Morgan City is short at least $814,000 in taxes owed to a special improvement district by Mount Joy, LLC, a local developer now involved in bankruptcy court proceedings. Without payment, Morgan City officials may have to cut costs or reduce services to make a $103,000 bond payment June 1. Developer Gray Jensen said things are in the works that could help the city make the payment. Morgan City has taken legal actions against Mount Joy to recover bond payments for the Mount Joy Special Interest District, Morgan City Mayor Jim Egbert said. Until the foreclosure process is completed, Morgan City may be responsible to make these payments. Making these payments would place a hardship on the city’s general fund and could result in a reduction of services to our residents. The city is resolutely pursuing legal action to recover any and all financial burdens placed on the city by Mount Joy. Mount Joy is associated with developments in the county including Mahogany Ridge, Quail Hollow, Quail Ridge, Valley View Estates, Mountain View Estates, and an assisted living facility. Approximately 90 of an approved 394 units have been built and are now occupied by homeowners. Current zoning could mean a total of 1,005 units. Unfortunately, sales at the project have not developed at the pace anticipated, according to documents filed in the Salt Lake City division of the United States Bankruptcy Court. Mount Joy owes Morgan City for a special improvement district created to provide utility infrastructure for the developments. When the SID was created in 2000, debt totaled $1.7 million. It was envisioned the SID would be prepaid on an annual basis and collected with the issuance of building permits, at $3,740 per permit. Jensen said the special improvement district helped utilities city-wide, including increasing pressure of water lines to meet fire code. According to an amended Chapter 11 bankruptcy plan of reorganization filed April 23, Morgan City holds a secured claim against the debtor’s collateral and will retain its lien rights. Morgan City shall be paid the full amount of its allowed claim upon sale of the respective assets of the reorganized debtor upon which it holds a lien or such other negotiated amount as agreed by Morgan City, documents read. The plan spells out that the debtor will pay Morgan City $150,000 by Oct. 19, 2012, and another $150,000 by May 15, 2013. The full outstanding balance must be paid to the city by March 15, 2014. Mount Joy is endeavoring to obtain a capital infusion or a sale of the underlying assets in order to make cash available to Morgan City to satisfy all or a negotiated portion of its obligations, read court documents. If the debtor fails to make timely payments according to the plan, the city shall be entitled to entry of an order of relief from the automatic stay. Court documents hint that there could be consequences if Morgan City doesn’t receive the payments. Morgan City has obligations which it must meet pursuant to bonding agreements with a third party bank, according to the court documents. According to a reply drafted April 2 by Morgan City and filed in court, the city may have to make payments for Mount Joy from the general fund for the next two years. Based on Morgan City’s limited resources, this will likely require Morgan City to cut costs and reduce services. On May 2, attorneys for Morgan City wrote in court documents that the bankruptcy plan does not provide for timely payment of the city’s bond obligation. A payment of $103,000 is due June 1, and the city may have to pull from the general fund to make the annual bond payment for Mount Joy’s property. If the debtor cannot propose a plan acceptable to the city that allows the city to meet its obligations, then the city is not adequately protected in this case, according to court comments made at an April 9 hearing. The debtor is shifting the risk and burden to Morgan City and indirectly to residents of Morgan City. Jeremy R. Cook, attorney for Morgan City, asked the court on May 2 to terminate the automatic stay and allow Morgan to foreclose its lien on the encumbered property and exercise its other non-bankruptcy rights. Both Cook and Jensen agree that a July 2 sheriff’s sale of a portion Mount Joy’s property between Old Highway Road and Interstate 84 could help the city make the bond payment. The city is optimistic that the proceeds will generate sufficient funds to reimburse any amounts paid from the general fund, and that Morgan City will not be required to cut any services, Cook said in an e-mail. That is true this year, but if this is not resolved, we may (have to cut services) in the future, Egbert said. Mount Joy also owes Morgan County $101,549 in property taxes for the years 2008, 2009, 2010, and 2011, said Morgan County Treasurer Bonnie Thomson. Under the reorganization plan, the debtor plans to repay the taxes upon sale of assets to a third party. Jensen said a sale is pending and likely to close soon. Bankruptcy court records list Gray and Linda Jensen as members of Mount Joy, a limited liability company created in 2003. The couple is being represented by Darin Hammond of Ogden-based Smith Knowles, P.C. Morgan Intermountain, LLC is listed in court documents as company also owned by Gray and Linda Jensen that is separate from Mount Joy but associated with the project. A general contractor, Morgan Intermountain was employed to construct infrastructure for Mount Joy and is listed as one of Mount Joy’s general unsecured creditors. Mount Joy had originally made financing plans with America West Bank, which failed May 1, 2009, and was subsequently taken over by the FDIC. Town and Country, LLC, was a third-party builder involved in the same project that also obtained financing through America West Bank. Through the financing tumult, Mount Joy eventually could not complete projects because the company had no more liquidity, according to court documents. When a 2010 annual Morgan City SID payment became due, Mount Joy was using all of its equity to finish projects started by Town and Country, and thus could not pay. About the same time, the FDIC had turned over rights associated with America West notes to a new entity: 2010 SFR Venture, LLC, also known as Turning Point and/or IServe. At the time, Mount Joy owed SFR Venture $2 million. A new agreement negotiated between the two parties allowed Mount Joy to pay SFR $1.2 million over time through lot sales. In the meantime, SFR would take over the lots and assist in finalizing construction, according to court documents. In June of 2010, Morgan City filed a notice of default for Mount Joy’s property. In order to avoid foreclosure, the debtor entered into an agreement with the city in February of 2011 to make partial payments of the past due amount. Mount Joy has attempted to pay creditors. But some additional creditors still remain, including: ¢ Morgan Intermountain, LLC, $709,533 ¢ SFR, $600,000 ¢ Source One, $112,000 ¢ Hardy Investments, $110,000 ¢ Morgan Asphalt, $53,250 I have never had any hesitancy to make sure everyone is paid, said Jensen, who said he has invested $6 million of his own money into his developments, and then re-invested another $2 million. His investments were not enough to take on the failure of multiple financial institutions like America West, Barnes Bank, and Centennial Bank. I will lose most of my position in this, but I want everyone paid. I wasn’t over-leveraged, Jensen said. I was just caught between a rock and a hard place. Since Mount joy filed for bankruptcy Aug. 24, 2011, real estate agent Scott Kay, with Mountain Luxury Real Estate and Development, has been appointed to sell all of Mount Joy’s property. I like it here, said Jensen, a Porterville resident. There are a lot of nice people here. I want to see something nice. I will have to start over.