The Essence of the Bankruptcy Hearing
The entire ruling of Case 13-07906-B-SWH is available on your POA website, and FACTS urges every property owner to read it . However, since that may be difficult or impractical, we’ve attempted to provide some points which, in our opinion, are critical to understanding Judge Humrickhouse’s decision. We’ve included the pages from which we’ve taken this summary, for your reference.
Terms used: real covenant (because it concerns the land, or real estate) : These are promises that concern the use of the land, and can be affirmative, promising to do something with the land, or negative, a promise not to do something with the land. A real covenant is deemed to “run with the land” and can be binding upon every owner of the land to which it applies, provided certain requirements are met.
(See http://legalmatch.com/law/article/property-law-real-covenants.html for more details.)
A personal covenant is a promise between individuals to do, or to refrain from doing something. It is legally binding on the parties involved, but not upon the land, or its subsequent owners.
The document:
It’s important to realize the document stresses that the only covenant at issue, and the only covenant that MidSouth asked the court to negate, was the obligation on any subsequent buyer to maintain and operate the recreational amenities on the 385 acres MidSouth now owns within Fairfield Harbour. (p.2)
None of the previous decisions rendered by the state courts specifically dealt with the “maintenance covenant.” (p.3) Judge Noble’s decision dealt only with whether or not MidSouth had violated its contractual obligation to maintain the amenities. And, he specifically stated that his decision to dismiss MidSouth’s argument “was not to be relied on for any other purpose. “ (p.27)
Thus, Judge Humrickhouse decided that none of the previous decisions had any bearing on whether the maintenance covenant is a real, or a personal covenant. She further declared that even if the maintenance covenant was real, and ran with the land, the property could, and should be sold free and clear of that covenant.
The 2007 Timeshare suit argued that MidSouth could not force them to pay amenities fees because the maintenance covenant between them and MidSouth was a personal one, and did not run with the land. Ironically, MidSouth argued that the covenant was real, and therefore binding. The court ruled that it was not. Judge Humrickhouse references the decision in this ruling to support MidSouth’s present claim that the maintenance covenant should be considered personal, and not binding upon any subsequent owner. (p.34)
While Judge Humrickhouse acknowledges that according to the Rooker-Feldman doctrine rule, a federal court does not have jurisdiction to review the decisions made by state courts or claims”inextricably intertwined with an earlier state-court judgment.” She admits, however, that these opinions “inform” her, and she has used that “information” to “predict how that earlier court would rule if presented with the issue.” She also feels free to disregard such information if she is convinced “by other persuasive data that the highest court of the state would decide otherwise.” (p.28)
She cites the Daufuskie case in which the bankruptcy court for the District of South Carolina ruled that a trustee could sell property protected by a real covenant, free and clear of that covenant provided that the covenanted area had undergone “fundamental and radical changes.” (p 43) MidSouth used the presently unmarketable status of the property to illustrate the “fundamental and radical changes” in its circumstances which have occurred since September, 2011 and argue that these changes are sufficient to merit the covenant’s termination. Simply put, the land is unmarketable with the maintenance requirement. The judge believes that, with this requirement removed, the bankruptcy impasse will be resolved, and the “case will proceed to confirmation.” (pp 49-50)
The document concludes with this paragraph:
“For the foregoing reasons, the court determines that the maintenance covenant is not a real covenant and does not run with the land. Alternatively, the court finds that even if the maintenance covenant was a real covenant, debtor MidSouth may seek to establish during confirmation that the doctrine of changed circumstances applies. The court’s familiarity with this matter leads it to expect that MidSouth probably will be successful in that effort, in which event the court will permit MidSouth to sell the Property free of the maintenance covenant within its confirmed chapter 11 plan. Also to be determined in confirmation is the amount of Fairfield’s claim.“(p.51)
Your FACTS Reporter