Bigfoot, Unicorns and Foreclosure Sales of Charging Orders

Bigfoot, Unicorns and Foreclosure Sales of Charging Orders

      The evidence for Bigfoot seems to be restricted to some blurry black and white film footage, while evidence for unicorns seems to be restricted to some medieval tapestries and the Ark Encounters Theme Park in Northern Kentucky. Sightings of the foreclosure sale of a charging order are it seems only slightly less rare. Still, in a recent case from Illinois, a number of issues relating to a charging order foreclosure sale were addressed. Preservation Holdings, LLC V. Norberg, 2019 Il. App. (1^st) 181136, 2019 WL 2510260 (June 14, 2019).

       Norberg was one of several defendants against whom judgments had been entered in Maine; another of the defendants was Gleichman. That Maine court had also entered charging orders against Gleichman’s interest in 51 LLCs and limited partnerships. The Maine judgment was domesticated in Illinois pursuant to the Uniform Enforcement of Foreign Judgments Act, and an Illinois court issued additional charging orders against the 51 LLCs and limited partnerships. The judgment-debtor then moved for a foreclosure sale of those interests. At that time, the plaintiff Preservation Holdings held a judgment against Gleichman for about $800,000; another judgment-creditor, Promenade Trust, held a trio of judgments of some $36,440,000.00.

       At the judicial sale conducted by the Cook County Sheriff, Gleichman’s interest in 46 limited partnerships were sold to Promenade Trust for $4.8 million, an amount significantly below the total judgments against Gleichman in favor of Promenade. Promenade moved to have the sale confirmed, to which Gleichman objected on bases including that “the sale price was unconscionably low.” In support of that argument, she submitted an affidavit from a Sean Hamilton, who opined that the price was too low. The Circuit Court found that the Hamilton affidavit was unpersuasive for having valued the wrong assets, namely the real estate held by the various LLCs and limited partnerships, rather than only Gleichman’s distribution interests in the partnerships. This appeal followed.

      In the course of the appeal, after determining that the law governing post-mortgage foreclosure sales would serve as a useful guidepost in the absence of a deep body of law on charging order foreclosure sales, it was noted that:

Of course, in a forced judicial sale, the price will be lower than the arm’s-length ideal because the marketplace is constricted. In the forced sale setting, the seller is under judicial compulsion to sell, and the buyers may not have the ability to learn all the relevant facts regarding the asset for sale.  So as the NAB Bank [v. LaSalle Bank, N.A. (2013 Il. App. 1^st) 121147, 98410 N.E.2d 154 (Il. App. 1^st 2013)] court observed, property sold at a for sale does not generate a true fair market value price.

2019 WL 2510260, *4.

      The court then rejected Gleichman’s suggestion that the Circuit Court should have sua sponte undertaken its own analysis of the interests sold at the sale, explaining rather that “the sale is presumptively valid, and it is the debtor’s burden to show why the price is unconscionably low.” Id.

     Rejecting the Hamilton affidavit as a basis for setting aside the sale, it was observed:

As the Circuit Court correctly found, Hamilton opined as to the fair market value of the real estate owned by the LLCs and limited partnerships, not the value of Gleichman’s distributional interests in them. This is a distinction with a significant difference. A bidder who acquires a distributional partnership interest at a judicial sale does not step into the shoes of his predecessor because the bidder acquires no management role and no right to receive or inspect the books and records of the partnership.

Id.

      Gleichman then objected that, notwithstanding the fact that the order for the judicial sale had indicated that the various interests should be sold seriatim, in fact the sale had been accomplished as a single group. This argument was rejected on the basis that Gleichman had not raised this objection in the court below as part of the objection to confirmation of the sale and it was thereby deemed waived. Further, she could have attended the sale and there objected:

At the Circuit Court hearing on the motion to confirm sale, counsel for Promenade stated that, besides the sheriff’s staff, only he and counsel for Preservation Holdings attended the sale. The sale was open to the public, nothing prevented Gleichman from monitoring it to ensure that the sheriff conducted at in punctilious conformity with the court's order. We therefore find the point forfeited and will not disturb the confirmation of the sale on this basis.

Id, *5.