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County to begin foreclosure for Oceanside land

March 25, 2014 - 12:05am

Hawaii County is preparing to ask a federal bankruptcy judge to lift a stay and allow corporation counsel to initiate foreclosure proceedings on 80 acres of oceanfront land in South Kona.

Mayor Billy Kenoi said Monday the decision to begin the foreclosure process gives the county more options as it gears up to build the long-awaited Mamalahoa bypass. 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 $20 million to the county.

“It’s putting on notice the bankruptcy court and the debtors that the county is moving ahead,” Kenoi said. “We’re certainly disappointed that the county did not receive our $20 million. We will move forward.”

The deadline for Oceanside to pay the county was Sunday.

At the same time, corporation counsel will represent the county’s interest at a May hearing to confirm Oceanside’s bankruptcy plan. That hearing was scheduled for April 2, but was delayed last week, the second speed bump in a week for the bypass project. Public Works Director Warren Lee said last week bidders would get another month to prepare their proposals for the project.

“I’m always concerned,” Deputy Corporation Counsel Joseph Kamelamela said of the delay. “We actually have a project being bid out.”

Oceanside’s Chief Restructuring Office Rick Robinson said he and other Oceanside officials are ready for the bankruptcy plan to be finalized.

“We desperately want to get out of bankruptcy,” Robinson said Monday, adding the company and its lender want to “start restoring life to the project.”

Even the April 2 hearing date would have left Oceanside “in default, or in breach, of the terms and conditions of the mortgages that required 1250 Oceanside to pay the County $20 million by March 23,” Kamelamela wrote, noting the county had already completed the highway’s design and published a notice to bidders.

Kamelamela said one of the parties in the lawsuit, Batiste Creditors, requested the hearing be delayed to allow for more time for discovery.

“Under the request to continue the confirmation hearing by the Batiste Creditors, discovery would not be completed, nor the proposed plan confirmed, long after that $20 million secured claim is due,” he wrote. “Neither the Batiste Creditors, nor any other party, has addressed whether and by what mechanism the county’s claim would be more promptly paid if the proposed plan is not confirmed by April 2.”

Under the 2012 settlement, if Oceanside opted not to build the road, it was required to pay the county $12.5 million in cash and secure another $20 million with a mortgage. The restructuring plan, which Oceanside filed with fellow debtors Pacific Star Co. LLC and Front Nine and their lender, Sun Kona Finance 1 LLC, in September, called for paying the county, not building the road. Hawaii County officials proceed with design work and began the bidding process earlier this year.

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