oral argument Debtor conceded that he must survive the
stay motions to be able to seek to use cash collateral.
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testified that 133 were sold 3.
GL filed a foreclosure in the First Judicial District Court,
Santa Fe County, State of New Mexico (“State Court”) against
Debtor and LANB which was pending on the petition date. 	In that
action Debtor had cross-claimed against LANB asserting a variety
of causes of action which are generally subsumed under the
heading of “lender liability” claims. 	LANB seeks to terminate
the automatic stay to complete its cross-claim foreclosure case
against Debtor, including determining the amount of the debt
owed, allowing it to foreclose, etc. 	GL also seeks stay relief.
Because the Court is granting stay relief, the Court will not
address the merits 4 of the cash collateral motion.
AUTOMATIC STAY
When a bankruptcy petition is filed, § 362(a) of
the Bankruptcy Code provides an automatic stay of,
among other things, actions taken to realize the value
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of collateral given by the debtor. 	The provision of
the Code central to the decision of this case is §
362(d), which reads as follows:
On request of a party in interest and after notice
and a hearing, the court shall grant relief from
the stay provided under subsection (a) of this
section, such as by terminating, annulling,
modifying, or conditioning such stay-
(1) for cause, including the lack of adequate
protection of an interest in property of such
party in interest; or
(2) with respect to a stay of an act against
property under subsection (a) of this section, if-
(A) the debtor does not have an equity in
such property; and
(B) such property is not necessary to an
effective reorganization.
The phrase “adequate protection” in paragraph (1) of the
foregoing provision is given further content by § 361 of the
Code, which reads in relevant part as follows:
When adequate protection is required under section
362 ... of this title of an interest of an entity
in property, such adequate protection may be
provided by-
(1) requiring the trustee to make a cash payment
or periodic cash payments to such entity, to the
extent that the stay under section 362 of this
title ... results in a decrease in the value of
such entity's interest in such property;
(2) providing to such entity an additional or
replacement lien to the extent that such stay ...
results in a decrease in the value of such
entity's interest in such property; or
(3) granting such other relief ... as will result
in the realization by such entity of the
indubitable equivalent of such entity's interest
in such property.
United Savings Ass’n of Texas v. Timbers of Inwood Forest Assoc.,
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5The portions of sections 361 and 362 quoted were unaffected
by the Bankruptcy Abuse and Consumer Protection Act of 2005,
Public Law 109–8, which was signed into law April 20, 2005.
Timbers of Inwood therefore remains controlling.
6Elmira Litho mentions lack of insurance or a failure to
maintain property as examples of a threat. 	Those factors do not
exist in this case.
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Ltd., 484 U.S. 365, 369-60 (1988 5 ).
Section 362(g) allocates the burden of proof for motions for
relief from stay. 	It provides:
In any hearing under subsection (d) or (e) of this
section concerning relief from the stay of any act
under subsection (a) of this section--
(1) the party requesting such relief has the burden of
proof on the issue of the debtor's equity in property;
and
(2) the party opposing such relief has the burden of
proof on all other issues.
To obtain stay relief under section 362(d)(1) a creditor
must show that it holds a secured claim and that the value of the
collateral is declining as a result of the stay. 	In re Elmira
Litho, Inc., 174 B.R. 892, 902 (Bankr. S.D. N.Y. 1994). 	The
creditor also needs to prove the decline (or threat of decline 6)
to establish its prima facie case. 	Id. 	The general rule is that
for adequate protection purposes a secured creditor’s position as
of the petition date is what is protected against deterioration.
In re Armenakis, 406 B.R. 589, 520 (Bankr. S.D. N.Y. 2009)
(Citations omitted). 	See also In re Reddington/Sunarrow Ltd.
P’ship, 119 B.R. 809, 813 (Bankr. D. N.M. 1990)(Same.)
If the creditor establishes its prima facie case the burden
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7LANB has possession of an escrow account containing
approximately $395,336, which is subject to Debtor’s Motion to
Use Cash Collateral. 	That $395,336 consists of identifiable
proceeds of the sale of lots secured to LANB, so will be
considered in the determination of equity.
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shifts to the debtor to prove an absence of “cause” pursuant to
section 362(g)(2). 	Armenakis, 406 B.R. at 621. 	A debtor can do
this by showing adequate protection through periodic payments, an
equity cushion, additional or replacement liens, or a good
prospect of reorganization. 	Id.
Section 362(d)(2) refers to the debtor having equity in
“such property.” 	11 U.S.C. § 362(d)(2). 	The majority of courts
therefore look only at the collateral that is the subject of the
motion to determine if the debtor has equity in that collateral;
they do not consider all collateral available to the secured
creditor, such as property pledged by guarantors, to determine
whether “the debtor does not have an equity in such property.”
In re SW Boston Hotel Venture LLC, 449 B.R. 156, 177 (Bankr. D.
Mass. 2011). 	Consideration of other collateral 7 or sources of
payment may be relevant to other issues such as ability to offer
adequate protection or the feasibility of a reorganization. 	Id.
Once the movant under § 362(d)(2) establishes that he
is an undersecured creditor, it is the burden of the
debtor to establish that the collateral at issue is
“necessary to an effective reorganization.” 	See §
362(g). 	What this requires is not merely a showing
that if there is conceivably to be an effective
reorganization, this property will be needed for it;
but that the property is essential for an effective
reorganization that is in prospect. 	This means, as
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many lower courts, including the en banc court in this
case, have properly said, that there must be “a
reasonable possibility of a successful reorganization
within a reasonable time.” [United Savings Ass’n of
Texas v. Timbers of Inwood Forest Assoc., Ltd. (In re
Timbers of Inwood Forest Assoc., Ltd.)], 808 F.2d [363]
at 370-371, and nn. 12-13 [(5th Cir. 1987)], and cases
cited therein.
Timbers of Inwood, 484 U.S. at 375-76 (Emphasis in original).
The language “necessary to an effective reorganization” does
not mean that the debtor must prove the elements of confirmation
at the stay hearing. 	Rather, the debtor must establish that it
has a proposed plan that has a realistic chance of being
confirmed in a reasonable time and is not patently unconfirmable.
SW Boston Hotel, 449 B.R. at 178.
Courts have developed a list of requirements that a
debtor must show in order to meet its burden under the
second prong of § 362(d):
1. 	The debtor must be moving meaningfully to propose
a plan;
2. 	The plan must provide that the lender's allowed
secured claim would be valued and payable from the
debtor's net operating income generated by its property
or the ability to propose a plan based on the infusion
of new capital, sale, or other viable means;
3. 	The plan must have a realistic chance of
confirmation;
4. 	Without deciding the issue with the same scrutiny
as a confirmation hearing, the debtor's proposed plan
must not be obviously unconfirmable;
5. 	The reorganization must occur in a reasonable
period of time. In this regard the factors to look at
are:
a. the negotiations among the parties;
b. the amount of time that the debtor has been in
possession and operating the business;
c. the length of time since the expiration of the
exclusivity period.
Id. at 179 (quoting In re Building 62 Ltd. P’ship, 132 B.R. 219,
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8They are: Janice Brutsche (Debtor’s non-filing spouse who
also assists with clerical and sales tasks in his business);
Michael Dry (LANB’s expert appraiser); Elizabeth Cavasos (LANB’s
Vice President); Dan Castille (LANB’s in house counsel); Debtor;
and Paul Vosburgh, C.P.A. (Debtor’s Certified Public Accountant).
9During the hearing the parties discovered that there were
in fact 31 developed lots, not 35 as originally believed.
Michael Dry explained on rebuttal how this impacted his
appraisal.
10 The Court dealt with evidentiary objections to the
substance of Mr. Monk’s deposition at the close of LANB’s
rebuttal case on January 13, 2012.
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222 (Bankr. D. Mass. 1991)). 	The list is illustrative but not
exhaustive. 	Id.
FACTS
The final hearing on these matters took seven days between
December 21, 2011 and January 13, 2012. 	Six witnesses testified 8
and one retook the stand for rebuttal 9 . 	Also in evidence are the
depositions of Ray Rush (Debtor’s former real estate broker) and
Dermot Monk 10 , a realtor since 1981 that worked as Debtor’s
listing agent at the Summit for eight or nine years. 	Parties
made closing arguments on January 19, 2012 and the Court took the
motions under advisement. 	The Court has reviewed the testimony
of the witnesses and assessed their credibilities and strengths,
has reviewed the exhibits introduced into evidence and the
designated depositions. 	The Court makes the following findings
of fact:
GENERAL
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11 Although Messrs Monk and Rush testified by deposition,
the Court finds no basis in their testimony to suggest that they
were not also credible.
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The Court found all the witnesses to be credible, honest,
direct and forthright. 11 	There was considerable agreement about
a number of the facts and, by and large, no glaring
contradictions in the testimony with the exception of Debtor’s
conclusions about value versus the conclusions of the other
witnesses. 	Each party presented its case fully.
EQUITY IN SUMMIT
A. 	Debt.
GL filed a proof of claim (claim #3) and attached proper
documentation. 	Debtor has not objected to the proof of claim.
Therefore it is deemed allowed. 	11 U.S.C. § 502(a). 	GL’s claim
is for $4,065,565.53 as of the petition date, secured by lots in
the Summit. 	This amount consists of principal of $3,385,143.23,
accrued interest of $566,855.80, late charges of $78,995.46, and
attorney’s fees, costs, expenses and taxes of $34,571.04.
Interest at the rate of 8% has continued to accrue on the
principal balance from the petition to date, which is $741.949201
per diem.
LANB filed a proof of claim (claim #7) and attached proper
documentation. 	Debtor has not objected to the proof of claim,
although Debtor disputes whether interest on the LANB claim
should be calculated currently at a default or non-default rate.
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12 For purposes of this decision, the Court sees no reason
why interest should not be calculated at the default rate from
the date the loan became overdue. 	However, that decision will
ultimately finally be made by the State Court.
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Therefore the claim is deemed allowed (at least for now), subject
to the dispute about interest. 	11 U.S.C. § 502(a). 	LANB’s claim
is for $10,943,117.31, and consists of Claims A and B. Claim A is
secured by lots in the Summit. 	Claim A consists of principal of
$8,997,202.13, plus accrued interest at the contract rate of 5.5%
of $168,242.10, plus accrued interest at the default rate of
16.0% since default on November 20, 2010 of $962,330.88 12 , plus
late fees of $12,350.24, plus approximately $20,000 in attorney
fees and costs through the petition date, for a total Claim A of
$10,160,125.35. 	Claim B represents the Debtor’s personal
guarantee of a debt owed LANB by Amusing Investments, LLC, an
affiliate of Debtor. 	Claim B consists of principal of
$699,346.63, plus accrued interest at the contract rate of 6.0%
of $10,806.23, plus accrued interest at the default rate of 16%
since default on December 3, 2010 of $70,816.03, plus late fees
of $523.07, plus approximately $1,500 in attorney fees and costs
through the petition date for a total Claim B of $782,991.96.
Interest at the rate of 16% has continued on the principal
balances of both Claims A and B from the petition to date, which
are $3,943.979016 and $306.562906 per diem respectively. 	Claims
A and B total $10,943,117.31 as set forth in the claim summary.
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Debtor’s Amended Schedule D (doc 49, p. 10) lists the New
Mexico Taxation and Revenue Department as having a claim for
property taxes on lots of $239,307.50 as of the petition date.
LANB’s appraisal, Bank exhibit 10 (which is also Debtor
exhibit 56), contains a page in its addendum that lists the
annual property taxes for the remaining lots and undeveloped
land. 	The appraisal states that the information was obtained
from the County of Santa Fe. 	The addendum shows annual property
tax of $126,266. 	This is $346.920548 per diem. 	Debtor believed
the number was high, but did not come forward with alternative
proof. 	The Court therefore accepts the addendum.
The petition was filed on July 22, 2011. 	The stay hearing
concluded on January 19, 2012, which is 181 days after filing.
As of that date, the total debt secured by the Summit was
therefore:
Item 	Days 	Rate per day 	Total 1/19/2012
GL proof of claim 	$4,065,565.53
GL accruals 	181 	$741.949201 	$134,292.81
LANB proof of claim 	$10,943,117.31
LANB Claim A accruals 	181 	$3,943.979016 	$713,860.20
LANB Claim B accruals 	181 	$306.562906 	$55,487.89
Tax on petition date 	$239,307.50
Tax accruals 	181 	$346.920548 	$62,792.62
Total 	$5,339.411671 	$16,214,423.85
B. 	Value.
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13 He provided no explanation or justification for his
belief, however, other than the history of sales.
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1. 	Debtor’s value.
Under New Mexico law, an owner of real estate is presumed to
possess special knowledge by reason of his ownership and is
therefore competent to testify as to the value of his own land.
Tres Ladrones, Inc. v. Fitch, 127 N.M. 437, 443, 982 P.2d 488,
494, 1999 NMCA 076, {18} (Ct.App.), cert. denied, 127 N.M. 391,
981 P.2d 1209 (1999). 	The probative value of an owner’s lay
opinion is for the fact finder. 	State ex rel. State Highway
Commission v. Chavez, 80 N.M. 394, 397, 456 P.2d 868, 871 (1969).
Debtor did not provide expert testimony regarding the value
of the Summit. 	Rather, he relied on his own opinion of value.
As to the developed lots, he testified that his opinion of value
was based on three factors: 1) his personal history was to sell
lots in the Summit for an average of $440,000 per lot; 2) all of
the sixty-four sales in the Summit from 2003 to 2007 (including
his sales and sales of others, e.g., resales of lots) had an
average selling price of $374,000 per lot; and 3) his recognition
that LANB’s appraiser valued the developed lots at $325,000 but
as the owner he believed 13 that the higher amount of $350,000 to
$375,000 was more accurate.
As to the partially developed lots, he testified that his
opinion of value was based on three factors: 1) the overall sales
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14 He provided no explanation or justification for his
belief, however.
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history for Summit lots averaged from $370,000 to $380,000 per
lot; 2) sales he personally made in the Summit averaged $434,000
per lot; and 3) he basically agreed with LANB’s appraiser that
the current value was $345,000 per lot.
As to the undeveloped lots, Debtor based his opinion on his
familiarity with them and his experience selling lots at the
Summit. 	In his opinion the undeveloped lots are the most
valuable in the project, the “prime value” lots. 	They are also
the largest lots. 	He disagreed with LANB’s appraiser’s value of
$410,000 per lot; he believed 14 that the undeveloped lots would
bring $500,000 to $510,000 each.
Summary of Debtor’s Value (using Debtor’s average estimates):
Type 	Number 	Value 	Total
Developed 	31 	$362,500 	$11,237,500
Partially
Developed
18 	$345,000 	$6,210,000
Undeveloped 	49 	$505,000 	$24,745,000
Total 	$42,192,500
Debtor’s value seems to assume that all sales will take
place at one time because it does not contain a discount for the
receipt of the sales proceeds over time. 	It also does not
contain a projection of the time that the sales will take. 	And
the projection does not take into account the further costs
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necessary to complete the partially developed ($225,000) and
undeveloped lots, or how long that process will take or what is
the source of funds to do so. 	Debtor’s value also does not take
into account closing costs or commissions or taxes on
commissions. 	Finally, if the Debtor’s plan is to sell the lots
over time, a discount factor would have to be applied to
calculate the present value of the future sales proceeds. 	This
was not done.
2. 	Appraiser’s value.
LANB proferred Michael Dry as an expert witness on
commercial real estate appraisal. 	He is a licensed and certified
commercial real estate appraiser by the State of New Mexico. 	He
has been an appraiser since 2004 in Santa Fe and Los Alamos, New
Mexico. 	At the time of the hearing he had completed all courses
and work experience to qualify as having the MAI designation,
which he expected to receive within the month. 	He testified
about his course work, prior experience including the appraisal
of ten to fifteen subdivisions, the profession’s guidelines and
his familiarity with them, and his application of those
guidelines to his expert report. 	The Court qualified him as an
expert. 	The Court found Mr. Dry to be completely professional,
extremely knowledgeable, and more than capable of explaining his
reasoning as it flowed logically to his conclusions. 	From the
testimony alone one would not have known that this was Mr. Dry’s
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15 Debtor’s attorney (probably in jest) suggested that he was
not qualified because this was the first time he had testified as
an expert and that he had appraised “only” ten or fifteen
subdivisions. 	The Court ruled that everyone starts somewhere.
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first time testifying as an expert. 15 	His testimony and report
substantially assisted the Court in determining the value of the
property.
Mr. Dry’s expert report appears at Bank exhibit 10 (Debtor
exhibit 56). 	It has an effective date of February 14, 2011. 	He
concluded that the highest and best use of the Summit was to sell
the developed and partially developed lots but to hold the
undeveloped lots for further development. 	He believed that if
the undeveloped lots were made ready for the market at this time
they would flood the market and impact downward on the value of
both the developed and partially developed lots and increase the
time to sell those lots. 	He discussed and applied the three
primary valuation methodologies: cost, sales comparison, and
income approaches. 	He believed that cost was not relevant to the
Summit. 	He relied primarily on the sales comparison approach in
his report. 	He used the Multiple Listing Service for comparable
properties and analyzed the similarities and differences between
the comparables and the subject property. 	His experience was
that 95% of sales in the area were reported on the Multiple
Listing Service, which he deemed reliable. 	In addition, his
office maintains a database of other sales that have not appeared
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on the Multiple Listing Service that were derived from other
sources deemed reliable by his firm. 	He also had discussions
with other market participants about sales expenses, overhead,
carrying costs, real estate commissions and the market in
general. 	From this information, as well as his experience, he
estimated that closing costs would average 1% of gross sales
price and that commissions for the sizes, values and number of
lots available would be 8%. 	He admitted that these were
“judgment calls” but after his direct and cross-examinations the
Court finds that his assumptions were realistic, reasonable, and
probably very accurate.
The expert report contained historical data regarding sales
of comparables in this “market niche” for the years 2007 through
2010. 	Bank exhibit 10, p. 43. 	At the hearing and in Bank
exhibit 11, Mr. Dry also updated the data through November, 2011.
The report demonstrated that the “cumulative days on market”
(i.e., this attempt at sale and previous attempts within the
prior six months) went from 211 days in 2007 to 783 in 2011.
Bank exhibit 11. 	During that same period the number of
comparable lot sales fell from 132 in 2007 to 20 in 2011. 	Id.
And, during that time the average price dropped from $301,000 to
$209,400. 	Id. 	The report suggests that with the current supply
of lots and the current demand there was and still is a continued
downward pressure on lot prices. 	Mr. Dry believed that this
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16 Mr. Dry’s evidence was completely consistent with that of
Mr. Monk.
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downward trend would continue or remain level throughout 2011
without any appreciation in the near future. 16
In his testimony Mr. Dry explained the concept of
“absorption” as being the length of time it takes to sell a group
of lots, i.e., the length of time it takes the market to process
the supply and demand. 	Due to the time value of money,
absorption is a critical consideration when valuing a group of
properties. 	He noted that in the current market absorption has
caused high-end lots to take considerably longer to sell and at a
considerably lower price. 	Mr. Dry also testified that, in
general, the demand in Santa Fe for high end properties is lower
than previously. 	His report, at page 41, shows that there was
currently a 4.56 year supply of lots on the Santa Fe market.
Builders of “spec houses” are no longer a factor in the market;
99% of their activity has “dried up.” 	And, investors that
previously might have bought lots for investment purposes no
longer do so. 	Mr. Dry also attempted to examine sources to
predict the future of the economy. 	He noted that some people
thought the economy would improve in 2012 but their opinion is
now that it will not improve significantly until some time
“farther out,” even perhaps slowly through 2017.
Mr. Dry used the comparable sales approach in valuing the
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fully developed and partially developed lots. 	His initial
findings from MLS comparables were that the developed lots were
worth an average of $325,000 each and the partially developed
lots were worth an average of $345,000 each. 	From this point on,
Mr. Dry’s appraisal varies drastically from Debtor’s estimated
values. 	The report first subtracts 9% for realtor commission and
closing costs to arrive at a net average retail price of $295,750
for fully developed lots and $313,950 for the partially developed
lots. 	Ex. 10, pp. 39-40. 	The appraisal report then noted that
these lots were above average prices for the area, but found that
the cost was balanced by the superior views and areas. 	The
report noted an oversupply of both houses for sale and lots for
sale, both of which compete with the subject lots. 	See n. 2,
supra. 	The report, id., p. 45, discusses the appraiser’s
estimated absorption of the lots and estimates that it will take
approximately six years to sell all of them. 	At this point, two
alternatives are available to complete the valuation. 	The first
is to assume a bulk sale of all lots. 	The second is to discount
cash flows from individual sales.
Pages 46 and 47 discuss the reasoning behind taking a
deduction for a bulk sale. 	Buyers stepping into finished or
partially finished subdivisions expect price reductions when they
are buying more than one lot and/or when there is a low demand.
The report provides examples of situations where discounts of 7%
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to 24% in the area, and anecdotal data from other markets showing
bulk discounts of up to 50%. 	Mr. Dry states that “[t]he bulk
sale discount rate is a direct function of the number of lots in
the subdivision as well as the current economic environment and
the motivation of the developer.” 	The Summit has [31 + 18 =] 49
developed and partially developed lots and the owner is now in a
Chapter 11 case. 	Mr. Dry believed at the time of the appraisal
that 25% was appropriate considering the number of lots, the
market and low demand. 	Mr. Dry testified that now, given further
developments, his discount number would be higher. 	This summary
table results in the appraiser’s value of the developed and
partially developed lots if sold in bulk:
Developed 	Partially 	Total
Average Comparable 	325,000.00 	345,000.00
Less 9% costs 	-29,250.00 	-31,050.00
Net 	295,750.00 	313,950.00
Less bulk discount 	-73,937.50 	-78,487.50
Per lot value 	221,812.50 	235,462.50
Number of lots 	31 	18
Total value 	6,876,187.50 	4,238,325.00 	11,114,512.50
The report also discussed and applied a discounted cash flow
(“DCF”) to arrive at a value. 	Mr. Dry testified that using DCF
is standard and, in fact, required. 	This method considers that
the lots are sold individually during the absorption period and
valued using a discounted cash flow methodology. 	Bank exhibit
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17 A higher discount rate reduces the present value of future
cash flows. 	E.g., In re SW Boston Hotel, 449 B.R. at 164 (“If he
had used a 20% discount rate, the value of the Condominiums would
have been $86,600,000; if he had used a 22% discount rate, the
value of the Condominiums would have been $84,100,000.”)
18 The number in the report is actually $6,000,000. 	But,
that number was based on 35 developed lots when in reality there
are 31. 	This number is 31/35*6,000,000.
-23-
10, p. 48. 	The decision to apply a 13% discount rate is
explained on pages 48 and 49 and seems reasonable to the Court 17 .
In addition to reducing the lot proceeds to current value, the
appraiser also factored in estimated holding costs of the
estimated property tax accruals on the lots and the impact of
inflation. 	This discounted cash flow method of valuation
resulted in the 31 fully developed lots having a value of
$5,087,098 and the 18 partially developed lots having a value of
$3,038,904. 	The appraiser rounded the results to:
Type 	Value
Developed 	$5,315,000. 18
Partially 	$3,200,000.
Total 	$8,515,000.
The report also indicates that $225,000 should be subtracted from
the partially developed lots, because that is the amount it will
cost to complete them.
For the undeveloped lots, Mr. Dry used a sales comparison
approach. 	Bank exhibit 10, p. 58. 	Going back several years, he
found only eight closed comparable sales of undeveloped lots.
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For each sale, he compared the price paid to the estimated retail
values of the lots, to determine the ratio of the price to final
value. 	The ratios ranged from 25% to 53%. 	He then factored in
whether before the transaction a plat had been approved or a
master plan had been approved. 	He also put more weight on the
more recent sales. 	In his judgment, he concluded that 35% was an
appropriate ratio to apply to the Summit undeveloped lots.
The undeveloped lot average size will be 52,014 square feet.
The average developed lot contains 30,205 square feet. 	The
report compares the size of the average developed lot with the
average undeveloped lot (the undeveloped lot is 21,809 square
feet larger). 	The value of the average fully developed lot
previously was compared to the value of the average partially
developed lot to show that each additional square foot would be
worth about $4.00. 	Therefore, the report calculated that the
average value for a 52,014 square foot undeveloped lot, if it
were developed, would be $412,236. 	The Court finds this to be a
reasonable conclusion. 	The report rounded the lot value to
$410,000. 	Applying the 35% discount to the value of 49
undeveloped lots each valued at $410,000 resulted in a total
value of $7,031,500, rounded to $7,000,000.
In the reconciliation section the report states that between
the two methods to calculate the value of the fully developed
lots and the partially developed lots, that it was most
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19 See n. 18, supra.
-25-
appropriate to give most emphasis to the DCF method. 	The Court
agrees. 	The theory of the bulk discount would be for another
developer to buy the remaining lots, finish the development and
sell the lots. 	The DCF method, on the other hand, attempts to
predict, as closely as possible, the actual return that will be
obtained from selling the lots over the absorption period (which
is what Debtor seeks to do), considering holding costs and
inflation. 	In this case, the DCF approach yielded a smaller
value for the lots. 	If this were true, no reasonable purchaser
would buy the lots for the higher bulk discount value if they
would then end up with less by holding and selling the lots.
Therefore, the Court agrees that the DCF method should have
greater emphasis.
The report concludes at p. 59 that the values of the lots as
of February 14, 2011 are as follows:
Type 	Value
Developed 	$5,315,000. 19
Partially 	$3,000,000.
Undeveloped 	$7,000,000.
Total 	$15,315,000.
Mr. Dry’s expert report had an effective date of February
2011. 	At trial he testified that property values had declined
linearly from that time to the date of the hearing.
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3. 	Court’s value.
Based on the foregoing, the Court finds that the value of
the lots in Summit was 99% of the appraiser’s value as of the
petition date, i.e., $15,161,850. 	The Court finds that Debtor’s
opinion of value is not entitled to any weight because it is not
based on any real world evidence. 	It is all based on historical
facts that in the current market are simply not relevant as a
result of the drastic market declines that have occurred since
2009. 	The Court finds that Mr. Dry’s opinions are based on real
world facts, analyzed reasonably and in accordance with valuation
principles accepted in the industry. 	The Court took a 1%
reduction to recognize the testimony that property values had, in
fact, continued to decline in 2011. 	The Court did not reduce the
value for any post-petition decline. 	LANB attempted to
introduce, over Debtor’s objection, Exhibit 47, which was an
update of the February, 2011 appraisal through an effective date
of January 9, 2012. 	The Court refused admission because it had
not been produced by the deadline set in the scheduling order nor
provided to Debtor until the day before the hearing. 	The Court
therefore has not considered the content of Bank exhibit 47.
C. 	Equity.
As of January 19, 2012 the equity was:
Lot value 	$15,161,850
Escrowed proceeds 	$395,336
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20 In contrast, there is a household employee for which it
appears no taxes are paid.
-27-
Total collateral 	$15,557,186
Total liens and taxes 	$-16,214,423.85
Equity 	$-657,237.85
From January 19, 2012, to February 16, 2012, the date of entry of
this Memorandum Opinion another 28 days of accruals at
$5,339.411671 per day represents another $149,503.53 of interest
and taxes, so as of the release of this opinion, LANB has become
undersecured in the amount of $806,741.38.
REORGANIZATION PROSPECTS
The Court finds that there is no reasonable chance of a
reorganization in sight. 	This finding is based on various
factors:
1. 	Monthly Operating Reports
The most recent monthly operating report (“MOR”) filed is
for the period ending December 31, 2011. 	Doc 169; see also the
MORs for July, August, September and October 2011 (Bank exhibits
31-34) and for November 2011 (doc 143). 	The petition was filed
on July 22, 2011. 	The report covers slightly over five months in
the Chapter 11. 	Business revenues for the entire period are $-0-
. 	Business expenses for the entire period are $-0-. 	There are
no employees 20 . 	A review of the docket shows that there are no
pending sales, so there are no expectations of business revenue
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21 The Court does not understand why this is treated as a
cash receipt by the debtor-in-possession. 	It is an asset (that
is now used up).
22 After deducting $83,275.00 in “bank transfers” from both
cash receipts and disbursements.
-28-
for the foreseeable future. 	There does not seem to be a business
left to reorganize.
The only regular income of the debtor is social security in
the amount of $1,749.40 per month ($8,747.00 total during the
case). 	Other cash has come from: 1) distributions from Summit
Properties, Inc. of $91,603.92, 2) a $30,000 retainer paid by
Debtor to his bankruptcy attorneys before the bankruptcy 21 , 3)
cash from surrender of Debtor’s wife’s insurance, $16,119.51, 4)
a federal tax refund of $2,383.65, 5) an insurance refund of
$1,036.70, 6) some small miscellaneous items totaling $123.10,
and 7) substantial cash transfers from Janice Brutsche, the non-
filing spouse. 	There was also a post-petition loan from Wells
Fargo of $11,704.46. 	The Court assumes that the “other cash”
receipts were one time events and not likely to recur, with the
possible exception of additional borrowing from Janice Brutsche.
Cash disbursements during the Chapter 11 total $154,901.14 22
which is 17.70 times the amount of regular income. 	The ending
bank balance on December 31, 2011 was $13,300.32, which leads the
Court to believe that the cash disbursements of the Debtor are
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23 E.g., the $91,603.92 from Summit Properties is obviously
income from an estate asset and would be estate property. 	It is
gone.
24 The Court does not consider in this opinion whether any
assets held in the name of Janice Brutsche should be considered
property of the estate pursuant to §541(a)(2) (community
property). 	Ms. Brutsche testified that she and Mr. Brutsche had
entered into a prenuptial agreement before they wed, but that
agreement is not in evidence. 	And in any event, to be clear,
there is nothing inherently wrong in a debtor in possession using
unencumbered estate assets for living expenses.
25 Consisting of semi-weekly payments to Wells Fargo of
$5,852.23 (an amount equal to 3.3 times Debtor’s monthly social
security).
-29-
being funded by depletion of estate assets 23 and borrowing from
Janice Brutsche. 24 	Amongst the notable cash disbursements are
payment of Debtor’s home mortgage of $43,749.72 25 , payment of real
estate taxes of $9,094.84, payment of professional fees of
$64,202.81, insurance of $13,177.44 and $16,318 for food,
household expenses, household repairs and utilities. 	Social
security cannot fund this estate and post-petition borrowing
should not.
Attachment 5 to the December MOR is the post-petition
accounts payable listing. 	Debtor has incurred $215,365.86 in
unpaid post-petition payables. 	Theoretically these are entitled
to administrative expense priority.
2. 	A Plan
Debtor has not filed a plan or disclosure statement. 	Debtor
exhibit 67 was included in the exhibit book at the hearing, but
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26 Even if Debtor exhibit 67 had been admitted into
evidence, it contains no concrete provisions to show how Debtor
can reorganize.
27 LANB’s evidence shows that Debtor’s intent to start
marketing aggressively began being promised in 2009. 	It has not
yet started, or if it has, it has not been successful.
28 He has no funds to build this house. 	Therefore, he filed
the Motion to Use Cash Collateral, in which he is proposing to
use some $300,000 in escrow at LANB from proceeds from sales of
two lots on which LANB had a mortgage. 	His wife also testified
that she might consider loaning $200,000 to the Debtor at 9% or
so (an interest rate which the Court takes as a reflection of her
assessment that this would be a risky investment), if she were
given a mortgage on the house. 	When cross-examined she admitted
she was not aware there would be one or two mortgages ahead of
hers, and she stated that she would need to reconsider the offer
after speaking to her attorney. 	The Court does not consider this
to be a firm commitment. 	Furthermore, the Court is not convinced
by the Debtor’s testimony on direct and cross that having a model
home would be of any benefit. 	See also Deposition of Dermot
Monks, December 13, 2011, at p. 17, l. 24 to p. 18, l. 4 (Model
home makes no difference) and p. 24 ll. 14-18 (Model home has no
significant impact).
-30-
not moved into evidence. 	Debtor exhibit 67 is “Debtor’s Chapter
11 Plan of Reorganization, dated November ___, 2011". 	Therefore,
there are no plan or disclosure statement before the Court. 26
Debtor filed this case on July 22, 2011 and the exclusivity
period ran on November 21, 2011.
At the hearing Debtor was asked if he had a plan. 	He
responded that first, he would implement an aggressive marketing
plan 27 and second, he would build a model home 28 and staff it full
time seven days a week to show passers-by the development. 	He
proposed that as lots sold he would retain 6% for his operations
and a reserve for development work, and the rest would be divided
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29 At various times during the hearing the Debtor referred to
other resources that could be used as adequate protection, or to
turn into cash for operations, etc. 	However, Debtor presented no
concrete evidence of the real value of any of these assets. 	And,
after cross-examination of the Debtor the Court has great doubts
that the assets are worth anything close to Debtor’s beliefs and
has doubts about their true availability.
30 The Court notes that in 2011 two lots sold, in 2010 one
lot sold, and in 2009 two lots sold. 	The Court finds this
testimony purely speculative. 	It is also so widely variant from
historical numbers that the Court can only conclude that this is
completely unrealistic.
31 There was no explanation of who would buy such land, why,
or at what price.
32 Similarly, there was no explanation of who would buy such
land, why, or at what price. 	Debtor had already gifted five
tracts of land to the Nature Conservancy pre-bankruptcy. 	He has
filed an adversary proceeding to recover four of those tracts.
Debtor also testified on cross-examination that he may have a
duty to transfer the open space to the Homeowners Association
upon completion of the infrastructure. 	The Homeowners
Association agrees that the common area lots need to be
transferred to the Association. 	Santa Fe Summit Homeowners
Association’s Joinder in Grevey-Liberman’s Motion to Convert or
Dismiss. 	Doc 179.
-31-
as the Court determined. 	But, he added, he had “substantial
other assets” that he could apply to the plan 29 . 	The first
example was “sales of houses” that he would, in the future, build
on the lots being sold. 	He thought that he would be hired two to
three times a year to build houses on lots being purchased 30 . 	He
also proposed using other assets such as land zoned for community
use 31 , and 340 acres designed for “donative” land, i.e., open
space 32 . 	He also claimed he would be able to contribute the value
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33 He was referring to property owned by an affiliate,
Amusing Investments, which has other members. 	It was not clear
to the Court if Debtor alone could use that entity’s assets as he
pleased. 	But see Operating Agreement of Amusing Investments, LLC
(Bank exhibit 45, exhibit 378), at §VI(E)(2)(Conflict of Interest
provisions). 	The Court also notes that the property is in
foreclosure by LANB, and there was no evidence of value except
Debtor’s own opinion of $2.0 million and a guess by a LANB bank
officer that it was somewhere upwards of 1.5 million. 	There was
no evidence of whether Amusing Investments had creditors or was
even solvent. 	LANB exhibit 35 is a financial statement of
Amusing that showed no retained earnings, but an accumulated
deficit of $40,000 as of October 2011. 	For that reporting period
its income was less than the interest accrual on the LANB
mortgage.
34 With no offers. 	Also, given the cash shortages in the DIP
account, it is not clear to the Court that the home mortgage
might not go into default and foreclosure and Debtor could
conceivably realize no equity in it.
35 Taking “living expenses” is profit.
-32-
of a sound stage in Albuquerque 33 and his house, which is
currently listed and on the market for $2.395 million 34 (and has a
mortgage of approximately $1.7 million).
When asked the time frame for performing the plan, he
believed he could liquidate some assets in three to four years,
and including lot sales could pay creditors in four and one-half
to seven years. 	When asked if he would take any money for
himself from sales, he responded that he would take money only
for the business to continue marketing and to pay his basic
living expenses. 	He would not take profits. 35 	There was no
testimony solicited or given about the possible tax effects on
Debtor if he were to sell millions of dollars of real estate.
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36 The dueling accountings were presented on flip charts and
admitted into evidence. 	The Court has summarized them in the
exhibit attached to this memorandum opinion.
-33-
The Court finds that Debtor’s testimony about a plan is
thoroughly speculative, unresearched, and unreasonable. 	There
really is no plan before the Court.
3. 	Totally unfeasible.
GL’s attorney constructed a picture of future cash flows
that would result from Debtor’s incipient plan. 36 	Using various
exhibits and pointing out Debtor’s previous testimony, the annual
income and expenses and costs would resemble the following table,
assuming that Debtor would be lucky enough and the economy would
recover enough to allow 6.28 sales per year:
Revenues 	Annual revenues
Lot sale 	$325,000
Less: closing costs at 7% 	($22,750)
Estimated release price 	($171,000)
Net revenue per lot 	$131,250
6.28 sales per year; annual 	$824,250
Expenses 	Annual expenses
Staffing model home 	$35,000
Advertising 	$62,000
Accounting 	$12,000
Insurance (business) 	$4,000
Living Expenses (from Schedule J) 	$175,000
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Revenues 	Annual revenues
-34-
Property taxes (deemed low) 	$65,000
Interest to GL 	$143,500
Interest to LANB 	$565,000
Total annual expenses 	$1,061,500
Net loss first year 	($237,250)
The plan is not feasible even if Debtor were to sell 6.28
lots per year, which the Court itself finds not reasonable.
On redirect, Debtor’s counsel attempted to deflect the
dismal projection for the first year of operation. 	His opening
premise, however, was that the net revenue per lot would be
$300,000 for each of the 6.28 lot sales, which would generate
$1,884,000 of revenue. 	If this were true, it would certainly
more than pay the expected $1,061,500 expenses. 	However, the
$300,000 is impossible because it allows only $25,000 to cover
closing costs, commissions and LANB’s release prices. 	This is
not reasonable. 	If a release price is not paid, the lot simply
cannot sell.
4. 	Single asset real estate.
The parties did not address whether this Chapter 11 case is
a single asset real estate case. 	The bankruptcy code defines
that term as follows:
The term “single asset real estate” means real property
constituting a single property or project, other than
residential real property with fewer than 4 residential
units, which generates substantially all of the gross
income of a debtor who is not a family farmer and on
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-35-
which no substantial business is being conducted by a
debtor other than the business of operating the real
property and activities incidental thereto.
11 U.S.C. § 101(51B).
The significance of the designation is that if a debtor's
property is found to fall within the definition, 11 U.S.C. §
362(d)(3) imposes an additional basis for relief from the
automatic stay. That section provides:
On request of a party in interest and after notice and
a hearing, the court shall grant relief from the stay
provided under subsection (a) of this section, such as
by terminating, annulling, modifying, or conditioning
such stay—
...
(3) with respect to a stay of an act against single
asset real estate under subsection (a), by a creditor
whose claim is secured by an interest in such real
estate, unless, not later than the date that is 90 days
after the entry of the order for relief (or such later
date as the court may determine for cause by order
entered within that 90–day period) or 30 days after the
court determines that the debtor is subject to this
paragraph, whichever is later—
(A) the debtor has filed a plan of reorganization
that has a reasonable possibility of being
confirmed within a reasonable time; or
(B) the debtor has commenced monthly payments
that—
(I) may, in the debtor's sole discretion,
notwithstanding section 363(c)(2), be made
from rents or other income generated before,
on, or after the date of the commencement of
the case by or from the property to each
creditor whose claim is secured by such real
estate (other than a claim secured by a
judgment lien or by an unmatured statutory
lien); and
(ii) are in an amount equal to interest at
the then applicable nondefault contract rate
of interest on the value of the creditor's
interest in the real estate....
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-36-
11 U.S.C. § 362(d)(3). 	The single asset real estate provisions
were designed to impact real estate entities attempting to cling
to ownership of real property in a depressed market, as opposed
to businesses involving manufacturing, sales or services. 	In re
Philmont Dev. Co., 181 B.R. 220, 223 (Bankr. E.D. Pa. 1995). 	The
drafters were implementing a mechanism by which a single species
of chapter 11 cases would be forced to proceed on an expedited
track or face loss of the protections of the automatic stay. 	Id.
In In re Pioneer Austin East Development I, Ltd., 2010 WL
2671732 (Bankr. N.D. Tex. 2010), the court concisely described
the criteria to use in determining whether a debtor falls within
the scope of section 101(51B):
First, the real property must constitute a single
property or project. 	This definition of real property
recognizes that real estate development can be
completed in separate projects, comprised of several
tracts or parcels of land, and still constitute a
single property for the purpose of single asset real
estate cases. 	See In re Club Golf Partners, 2007 WL
1176010, *5 (E.D. Tex. 2007) (finding that several
separate tracts of land collectively operated as a golf
club are a single property under the definition of
single asset real estate). 	Second, the real property
must generate substantially all of the debtor's income.
The focus is on the revenues received from the property
itself, rather than the fruit of worker's labor and
management services. 	See id. 	Third, the debtor must
not be involved in any substantial business other than
the operation of its real property and the activities
incidental thereto. 	An absence of active business
operations with only passive and truly incidental
activities such as the mere receipt of rent will render
the property single asset real estate. 	See In re Kara
Homes, Inc., 363 B.R. 399, 406 (Bankr. D. N.J. 2007).
In contrast, varied business activities will render a
debtor outside the scope of § 101(51 B). 	See Club Golf
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37 During the hearing Debtor testified that for accounting
purposes, all costs and capitalizations for the lots were kept
track of in different entities. 	When, before a sale he would
deed the lot to that corporation which would, in turn, deliver
the deed to the seller. 	This method was adopted for accounting
purposes. 	Debtor’s CPA verified this testimony. 	LANB argued
that the proceeds of the sales were then therefore the entity’s
and not estate property for cash collateral purposes. 	The Court
(continued...)
-37-
Partners, 2007 WL 1176010 at *6. 	The inquiry
distinguishes between entrepreneurial, active labor and
efforts versus merely passive investment income.
Id. at *2. 	The Court finds that Debtor’s case is a single asset
real estate case.
First, the Summit is a single project. 	It may have been
acquired in stages from different sources, but the history of its
development shows one cohesive up-scale housing development. 	See
Id. (“Although the debtor's housing development is comprised of
several tracts of land, purchased separately, financed
differently, and described by separate metes and bounds, the
debtor built cohesive and interdependent subdivisions on the
property, indicating a unitary purpose.”)(Court found a single
project.)(Citation and internal punctuation omitted.) 	Indeed,
the testimony of both Janice Brutsche and Dan Castille directly
state that they believed this was a single project.
Second, the Summit generates substantially all of the
Debtor’s income. 	During the chapter 11 the largest source of
income was the distribution from Summit Properties, Inc., which
is one of Debtor’s entities 37 through which he sells lots. 	Debtor
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37 (...continued)
disagreed.
-38-
receives social security, but that is not the historical or
projected “substantial” source of income. 	Both the loan
documents and testimony of Elizabeth Cavasos demonstrate that
LANB was looking to the sales proceeds of lots to repay the
millions of dollars of loans.
Third, Debtor is not involved in any substantial business
other than the operation of its real property and the activities
incidental thereto. 	In prior bankruptcy cases many developers
have argued that development is a substantial business other than
the operation of the real property. 	Courts disagree. 	See id.
(Designing and redesigning subdivisions and making improvements
to unimproved land for the purpose of selling residential lots
does not constitute substantial business “other than the
operation of the real property and activities incidental
thereto.”) See also Kara Homes, Inc. v. National City Bank (In re
Kara Homes, Inc.), 363 B.R. 399, 406 (Bankr. D. N.J. 2007):
The Affiliated Debtors are in the business of
constructing and selling single family homes on the
parcels of real estate owned by the Affiliated Debtors.
In order to build and sell homes, it is often necessary
to acquire the land on which to build the homes, and
plan the community in which they lie; likewise, it is
necessary to market those homes for sale and maintain
the properties. 	All of the activities identified by
the Debtors as reflective of “business operations” are
merely incidental to the Affiliated Debtors efforts to
sell the these homes or condominium units and do not
constitute substantial business.... 	Thus, the Court
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38 LANB’s claim A is secured by the Summit. 	It has a
principal balance of $8,997,202.13 and a non-default contract
rate (required by §362(d)(3)(B)(ii)) of 5.5%. 	The daily accrual
is $1,355.742787.
-39-
finds that the Affiliated Debtors fall within the
definition of “single asset real estate” debtors and,
as such, 11 USC § 362(d)(3) applies.
Because Debtor’s case is a single asset real estate, he must
comply with section 362(d)(3) or face stay relief. 	In other
words, because the Court has determined above that Debtor has not
filed a plan that has a reasonable possibility of being confirmed
within a reasonable time, Debtor will have to commence making
monthly non-default rate interest payments to GL and LANB. 	GL’s
daily accrual is $741.949201. 	LANB’s daily accrual is
$1,355.742787 38 . 	The combined daily interest accrual is $2,097.60
or about $62,931 a month. 	The MORs do not demonstrate anywhere
near this cash flow to meet this obligation. 	There was no
testimony at the hearing that this cash could be available.
Therefore, the Court finds that there is no reasonable
reorganization in prospect as to this property because Debtor
cannot meet the requirements of § 362(d)(3). 	The stay must be
modified.
SUMMARY SECTION 362(d)(2)
For the reasons stated, the Court concludes that there is no
equity in the Summit and that there is no reasonable prospect of
a reorganization in sight. 	Therefore, the automatic stay should
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-40-
be terminated under section 362(d)(2).
ADEQUATE PROTECTION
LANB is undersecured. 	Its position is eroded daily by
accrual of GL interest and property taxes. 	The evidence does not
demonstrate that Debtor has the capacity to pay those items on an
ongoing basis. 	LANB is therefore not adequately protected and
the automatic stay should be lifted under section 362(d)(1) as
well.
CONCLUSION
It is with some reluctance that the Court concludes the stay
must be modified. 	Mr. Brutsche was a substantial cause of the
wave of high-end development that caused Santa Fe to become a
world-class destination residential location. 	Unfortunately the
global wealth structure that supported the sales and development
of Summit and similar properties has been washed away by the
tsunami of the economic crash of the last three years, and so
there is no longer support for the level of sales that
historically took place. 	Those seismic economic events have
completely changed the high-end residential real estate market in
Santa Fe and left Mr. Brutsche bereft of what he needs to
continue what up to now was a very successful development career.
The Court will enter separate orders 1) granting LANB’s
Motion for Relief from Automatic Stay, 2) granting GL’s Motion
for Relief from Automatic Stay, and 3) denying Debtor’s Motion to
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-41-
Use Cash Collateral without prejudice.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	February 16, 2012
Copies to:
Edward A. Mazel
Arland & Associates, LLC
201 3rd ST NW, STE 505
Albuquerque, NM 87102-3331
James A. Askew
201 Third Street, NW, Suite 505
Albuquerque, NM 87102
Leonard K Martinez-Metzgar
PO Box 608
Albuquerque, NM 87103-0608
Paul M. Fish
PO Box 2168
Albuquerque, NM 87103-2168
Thomas D Walker
500 Marquette Ave NW Ste 650
Albuquerque, NM 87102-5309
Clifford C Gramer, Jr
3733 Eubank Blvd NE
Albuquerque, NM 87111-3536
Chris W Pierce
Hunt & Davis, P.C.
2632 Mesilla St. NE
Albuquerque, NM 87110
Case 11-13326-j7 Doc 211 Filed 02/16/12 Entered 02/16/12 17:09:39 Page 41 of 42

FLIP CHART EXHIBITS 	Brutsche MSRs and CC 	11-13326
PMF EXPENSES (GL23):
Model 	35,000
Advertising 	62,000
Accounting 	12,000
Insurance 	4,000
Living expenses 	175,000
Property taxes 	65,000
G-L Interest 	143,500
LANB interest 	565,000
TOTAL 	1,061,500
PMF REVENUE (GL24):
Per lot revenue 	325,000
less 7% 	(closing costs)
302,250
less “appr value” (release) 	<171,000>
NET (“subtraction result”) 	131,250
times 6.28 lots sold
TOTAL NET REVENUE 	824,250
JA CALCULATIONS (D93) (modified to include only essential data):
Net per lot revenue 	300,000
times 6.28 lots sold
ANNUAL NET REVENUE 	1,884,000
65% paid to LANB 	1,224,600
LANB interest 	<449,860>
LANB principal pmt 	774,740
Available to DIP 	659,400
Less expenses 	[<353,000>]
NET AVAILABLE TO ESTATE 	306,400
Case 11-13326-j7 Doc 211 Filed 02/16/12 Entered 02/16/12 17:09:39 Page 42 of 42