A local attorney will oversee operations of the Lotus at Diamond Head hotel while a lender pursues foreclosure against the Waikiki hotel’s nonprofit owner, Unity House.

A Circuit Court judge appointed Miles Furu­tani to act as receiver for the property last week after lender MK Pacific LLC argued that an independent administrator should ensure proper handling of income from the boutique 51-room hotel.

MK Pacific claims it is owed $5.9 million on a $5.5 million loan it made to help Unity House buy the hotel in December 2009 for $8.5 million. The loan matured last December, and the lender filed a foreclosure lawsuit in February to repossess the hotel and Unity House’s Waikiki headquarters building that also secures the loan.

The lender has not filed a motion for summary judgment, which a judge would need to approve before a foreclosure auction could be held.

During receivership, Castle Resorts & Hotels, which manages the Lotus, will continue running the hotel.

Unity House unsuccessfully argued against appointing a receiver, but is hopeful that it can refinance its delinquent loan and move ahead with a plan to convert Lotus hotel rooms into condominium units for sale.

"We’re doing our best to pay (MK Pacific) off … and we will," said Jim Boersema, Unity House chairman.

San Mateo, Calif.-based TDA Investment Group Inc. has expressed interest in providing Unity House with a roughly $8 million loan to pay off MK Pacific and help finance the conversion proj­ect, according to documents filed in the foreclosure case.

TDA, which manages pension fund money, submitted a letter of intent to make the loan, though it could be early May or June before refinancing is finalized if TDA moves forward with the investment.

The condo conversion plan by Unity House contemplates selling the hotel units at the Lotus as condos for around $300,000 apiece to potentially generate $15 million in proceeds.

MK Pacific, whose principals include Roger May and Peter Kuttel, made its loan to Unity House based on the conversion plan that called for Unity House and the lender to split proceeds 50-50 after repayment of investment contributions. Total projected profit was $2 million to $3 million plus keeping ownership of a penthouse and the hotel’s second-floor restaurant and nightclub space.

But the loan matured before Unity House could execute its conversion plan.

The hotel turns a modest profit, according to court filings. Net profit from the Lotus was $291,496 last year, up from $14,100 in 2009.

MK Pacific said in court filings that it doesn’t trust Unity House, which is dealing with financial constraints, to handle hotel income.

Unity House is a 60-year-old nonprofit with investments intended to provide income to fund charitable programs it operates for organized laborers and their families and supporters. But the organization has been forced to suspend several programs over the last couple of years as real estate and stock markets have faltered.

Holding on to the Lotus and profiting from a condo conversion of the property would help the organization restore some of its lost financial strength. The nonprofit also is trying to sell its office building at 1701 Ala Wai Blvd. for $3.9 million.