County takes first step toward Oceanside foreclosure

Hawaii County officials have asked a federal bankruptcy court to allow them to foreclose on $20 million worth of South Kona land.

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Hawaii County officials have asked a federal bankruptcy court to allow them to foreclose on $20 million worth of South Kona land.

Deputy Corporation Counsel Joseph Kamelamela on April 11 filed the motion to lift the automatic stay put in place when 1250 Oceanside Partners declared bankruptcy several years ago. Kamelamela said the county had been awaiting the $20 million Oceanside owed it to complete the Mamalahoa bypass since 2012.

In the proposed Chapter 11 reorganization plan, “it was provided that the $20 million owed to (County of Hawaii) would be paid in full on the due date of March 23, 2014,” Kamelamela wrote. “However, due to various objections by certain creditors, the confirmation hearing for the Chapter 11 Plan has been postponed to May 12, 2014, leaving (County of Hawaii’s) position impaired and placing the county mortgage note in default. Moreover, with significant opposition to the plan, there is no guarantee that the $20 million note will be paid if the plan is not confirmed.”

A preliminary hearing for the county’s request is set for May 7.

“I understand why the county filed that request with the court,” Chief Restructuring Officer Rick Robinson said. “We’re still looking at a May 12 confirmation hearing. We hope to make that date and pay the county.”

The foreclosure would be for land — 80 lots — 1250 Oceanside Partners used to secure the $20 million it still owes the county to build the bypass. A 2012 settlement ordered Oceanside to give the county $12.5 million and either build the road or pay another $20 million to the county.

Kamelamela provided the court with details about the properties sought in the foreclosure.

“In the event that confirmation of the plan is further delayed, or the plan is not confirmed, (County of Hawaii) should be allowed to exercise its rights and remedies, including the right to foreclose on the mortgaged property forthwith,” he wrote.

Hawaii County has moved ahead on building the remainder of the bypass, which will run from the Halekii Street intersection to Napoopoo Junction. The road — promised by developers in the late 1990s as a public benefit of the Hokulia project in South Kona — has been on the books since the 1970s. Developers were able to construct the first half, from Alii Drive to Halekii Street in Kealakekua, but work stalled during protracted litigation relating to unsuccessful attempts to take land for the second half by eminent domain.

The confirmation hearing for the bankruptcy plan is set for May 12. It had originally been set for April 2, which still would not have allowed Oceanside to meet its March deadline. Third Circuit Court Judge Ronald Ibarra set the March 2014 deadline while wrapping up a case in which Hawaii County sued for a bonding company to pay up for the road not being completed.

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Batiste Creditors, one of the creditors named in the lawsuit, requested the hearing be delayed to allow for more time for discovery.

The Department of Public Works extended the deadline to submit bids for the remaining 2.2 miles of bypass until Thursday. Public Works Director Warren Lee told West Hawaii Today in March the road could still be finished in 2015. It’s anticipated to cost about $30 million.

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