Florida Keys News - Islamorada/KL Free Press
Wednesday, February 27, 2013
Winn-Dixie developer reapplies
Process muddied by lawsuit, foreclosure, bankruptcy case

ISLAMORADA -- The development company that lost its building rights for an Upper Matecumbe Key Winn-Dixie early this month has reapplied.

However, it is likely that Net5FDA will no longer have control of the proposed mile marker 81 market site by the time the village next doles out building rights in May.

According to the Islamorada planning department, Net5 submitted a renewed application for building rights at the site on Feb. 6. The 15,561 square feet the company is requesting would augment existing building rights on the property, allowing for construction of a 29,000-square-foot market.

Net5 submitted the application despite the fact that on Jan. 8 the Winn-Dixie property was sold in a foreclosure auction to its lender, Preferred Income Partners IV. Preferred Income brought the foreclosure case against Net5 in February 2011 after the developer failed to make payment on a $2.92 million mortgage.

On the same day as the auction, Net5, through its Managing Member Paul Rohan, filed a voluntary petition for Chapter 11 bankruptcy with the U.S. Bankruptcy Court in Jacksonville. The developer's bankruptcy filing states that Net5's only creditor is Preferred Income and that the company has assets of no more than $50,000.

Bankruptcy cases, which are federal, supersede state-administered foreclosure cases. As a result, Net5 still holds title to the Winn-Dixie property.

Rohan declined to comment for this article.

But Preferred Income didn't take the bankruptcy filing sitting down. In a Feb. 15 motion for dismissal, the lender's attorney said Net5 was operating in "bad faith" and using the bankruptcy process as a vehicle to delay the foreclosure actions taken in state court. As evidence, attorney Scott Underwood cited the timing of the filing -- on the same day as the foreclosure sale -- as well as the fact that Net5 had failed to submit numerous forms and documents required as part of the bankruptcy proceeding.

Five days later, the bankruptcy trustee appointed to oversee Net5's estate agreed. Trustee Guy Gebhardt accused Net5 of "gross mismanagement" of the proposed Winn-Dixie site and noted that the company "has failed to comply with the most basic requirements imposed upon it by the bankruptcy code, bankruptcy rules and orders of the court."

The case, Gebhardt wrote, should either be dismissed or converted from a Chapter 11 reorganization bankruptcy to a Chapter 7 liquidation bankruptcy.

Even if Net5 does lose control of the mile marker 81 property, it wouldn't necessarily render the company's new application for building rights on the site irrelevant. Such rights, should they be awarded, stay with a property when ownership is transferred. As such, Preferred Income, or any other new owner, could still potentially use such an allocation for a Winn-Dixie market. Underwood declined to comment on whether Preferred Property is considering that option should it gain title to the property.

The Village Council awarded Net5 15,561 square feet of building rights for the Upper Matecumbe Winn-Dixie last June. But the award expired on Feb. 6 after the company didn't obtain a building permit in time. Permits were denied because Net5 failed to secure a cross-access agreement on the neighboring Galleria property and failed to purchase the home of neighboring property owner Bob Johnson -- steps that were required under the company's 2011 site approval.

The cross-access agreement was a particularly difficult impediment due to a lawsuit filed on Feb. 1 by former Galleria owner Mike Anzalone against Rohan and several other parties involved in purchasing that property from Anzalone. In the suit, Anzalone alleges that the buyers have not made payment on the property and asks that the deed be turned back over to him. The suit put an encumbrance on the property, preventing a sign-off on the cross-access deal.

The fight related to the Winn-Dixie property has become a very complicated one, Anzalone's attorney Patty Silver said.

"It is clear as mud, and the reason it's clear as mud is because it is mud," she said.

rsilk@keysnews.com

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