Collecting Debt from a Dissolved LLC

[NC Aggie]

(North Caorlina) Any advice would greatly be appreciated. I am a member of a church that sold some property to a developer with an agreement that the developer would pay a lump sum payment at closing and equal monthly payments thereafter for a period of 5 years. The developer who has a long standing business (corporation) set up a LLC to close on the property and to carry out development. Well soon after the property was closed on, development and economy started tanking (2008). The developer still owes the church approximately $40,000 that we've been unable to collect. Since this time, the LLC which we were in contractual agreement with was dissolved by the State. The developer also had 2 other LLCs that we've discovered filed bankruptcy, but we have nothing showing the LLC we had a contract with has or that his main corporation has filed for bankruptcy. We've attempted to use our legal resources but were told that the cost associated with attempting to collect a judgment might not be worth it considering even if we won a judgment we may not collect what's owed.

My question is, what avenues could we pursue or use in an attempt to force this developer to pay what is owed. Should we go after the LLC or the corporation or him personally?

 

[Zigner]

What does your attorney say about this matter? It would be unwise for us to second guess your attorney.

(Maybe it's time to talk to another attorney?)

 

[TheGeekess]

(North Caorlina) Any advice would greatly be appreciated. I am a member of a church that sold some property to a developer with an agreement that the developer would pay a lump sum payment at closing and equal monthly payments thereafter for a period of 5 years. The developer who has a long standing business (corporation) set up a LLC to close on the property and to carry out development. Well soon after the property was closed on, development and economy started tanking (2008). The developer still owes the church approximately $40,000 that we've been unable to collect. Since this time, the LLC which we were in contractual agreement with was dissolved by the State. The developer also had 2 other LLCs that we've discovered filed bankruptcy, but we have nothing showing the LLC we had a contract with has or that his main corporation has filed for bankruptcy. We've attempted to use our legal resources but were told that the cost associated with attempting to collect a judgment might not be worth it considering even if we won a judgment we may not collect what's owed.

My question is, what avenues could we pursue or use in an attempt to force this developer to pay what is owed. Should we go after the LLC or the corporation or him personally?

The property still exists?

 

[Antigone*]

(North Caorlina) Any advice would greatly be appreciated. I am a member of a church that sold some property to a developer with an agreement that the developer would pay a lump sum payment at closing and equal monthly payments thereafter for a period of 5 years. The developer who has a long standing business (corporation) set up a LLC to close on the property and to carry out development. Well soon after the property was closed on, development and economy started tanking (2008). The developer still owes the church approximately $40,000 that we've been unable to collect. Since this time, the LLC which we were in contractual agreement with was dissolved by the State. The developer also had 2 other LLCs that we've discovered filed bankruptcy, but we have nothing showing the LLC we had a contract with has or that his main corporation has filed for bankruptcy. We've attempted to use our legal resources but were told that the cost associated with attempting to collect a judgment might not be worth it considering even if we won a judgment we may not collect what's owed.

My question is, what avenues could we pursue or use in an attempt to force this developer to pay what is owed. Should we go after the LLC or the corporation or him personally?

This is much bigger than any help an internet forum can provide. I suggest that you as a member as your vestry or church board to seek the services of an attorney. I would also recommend that your church vestry not engage in any other significant contract unless advised by counsel. Had this deal be done correctly (I assume there are many holes in this deal allowing the developer to skate), the church would have been better protected.

 

[tranquility]

This is much bigger than any help an internet forum can provide. I suggest that you as a member as your vestry or church board to seek the services of an attorney. I would also recommend that your church vestry not engage in any other significant contract unless advised by counsel. Had this deal be done correctly (I assume there are many holes in this deal allowing the developer to skate), the church would have been better protected.

I agree. This stinks in a lot of ways. One might be allowing an LLC with no history to close on the property. Another gets to the fact there seems to be no security interest or else the obvious choice is to foreclose. Also, there is the fiduciary duty problems of the people who made this decision. If things really went so far south with so many problems, they may have a personal problem too.

 

[NC Aggie]

What does your attorney say about this matter? It would be unwise for us to second guess your attorney.

(Maybe it's time to talk to another attorney?)

We've worked with a hired attorney previously, but they've done nothing more than research and send letters to the developer. After spending thousands of dollars to no avail and based on the advice of the attorney that we were unlikely to collect any money because the developer's assets (primarily properties) had already been liquidated, we decided to use our in house resources to attempt to collect at least a portion of what is owed. We do have a member of our church that is a lawyer, though this type of legal issues isn't their area of expertise. The problem we've ran into up until now is that we've been unable to track down the developer as he's no longer operating his businesses the previous addressess and phone numbers we had are no longer active.

 

[Antigone*]

We've worked with a hired attorney previously, but they've done nothing more than research and send letters to the developer. After spending thousands of dollars to no avail and based on the advice of the attorney that we were unlikely to collect any money because the developer's assets (primarily properties) had already been liquidated, we decided to use our in house resources to attempt to collect at least a portion of what is owed. We do have a member of our church that is a lawyer, though this type of legal issues isn't their area of expertise. The problem we've ran into up until now is that we've been unable to track down the developer as he's no longer operating his businesses the previous addressess and phone numbers we had are no longer active.

The sad thing Aggie is that the legal work to protect the church up front doesn't appear to have been done. When you made this loan, why weren't additional guarantys taken, did the church look for an obtain any secondary support? These are just a couple of things that should have been part of the initial lending package to this developer. As sad as it is to say, it looks like the church may just be out of luck.

 

[NC Aggie]

To a couple of additional responses, I concur 100% that the initial details of the contract and circumstances stunk but at the risk of providing too many details that might identify our church or individuals involved, let's just say that most of the people who represented the church at that time this deal was made are no longer members of the church. Most of the members of the church board who are working on this issue now were not around or active on the board when the initial real estate transaction was completed.

Secondly, the property still exists, however, the bank has foreclosed on the property. We never did file a lien on the property prior to foreclosure so we weren't even listed as a secondary lien holder.

 

[tranquility]

You might go after the board members. (Especially the ones gone.) Was there E&O insurance?

As to finding the developer, get a private detective.

 

[NC Aggie]

You might go after the board members. (Especially the ones gone.) Was there E&O insurance?

As to finding the developer, get a private detective.

We wouldn't go after current or past board members. Their previous decisions and actions were definitely unwise, but not necesarily negligent. Based on my assessment, I think they were just not equipped with the expertise and judgment on matters of this nature to advise the church.

In the past month since we've started looking into this matter, we have been able to determine that the developer still owns at least 2 residential properties, one of which is his primary residence. I guess what we're in the process of trying to determine now is what would be the best course of action to take.

 

[tranquility]

We wouldn't go after current or past board members. Their previous decisions and actions were definitely unwise, but not necesarily negligent.

Failing to get a security interest on the sale of a property over time is going to be a breach of their fiduciary duty. Allowing an LLC without substantial assets and history to close probably would be too. If they did not have the expertise to understand the actions they took, they had a duty to get advice from an expert. But, many boards of non-profits have insurance for their members to cover just such problems.

Re-reading edit:
Piercing the veil of the LLC is probably going to be hard and why your attorney didn't really give you much joy.

 

[Zigner]

We wouldn't go after current or past board members. Their previous decisions and actions were definitely unwise, but not necesarily negligent. Based on my assessment, I think they were just not equipped with the expertise and judgment on matters of this nature to advise the church.

In the past month since we've started looking into this matter, we have been able to determine that the developer still owns at least 2 residential properties, one of which is his primary residence. I guess what we're in the process of trying to determine now is what would be the best course of action to take.

If the current board members don't go after the former board members for their negligence, then they may be breaching their fiduciary duties to the church.

 

[NC Aggie]

Failing to get a security interest on the sale of a property over time is going to be a breach of their fiduciary duty. Allowing an LLC without substantial assets and history to close probably would be too. If they did not have the expertise to understand the actions they took, they had a duty to get advice from an expert. But, many boards of non-profits have insurance for their members to cover just such problems.

Re-reading edit:
Piercing the veil of the LLC is probably going to be hard and why your attorney didn't really give you much joy.

Well I don't think fiduciary duties would apply because our boards are structured more as "advisory boards". Major decisions are decided upon by the church congregation as a whole with secondary approval from the church conference we are affiliated with. So any vote to move forward with the terms of sale were approved by the congregation, not by the board.

 

[tranquility]

Well I don't think fiduciary duties would apply because our boards are structured more as "advisory boards". Major decisions are decided upon by the church congregation as a whole with secondary approval from the church conference we are affiliated with. So any vote to move forward with the terms of sale were approved by the congregation, not by the board.

As you say. Are you a corporation?

I understand why you wouldn't want to go after them, but someone's got to take responsibility at some point for the organization's actions. It's not going to be each church member unless it is an association where all would have unlimited liability.

 

[NC Aggie]

As you say. Are you a corporation?

I understand why you wouldn't want to go after them, but someone's got to take responsibility at some point for the organization's actions. It's not going to be each church member unless it is an association where all would have unlimited liability.

I think at this point, the church congregation has moved on from the sour grapes of the whole fiasco. And itt's not as if the church walked away empty handed, most of the money for the sale of the land was paid upfront. However, my board is making one last ditch attempt to collect the balance of what is still owed before writing it off our books.