Foreclosure proceedings on property at the stalled convention center and condominium project near Stateline could begin as soon as December.
In response to motions from several of the project's creditors this summer, U.S. Bankruptcy Judge Thomas Holman set a Dec. 21 deadline for sale of the project, once known as the Chateau at Heavenly Village.
If South Lake Tahoe officials are unable to find a buyer for the $420 million project - initially designed to include two luxury condominium hotels, a convention center, a spa and a collection of shops - several of the 29 parcels at the site would be granted relief from an "automatic stay."
"The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition," according to federal court documents.
The project's developer, Lake Tahoe Development Company, filed for chapter 11 bankruptcy in October 2009 after being unable to secure the necessary funding.
City National Bank, which is owed $7 million by Lake Tahoe Development Company, and Hardy Community Property Trust, which is owed about $2.7 million, have pushed for relief from the stay.
Both creditors have repeatedly expressed frustration with the pace of progress in the case.
"In other words, this is a case that is going nowhere while the debtor and perhaps some creditors hope for a miracle to happen with respect to the so-called Chateau Project in a hospitality industry-reliant city hit hard by the economy," said David Meegan, an attorney representing Hardy Community Property Trust, in an Aug. 10 motion requesting relief from the stay.
Holman's decision allows parties involved in the case to file a motion to keep the stay in place, but under only one circumstance.
"The sole ground for any such motion shall be that a bona fide sale of the so-called Chateau Project is in prospect, and that such sale would support a confirmable chapter 11 plan," Holman wrote in a Sept. 22 order.
The automatic stay could be lifted sooner if the city abandons efforts to find a buyer for the project, according to Holman's decision.
Michael Rosenfeld, a potential investor, pulled out of the project in May. Vail Resort's, another potential investor in the project, interest is unknown.
Blaise Carrig, executive vice president of Vail's Mountain Division and former Heavenly Mountain Resort Chief Operating Officer, declined to comment on the company's stance during an interview in May.
Earlier this week, Lake Tahoe Development Company signaled it would withdrawal a reorganization plan it filed with the court on Aug. 10. The plan was set to be discussed at a Tuesday hearing in Sacramento.
The plan could have gotten work on the project restarted, but did not attract the necessary support from creditors. In a court filing this week, Daniel Egan, the attorney representing Lake Tahoe Development Company, said he is hopeful the December deadline will spur development of a workable reorganization plan.
"Debtor believes that the creditors and interested parties must negotiate and develop much greater consensus before a plan may be proposed and confirmed," Egan said. "Debtor is hopeful that the deadline established by Court for granting relief from stay to certain creditors will motivate such negotiation. However, at this point Debtor does not see sufficient consensus to move forward with the current plan."
