In re SM 104 Ltd.

Facts

SM 104 Limited, a limited partnership controlled by William Murphy, owned the Cypress Creek Executive Court office complex on leased land in Fort Lauderdale. In June 1987, the Debtor borrowed $4.8 million from EquiVest secured by a first mortgage, using $3.68 million to pay off construction financing. The Debtor immediately began defaulting on payments. In February 1990, a state court ordered all rents deposited into a lockbox account, with EquiVest taking monthly interest and remitting the remainder for operating expenses. Between August 1990 and June 1992, Murphy diverted the majority of rent checks from major tenant Thasc, depositing only four of twenty-one checks into the lockbox while converting others to cashier’s checks or depositing them into accounts of affiliated entities, in direct violation of court orders. Murphy repeatedly lied to EquiVest about these diversions. In spring 1992, Murphy submitted a loan application to Riverside Capital containing material misrepresentations about property value, construction costs, and operating income. The Debtor’s accounting was in complete disarray, with missing general ledgers, unfiled tax returns, and inability to account for $861,000 in loan proceeds. On June 18, 1992, the morning a contempt hearing was scheduled, the Debtor filed Chapter 11. The plan proposed paying EquiVest’s secured claim over ten years at 8% interest based on twenty-year amortization with a balloon payment, paying unsecured creditors 8.5%, and allowing Murphy to purchase all equity in the reorganized debtor for $200,000.