Injunction filed against Bend 1031 exchange

By Andrew Moore
The Bulletin

April 03, 2009

PORTLAND — A preliminary injunction was filed Thursday in U.S. Bankruptcy Court against the four principal officers of Summit 1031 Exchange, a Bend company that filed for Chapter 11 bankruptcy protection in December after revealing it didn’t have enough cash to complete its clients’ real estate transactions.

The order prevents Mark Neuman, Brian Stevens, Lane Lyons and Timothy Larkin, all of Bend, from exercising control over any property they own or is owned by other entities they control wholly or in part, with exemptions for some personal property, according to the case’s court-appointed bankruptcy trustee, Kevin Padrick.

The injunction also prevents Summit’s creditors from filing separate claims against the principals unless first coordinated with Padrick.

In addition, the order would attach liens in favor of the bankruptcy trustee against those properties not exempted. According to the proposed liquidation plan for Summit, such properties would be placed in a trust for liquidation to repay creditors.

The exact language of the order had been a stumbling block between the parties involved.

Summit Accommodators Inc., doing business as Summit 1031 Exchange, specialized in 1031 exchanges, which refer to the section of the federal tax code that allows property owners to defer capital gains taxes when selling a piece of property as long as a new property with equal or greater value is purchased within 180 days of the sale.

Summit, as a 1031 company, also called a qualified intermediary, was responsible for holding the sale’s proceeds and using the money to arrange the purchase of the new property because the Internal Revenue Service forbids the property owner from touching the sale proceeds.

Qualified intermediaries generally deposit the proceeds in bank accounts or other liquid assets that can easily be converted into cash when clients request the money be applied to the new property. There are no regulations regarding how the money is to be held.

According to the proposed Modified Disclosure Statement for the Modified Joint Plan of Liquidation of Summit Accommodators dated March 31, Summit funneled money from its clients to Inland Capital Corp. without their clients’ consent or knowledge.

Inland Capital lists Lyons, Neuman and Stevens as officers, according to the Oregon Secretary of State.

Inland then loaned the money to one or more of the principals and other entities for the purchase of investment property, according to the disclosure statement. Money also was loaned to third parties for purchase of investment properties, according to the disclosure statement. Most of the properties were in Central Oregon.

As the real estate market soured, Inland found it difficult to sell its investment properties as well as collect payments from its borrowers, according to the disclosure statement.

Objections to the statement must be filed with the Bankruptcy Court by April 29.

When the company filed for Chapter 11 bankruptcy, it claimed it was short approximately $14.2 million out of a total of $27.8 million due its clients.

According to the filing, the principals are under investigation by several state and federal agencies, including the U.S. Department of Justice.

A hearing will be held May 6 in U.S. Bankruptcy Court in Portland to approve the trustee’s liquidation plan.

Attempts to contact Neuman, Stevens and Larkin were unsuccessful. Lyons said he was unable to comment.

Andrew Moore can be reached at 541-617-7820 or at amoore@bendbulletin.com.

Copyright 2009