Bankruptcy Petition Referenced in Letter to UDF Auditor and Commentary
Buffington
Involuntary
Bankruptcy
Petition
Overview
United
Development
Funding
(UDF)
1
Attached
is
the
involuntary
bankruptcy
petition
filed
in
the
United
States
Bankruptcy
Court
for
the
Western
District
of
Texas
(W.D.
Texas
15
‐
11548
‐
hcm)
by
UDF
III
related
to
UDF
III
and
UDF
IV’s,
second
largest
“non
‐
affiliated”
borrower,
a
private
real
‐
estate
developer
based
in
Austin,
Texas,
whose
principal
executive
is
Thomas
Buffington
(“Buffington”).
Buffington
accounts
for
25%
of
the
outstanding
loans
issued
by
UDF
III
and
11%
of
the
outstanding
loans
issued
by
UDF
IV,
and
accordingly
Buffington
is
material
to
both
UDF
III
and
UDF
IV.
On
November
30,
2015,
UDF
III,
as
the
petitioning
creditor,
filed
an
involuntary
bankruptcy
petition
listing
Lennar
Buffington
Stonewall
Ranch,
L.P.
as
the
debtor,
an
affiliate
and
entity
controlled
by
Buffington.
The
amount
of
the
claim
is
$106.5
million,
which
represents
approximately
25%
of
UDF
III’s
total
assets.
It
does
not
appear
that
UDF
III
has
sufficiently
reserved
against
the
Buffington
Loans
given
that
(i)
only
$5.3
million
of
allowances
for
loan
losses
on
“loans
individually
evaluated
for
impairment”
had
been
accrued
as
of
the
Form
10
‐
Q
filed
for
the
quarter
ended
September
30,
2015,
and
(ii)
only
$36.0
million
of
loans
were
classified
as
level
2
loans
which
indicates
“full
collectability
of
loans
[is]
more
likely
than
not,
but
not
probable
”
as
opposed
to
level
1
which
indicates
“full
collectability
of
loans
[...]
is
considered
probable”.
Either
a
housing
crisis
hit
the
greater
Austin
‐
Round
Rock
MSA
following
the
filing
of
the
Form
10
‐
Q
on
November
16,
2015,
or
there
appear
to
be
issues
with
financial
disclosures.
In
a
Form
8
‐
K
filed
with
the
SEC
on
December
14,
2015,
management
feebly
attempts
to
reassure
its
investors
stating
“[o]n
November
30,
2015,
UDF
III
filed
an
involuntary
bankruptcy
petition
against
a
borrower
that
owns
one
specific
development
project
in
order
to
protect
UDF
III’s
collateral
position
after
an
approximately
$3
million
senior
lender
posted
the
property
for
foreclosure.
The
value
of
the
project
is
significantly
greater
than
the
amount
of
debt
owed
to
the
senior
lender
”
and
the
involuntary
bankruptcy
filing
by
UDF
III
was
“a
strategic
move.”
This
“explanation”
rings
hollow.
Management
has
essentially
admitted
that
its
second
largest
“non
‐
affiliated”
borrower
(Buffington)
cannot
meet
its
financial
obligations.
More
telling
is
management’s
glaring
omission
–
management
does
not
claim
that
the
value
of
the
project
is
greater
than
the
amount
of
debt
owed
to
both
senior
lender
and
UDF
III
.
As
the
junior
lender,
UDF
has
the
right,
but
not
the
obligation,
to
cure
the
default
of
the
senior
loan
to
protect
its
second
lien.
Based
on
UDF
III’s
Form
10
‐
Q,
UDF
III
only
had
$136,488
of
cash
at
September
30,
2015,
and
could
not
cure
the
default
with
its
cash
position.
Therein
lies
the
problem:
if
UDF
III’s
borrower
(Buffington)
is
insolvent
and
the
junior
lender
(UDF
III)
lacks
the
liquidity
to
cure
the
third
‐
party
senior
lender’s
loan
in
default,
UDF
III’s
collateral
enters
bankruptcy,
typically,
or
is
foreclosed
upon.
To
make
matters
worse,
management
provided
another
misleading
response
as
to
why
it
has
failed
to
timely
pay
its
debts.
Management
states
that
“[w]hile
negotiating
a
modification
to
its
line
of
credit
from
a
regional
bank,
UDF
III
requested
an
extension
of
a
scheduled
principal
payment.
The
payment
was
made
subsequent
to
September
30,
2015.”
Management
would
have
investors
believe
that
the
continual
pattern
of
UDF
III’s
inability
to
pay
a
quarterly
amortization
payment
is
actually
just
a
standard
loan
modification.
However,
in
almost
every
form
10
‐
Q
filed
since
the
issuance
of
the
loan
to
UDF
III
in
March
2014,
there
is
a
disclosure
about
UDF
III’s
inability
to
pay
(see
citations
below).
UDF
III’s
inability
to
pay
its
debt
in
a
Buffington
Involuntary
Bankruptcy
Petition
Overview
United
Development
Funding
(UDF)
2
timely
manner
also
helps
explain
(i)
why
UDF
III
was
not
in
a
position
to
cure
the
default
by
Buffington
on
a
third
‐
party
senior
loan
and
(ii)
why
UDF
III
was
forced
to
resort
to
file
the
attached
involuntary
bankruptcy
petition
included
on
the
next
page.
Sourced
from
UDF
III
SEC
Disclosures:
THE
LOAN
THAT
UDF
III
CONTINUALLY
FAILS
TO
PAY
ON
TIME
WAS
ISSUED
BY
LEGACY
TEXAS
ON
MARCH
21,
2014
,
AND
THE
LATE
PAYMENTS
BEGAN
IN
JUNE
2014
.
June
30,
2014
–
Form
10
‐
Q
“The
Partnership
obtained
a
waiver
from
LegacyTexas
for
the
late
payment
in
July
2014
of
the
June
2014
required
principal
payment
and
will
resume
making
the
quarterly
principal
payments
in
accordance
with
the
terms
of
the
Term
Loan
in
September
2014.”
http://www.sec.gov/Archives/edgar/data/1335732/000114420414049898/v385101_10q.htm
September
30,
2014
–
Form
10
‐
Q
“The
Partnership
obtained
an
extension
from
LegacyTexas
for
the
September
2014
required
principal
payment
to
December
21,
2014
and
will
resume
making
the
quarterly
principal
payments
in
accordance
with
the
terms
of
the
Term
Loan
at
that
time”
http://www.sec.gov/Archives/edgar/data/1335732/000114420414068688/v393078_10q.htm
March
31,
2015
–
Form
10
‐
Q
“LegacyTexas
waived
any
default
in
connection
with
the
late
payment
of
the
required
principal
payment
on
March
21,
2015.”
http://www.sec.gov/Archives/edgar/data/1335732/000114420415031333/v409242_10q.htm
June
30,
2015
–
Form
10
‐
Q
“LegacyTexas
extended
the
due
date
of
the
June
21,
2015
quarterly
principal
payment
to
September
10,
2015.”
http://www.sec.gov/Archives/edgar/data/1335732/000114420415065839/v423461_10q.htm
September
30,
2015
–
Form
10
‐
Q
“The
Partnership
has
requested
an
extension
of
the
September
10,
2015
required
quarterly
principal
payment
to
January
1,
2016,
and
LegacyTexas
is
considering
the
request.
The
Term
Loan
is
not
in
default.”
http://www.sec.gov/Archives/edgar/data/1335732/000114420415065839/v423461_10q.htm
***************************
Buffington
Involuntary
Bankruptcy
Petition
Overview
United
Development
Funding
(UDF)
3
To
submit
a
tip
to
the
SEC’s
Office
of
the
Whistleblower:
https://www.sec.gov/about/offices/owb/owb
‐
tips.shtml
.
SEC
Office
of
the
Whistleblower
100
F
Street
NE
Mail
Stop
5553
Washington,
DC
20549
Fax:
(703)
813
‐
9322
B 5 (Official Form 5) (12/07)
U
NITED
S
TATES
B
ANKRUPTCY
C
OURT
__________ District of __________
INVOLUNTARY
PETITION
IN RE (Name of Debtor – If I
ndividual: Last, First, Middle)
Last four digits of Social-Security or ot
her Individual’s Tax-I.D. No./Complete EIN
(If more than one, state all.):
ALL OTHER NAMES used by debtor in the last 8 years
(Include married, maiden, and trade names.)
STREET ADDRESS OF DEBTOR (No. and street, city, state, and zip code)
COUNTY OF RESIDENCE OR PRINCIPAL PLACE OF BUSINESS
ZIP C
ODE
MAILING ADDRESS OF DEBTOR (If different from street address)
ZIP CODE
LOCAT
ION OF PRINCIPAL ASSETS OF BUSINESS DEBTOR (If different from previously listed addresses)
CHAPTER OF BANKRUPTCY CODE UNDER WHICH PETITION IS FILED
Chapter 7
Chapter 11
INFORMATION REGARDING DEBTOR (Check applicable boxes)
Nature of Debts
(Check
one
box.)
Petitioners believe:
□
Debts
are primarily consumer de
bts
□
Debts
are primarily business debts
Type of
Debtor
(Form of Organization)
□
Individual (Includes Joint Debtor)
□
Cor
poration (Includes LLC and LLP)
□
Par
tners
hip
□
Other (If debtor is not one of the above entities,
check this box and state ty
pe of entity below.)
_________________________________________
Nature of Business
(Check
one
box.)
□
Health Care Business
□
Single Asset Real Es
tate as defined in
11 U.S.C. § 101(51)(B)
□
Railroad
□
Stockbroker
□
Commodity Broker
□
Clearing Bank
□
Other
V
ENUE
□
Debtor
has been domiciled
o
r has had a residence, principa
l
place of business, or princi
pal assets in the District for 180
days immediately prec
eding the date of this petition or for
a longer part of such 180 days than in any other District.
□
A bankruptcy c
ase concerni
ng debtor’s affiliate, gene
ral
partner or partnershi
p is pending in this District.
FILING FEE
(Check one box)
□
Full Filing Fee
attached
□
Petitioner is a
child support creditor
or its
representa
tive, and the form
specified in § 304(
g) of the Bankruptcy Reform Act of 1994 is attached.
[If a child support creditor or its representative is a petitioner, and if the
petitioner files the form specified in § 304(
g) of the Bankruptcy Reform Act of
1994, no fee is required.]
PENDING BANKRUPTCY CASE FILED BY OR AGAINST ANY PARTNER
OR AFFILIATE OF THIS DEBTOR
(Report information for any add
itional cases on attached sheets.)
Name of Debtor
Case Number
Date
Relationship
Distri
ct
Judge
AL
LEGATIONS
(Check applicable boxes)
1.
□
Petitioner (s) are eligible to file th
is petition pursuant to
11 U.S.C. § 303 (b).
2.
□
The debtor is a person against whom an order
for relief may be entered under title 11 of the United
Stat
es Code.
3.a.
□
The debtor is generally not paying su
ch debtor’s debts as they become due, unless such debts are
the subject of a bona fide dispute as to liability or amount;
or
b
.
□
Within 120 days preceding the filing of this petition, a custodian, other than a trustee receiver, or
agent
appointed or authorized to take charge of less than substantially all of the property
of the
debtor for the purpose of enforcing a
lien against such property, was appointed or took possession.
COURT USE ONLY
15-11548-hcm Doc#1 Filed 11/30/15 Entered 11/30/15 13:58:51 Main Document Pg 1 of 2
8601 Ranch Road 2222
Building I, Suite 150, Austin TX
4
Lennar Buffington Stonewall Ranch, L.P.
4
4
4
None
Austin
Western District of Texas
land in Williamson County, Texas
78730
4
4
4
4
4
B 5 (Official Form 5) (12/07) – Page 2
Name of Debtor______________________
C
ase No.____________________________
TRANSFER OF CLAIM
Check this box if there has been a transfer of any claim against the debtor by or to any petitioner. Attach all documents that
evidence the transfer and any statements that are required under Bankruptcy Rule 1003(a).
REQUEST FOR RELIEF
Petitioner(s) request that an order for relief be entered against
the debtor under the chapter of title 11, United States Code, specified in this
petition. If any petitioner is a foreign re
presentative appointed in a foreign proceed
ing, a certified copy of the order of th
e court granting
recognition is attached.
Petitioner(s) declare under penalty of perjury that the foregoing is true and
correct according to the best of their knowledge, information, and belief.
x__________________________________________________________
Signature of Petitioner or Representative (State title)
Name of Petitioner
Name & Mailing
Address of Individual
Signing in Representative
Capacity
Date Signed
Ben Wissink, President, UMTH Land
Development, LP, general partner of
United
Development
Funding III,
LP
1301 Municipal
Way, Suite
200
Grapevine,
TX
76051
______________________
______________________
x______________________________________________________
Signature of Attorney Date
Name of Attorney Firm (If any)
_______________________________________________________
Address
Telephone No.
x__________________________________________________________
Signature of Pe
ti
tioner or Representative (State title)
Name of Petitioner
Date Signed
Name & Mailing
Address of Individual
______________________
Signing in Representative
Capacity
______________________
x______________________________________________________
Signature of Attorney Date
Name of Attorney Firm (If any)
_______________________________________________________
Address
Telephone No.
x__________________________________________________________
Signature of Pe
ti
tioner or Representative (State title)
Name of Petitioner
Date Signed
Name & Mailing
Address of Individual
______________________
Signing in Representative
Capacity
____
_
_________________
x______________________________________________________
Signature of Attorney Date
Name of Attorney Firm (If any)
_______________________________________________________
Address
Telephone No.
PETITIONING CREDITORS
Name and Address of Petitioner
Nature of Claim
Amount of Claim
Name and Address of Petitioner
Nature of Claim
Amount of Claim
Name and Address of Petitioner
Nature of Claim
Amount of Claim
Note:
If there are more than three petitio
ners, attach additional sheets with the statement under
penalty of perjury, each petit
ioner’s signature under the statemen
t and the name of attorney
and petitioning creditor information in the format above.
Total Amount of Petitioners’
Claims
____
0
__continuation sheets attached
15-11548-hcm Doc#1 Filed 11/30/15 Entered 11/30/15 13:58:51 Main Document Pg 2 of 2
Lennar Buffington Stonewall Ranch, L.P.
11/30/2015
11/30/2015
214-220-2402
United Development Funding III, LP, address listed above)
106539986
Ben Wissink, President UMTH Land
/s/ Richard W. Ward
Richard W. Ward
/s/ Ben Wissink
Secured Loan
6860 N. Dallas Pkwy., Suite 200, Plano, TX 75024
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