POSTED: 1:30 a.m. HST, Jan 23, 2013
A couple behind a once-prominent Maui mortgage brokerage is seeking Chapter 11 bankruptcy protection from debts that include unpaid mortgages and loans against more than two dozen properties in Hawaii and Idaho.
Kathleen Patricia Morris and David Duffy Herman's court and legal documents indicate between 100 and 199 creditors, and between $1 million and $10 million in estimated liabilities, the Maui News reported. The couple's voluntary petition requires only an estimated range of creditors, assets and liabilities.
The couple said in a joint bankruptcy filing that the debts are tied to their Kihei-based company, Hawaii's Premiere Mortgage Co. A reorganization plan proposes paying the first mortgage holders or most senior secured creditors on 26 properties monthly payments at 3.5 percent interest over 20 years. Multiple creditors are against the plan.
According to court and legal documents, Morris would broker short-term loans to borrowers using money from private individuals. The loans would be secured by real estate, often with multiple mortgages stacked against a single property.
A listing of Morris' and Herman's creditors holding the 20 largest unsecured claims shows bank loans, credit card balances, deficiency judgments and money owed on multiple residences on Maui and Hawaii island totaling more than $5.9 million, according to bankruptcy court documents.
The Office of the U.S. Trustee, a watchdog for the bankruptcy process, is asking the court to either convert the case to a Chapter 7 bankruptcy, which would trigger a liquidation of assets to pay off creditors, or dismiss the Chapter 11 bankruptcy protection filing.
Acting U.S. Trustee Tiffany Carroll has argued that Morris and Herman have concealed assets, failed to disclose bank accounts and diverted substantial amounts of rental income into a business account they said was inactive.
The Honolulu lawyers for Morris and Herman did not immediately return calls or emails from the Maui News seeking comment.
The couple said in court statements that their finances took a hit after Herman suffered a heart attack in Idaho in 2009. They initially filed for bankruptcy protection in Idaho, but the case has been transferred to Hawaii.
Morris and Herman are named in more than a dozen state civil lawsuits, including ones filed by condo owner associations and banks, according to court documents. They also have pending nonjudicial foreclosure cases against four of their Maui properties.