Vol. 16 Issue No. 4 | January 27 – February 2, 2010

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Carefree Resort bankruptcy trustee demands reimbursement

By Linda Bentley | January 27, 2010

CAREFREE – Topics for discussion during the Jan. 5 Carefree Water Company board meeting included a Dec. 4, 2009 demand for payment letter from Attorney Alexandra Hicks of Ryley Carlock & Applewhite, on behalf of David A. Birdsell, the Chapter 7 trustee of the Carefree Mule Train Ventures, LLC bankruptcy estate, which operated Carefree Resort & Villas, commonly referred to locally as the Carefree Inn.

The Estate filed for bankruptcy on Nov. 21, 2009 and Birdsell was appointed trustee on May 8, 2009.

Hicks explained, “The principal duties of the trustee are to reduce all cash property of the bankruptcy estate and distribute the cash proceeds to creditors. This includes recovering money from creditors that received preferential payments before the bankruptcy case was filed. Section 547(b) of the Bankruptcy Code provides for the recovery of transfers made to creditors during the 90-day period prior to bankruptcy,” noting, in this case, it would cover all transactions that cleared between August 22, 2008 and Nov. 21, 2008.

After reviewing the resort’s bank records, Hicks said Carefree Water Company received three payments totaling $30,223.71 during the preference period and stated, “[T]herefore, you are required by law to return to the trustee this and any other transfer … made during the preference period.

Hicks gave Carefree Water a deadline of Dec. 30, 2009 to reimburse the money “in order to avoid litigation.”

A Dec. 8, 2009 fax sent to Town Attorney Tom Chenal by Stan Francom, general manager of Carefree Water, forwarding Hick’s letter, stated, “I am extremely hesitant to pay anything as I know that I will never see it again under the best of circumstances. It would be interesting to see if APS and Southwest Gas also were requested to do the same thing.”

Court records indicate both APS and Southwest Gas were requested to do the same.
A subsequent note to Chenal on Dec. 11 indicated the payments for June, July and August 2008 water bills, in the amounts of $9,283.24, $10,890.33 and $10,050.14, respectively, were all received from the resort on Oct. 28, 2009, which falls within the preference period.
Also during the water company meeting, Francom asked the board of directors (town council) to consider adoption of a new policy to address a continuing problem with homeowners abandoning their homes and leaving water bills unpaid.

Francom said, “For us to place a lien on the home for the past due water bills we are required to have a judgment rendered by the court.

The current policy provides for a 10-day notice of disconnection after a customer’s account becomes 60 days delinquent.

Many times, Francom said, the customer will contact the water company after receiving the 10-day notice and they work out a payment schedule, make the initial payment to avert service being shut off for another expanse of time, during which they abandon the property owing the prior balance plus what they’ve used since.

According to Francom, a lending institution or real estate broker will occasionally pay the bill to have the water turned back on. However, many times there is nothing the water company can do if the homeowner has left the state.

Francom suggested implementing a policy to remove the meter so no water use can continue during a short sale or foreclosure proceeding.

Then, when the new owner wants to reconnect the water, they would impose a special meter re-installation charge equal to a portion of the unpaid balance of the previous owner’s account.

He said the water company would then provide the current owner and their real estate broker notice of the anticipated meter reinstallation fee so they would have to disclose that information to potential buyers prior to the home’s sale.

The board of directors, however, scoffed at the idea of charging new homeowners with a previous owner’s personal debt.

Francom stated there were a few abandoned properties with balances owed to the water company ranging from $500 to $2000.

Chenal suggested the water company utilize small claims court, where attorneys are not allowed, to obtain judgments and then liens against the property. The board agreed that would be a policy worth implementing, setting the threshold at $500.