Harbor Custom Development lender objects to cash collateral use

By Sarah Lizee

Olympia, Wash., Dec. 14 – Harbor Custom Development, Inc.’s motion to use cash collateral drew an objection from lender Sound Capital Loans, LLC, according to documents filed Thursday with the U.S. Bankruptcy Court for the Western District of Washington.

The lender said the fundamental flaw with the motion is the debtors propose to use rents that are property of the bankruptcy estate of debtor Belfair Apartments, LLC and collateral of lender entity Sound Equity High Income Debt Fund, LLC and rents that are property of the estate of debtor Pacific Ridge CMS, LLC and collateral of lender entity Sound Capital Construction Fund, LLC to pay the operating expenses of Harbor Custom Development and other debtors.

Sound Capital noted that the cases have not been substantively consolidated, so each of the seven debtors has separate assets, liabilities, creditors, income and expenses.

The lender said its counsel has not found any legal authorities that support the debtors’ position that cash belonging to one estate can be transferred to a different bankruptcy estate to benefit the creditors of that estate and pay the legal fees for work done to benefit that other estate.

A hearing is scheduled for Dec. 15.

Harbor Custom Development is a real estate development company located in Tacoma, Wash. The company filed bankruptcy on Dec. 11 under Chapter 11 case number 23-42180.

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