Karen S. Bordner and her husband Donald H. Ellis, sought bankruptcy relief in a Chapter 11 case. Prior to the bankruptcy filing, Together Real Estate Holdings, LLC was involved in various real estate renovation projects with companies owned by Bordner. TRE filed a Proof of Claim in Bordner’s personal bankruptcy case and filed an adversary proceeding raising claims for relief under 11 U.S.C. § 523(a)(2)(A) for false representations, false pretenses, and actual fraud to except two loans from discharge. The Court combined the trial on the Complaint with Bordner’s Objection to TRE’s Proof of Claim. The Court entered an order finding in favor of Bordner and against TRE on the dischargeability claims and granted Bordner’s Objection to the Proof of Claim.
The dispute centered around two loans made by TRE to Bordner, her business partner, Victoria Roberts, and their company, Artemis Realty Investments. The first loan was made in the amount of $20,000. A promissory note for the loan was executed after the fact, which was personally guaranteed by Bordner and Roberts. The second $260,000 loan was also made without the execution of a promissory note and without signed personal guarantees by Bordner and Roberts.
The loans were made for the proposed purchase of a property located on Race Street in Denver. When the purchase fell through, Artemis located a substitute property on Emerson Street and the parties agreed that the TRE loan proceeds could be used for its purchase.
The renovation project experienced complications and delays as a result of the worldwide pandemic and was eventually foreclosed upon by the first mortgage lender. Interest payments on the TRE loans were made for a period of time, but the balance of the loans remain unpaid.
In its Complaint, TRE claimed that Bordner represented that she would repay the loans, that she and Roberts were going to contribute personal funds to the project, that the loans would be secured by Deeds of Trust, and that both promissory notes would be personally guaranteed.
The Court held that the $20,000 note (and the $260,000 loan) were dischargeable as TRE failed to establish that they were obtained through false representations, false pretenses, or actual fraud. The Court further held that the $260,000 loan was not personally guaranteed in a writing as required by the Colorado Statute of Frauds and was not enforceable against Bordner. The Court granted the Debtors’ Objection to the Proof of Claim filed by TRE and allowed the claim in the reduced principal amount of $20,000 to be treated as a general unsecured claim in the Debtors’ Chapter 11 Plan.