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Sale to tribe collapsed

Warner Springs resort bankruptcy is tangle of fractional interests

The Warner Springs Ranch Resort -- which filed for Chapter 11 bankruptcy protection March 1 after an effort to sell it to a local tribe for $20.5 million collapsed -- finds itself entangled in a knot of fractional ownerships with no clear way out.

The bucolic property in east San Diego County has 250 casitas, an 18-hole golf course, 15 tennis courts, two Olympic-sized swimming pools, a spa, an equestrian center, an airstrip, two restaurants and natural hot springs.

Immediately following the filing, the Warner Springs Ranchowners Association filed a motion with the bankruptcy court to facilitate payments to creditors who may not have been paid for months.

The Pala Band of Mission Indians, which wants to buy the property, appears to be the largest creditor, with $206,832 owed in pre-sale expenses.

Roughly $1 million is owed to creditors John and Lisa Gubler, who once tried to stop the sale by filing a lawsuit, are owed $70,000, and Travelers Insurance is owed $47,890.

The resort has been closed since January, when it was supposed to be sold to the Pala Band.

The tribe reportedly wanted to renovate the property that, although miles away from its North County reservation, was once part of the tribe's ancestral homeland. The band had offered $20.5 million.

The sale, which reportedly more than two-thirds of the ranch association's stakeholders approved, was thwarted by one of the fractionalized owners -- William Francis, who argued that selling the property would violate his contract.

Francis filed a lawsuit in Superior Court for injunctive relief on Jan. 17 -- the day the escrow was expected to close on the property.

The lawsuit has not only stopped the sale, but Stewart Title doesn't even want to talk about the property until the case is heard and all appeals are exhausted, according to David Gee, Warner Springs Ranch Homeowners Association president.

Gee still contends selling the property to the Pala Band "would be an elegant solution."

Meanwhile, Francis alleges the Warner Springs Ranchowners board failed to garner the two-thirds of owners necessary to permit the sale.

Only 1,200 fractionalized memberships (similar to a timeshare) out of a possible 2,000 undivided interests (UDIs) have sold, and 800 of these were themselves half interests that had been combined to make the necessary total.

That, Francis argued, made it impossible to determine whether two thirds requirement had been met.

"Specific instances include: assenting individuals who sold their interest to another party during the assent process; a significant number of assent forms signed by someone who was not on title; certain assents were counted even after the voting process had closed; and numerous titles divided between multiple owners giving them less than a full vote for that entire interest were nonetheless counted as a full vote," Francis' complaint alleged.

Jeffrey Cawdrey, a partner with Gordon Rees' national bankruptcy and creditors rights practice who represents the Ranchowners Association, suggested the issue is less about math than about a few owners worried about losing their access to the already-closed ranch.

"The fact is, very few of the members actually used the ranch," Cawdrey said, "and it just doesn't make economic sense."

"The vast majority of UDI owners desired to sell the ranch and were no longer willing to subsidize the ranch for the minority who use the ranch," bankruptcy court documents add.

Whether the interests were whole or partial, the fractionalized interests weren't selling as well as the association would have liked.

"A (whole interest) UDI that was sold for as high as $30,000 by the original developer in1983, had little or no resale value later. Owners desiring to divest themselves of their UDI could not even give their ownership interests away," the ranch reported in court documents.

Many buyers also neglected to pay the owed assessments. Court documents also stated the original developer refused to pay the property assessments back in 1990, and problems have continued since then.

The ranch has experienced substantial financial difficulties for the last 20 years for other reasons -- most notably, for failing to get enough people into the resort's beds.

Historically, the occupancy rate for the lodging facilities at Warner Springs were about 30 percent.

About 80 percent of that occupancy was attributable to general public use and only 20 percent was derived from its members, the ranch reported.

"Efforts to market the ranch for midweek use by individuals and groups had been challenging, because there are limited conference facilities and no kitchens in the casitas," the bankruptcy documents stated.

There may have been other issues. For example, the resort -- which has a building dating back to 1844 -- advertised on a website that it was free from interruptions by telephone or televisions ­-- which may have been a factor in an increasingly connected world.

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