A federal bankruptcy court judge on Friday approved an agreement allowing Texas National Bank officials to take possession of certain estate property and mineral rights the Lon Morris College bankruptcy estate used as collateral to secure a $2.8 million loan in February.
Federal bankruptcy Judge Bill Parker's ruling was made as the clock continued to tick toward a Jan. 14 Lon Morris College bankruptcy estate auction and a Feb. 4 sale confirmation date. The LMC estate started its bankruptcy proceedings in July.
As part of the Friday ruling, Parker — of the U.S. Bankruptcy Court for the Eastern District of Texas — terminated an "automatic stay" that prevented Texas National Bank from moving forward in its LMC collection process.
In his order, the judge made very specific authorizations. He ordered that:
1. Texas National Bank can now take possession of mineral and royalty interests from Lon Morris.
2. TNB can take session of any mineral rights proceeds in the hands of third parties.
3. Lon Morris must surrender to the bank all mineral proceeds generated by mineral interests upon which the bank has a lien. (Those proceeds are to be applied to the loan debt.)
4. Texas National Bank can foreclose on the college's Tilley Property and its athletic building property. TNB officials contended in court that the value of the athletic building property has declined.
The foreclosure on the athletic building property will take place after in March 2013 — well after LMC's January property auction, so that the auction can be completed "to determine whether the value of the Athletic Building Property might be enhanced by that status."
LMC bankruptcy officials secured the $2.8 million loan in February. As collateral, college bankruptcy officials used campus property as well as oil, gas mineral and royalty rights from college-owned property in DeSoto Parish, La.; Lafayette County, Ark.; Lea County, New Mexico and the Texas counties of Shelby, Panola, Marion, Freestone, Upshur, Harrison, Grayson and Titus.
In the original petition filed before the judge in October, Texas National
Bank officials argued that any stay against collecting what is owed should be terminated because Lon Morris has failed to properly maintain its collateralized property.
The judge made his decision to lift the stay after hearing testimony during a Dec. 5 hearing in his court.
LMC Chief Restructuring Officer Dawn Ragan, Houston attorney Hugh Ray III, and Texas National Bank attorney Glen E. Patrick did not immediately return requests for comment Monday.