Single Asset Real Estate

Summary Judgment Motions on determination of "Single Asset Real Estate" entities: On March 12, 2007, the Court issued an opinion determining that the Debtor-Affiliates are, in fact, "single asset real estate" entities. The Court was not persuaded that the constructing and selling of single family homes and the activities related to the sale of homes are substantial "business operations." Therefore, the Court held that the Debtor-Affiliates fall within the definition of "single asset real estate." Pursuant to Bankruptcy Code, the Debtor-Affiliates have 30 days to either file a plan of reorganization or commence making interest payments to the secured lenders.

Summary of Recent Hearings

On March 1, 2007, the Court held a hearing on the following issue:

1. Final Order Authorizing Kara at Mt. Arlington I, LLC to obtain Post-Petition Financing: The Court granted the final order authorizing Kara at Mt. Arlington, I to incur indebtedness up to $3,452,665 from WCP Real Estate Strategies Fund, L.P. (“WCP Real Estate”). Kara at Mt. Arlington, I, LLC shall use the proceeds of the financing for the sole purpose of paying the expense items listed in the Budget. To secure prompt payment and performance of the loan, WCP Real Estate shall have valid and perfected first priority security interests and liens, superior to all other liens, claims and/or security interests on all of Kara at Mt. Arlington I’s property subject to the Permitted Liens that are listed in the Ratification Agreement. In addition, WCP Real Estate is granted an allowed superpriority administrative claim having priority in right of payment over any and all other obligations, liabilities, and indebtedness of Kara at Mt. Arlington, I provided, however, the superpriority claim shall be subject only to the Permitted Liens.

On March 5, 2007, the Court held an omnibus hearing addressing the following items:

1. Motion for Relief from Stay re: 5 Farrah Drive, Stafford, New Jersey filed by Kristen Tomey: The parties entered into a consent order terminating contract and permitting Kristen Tomey to pursue any and all claims against the bonding company.

2. Motion by K.Hovnanian (1) to Compel Debtors to Assume or Reject the Off-Site Improvement Contract; (2) Granting an Administrative Claim; and (3) Allowing K.Hovnanian to Record a Construction Lien Against Debtors’ Property: This motion was adjourned until April 9, 2007.

3. Motion to Assume Palmer Contract of Sale: The Court granted this motion and authorized the Debtors to assume the Contract of Sale.

4. Motion to Obtain Financing to Complete Construction of the Palmer home: The Court granted this motion. The order permits the Debtors to incur up to $110,000 of financing to complete construction of the Palmer home. Kara at Park Ridge, LLC will realize a net profit of approximately $154,513 from the closing of the Palmer Contract of Sale.

5. Motion for Relief from Stay filed by Guttman Family Trust, LLC: The motion was adjourned until March 19, 2007 because the parties are negotiating a resolution.

6. Motion to Sell Fourth Group of Homes: The Court granted this motion and an order will be entered consistent with previously entered orders.

The next omnibus hearing date is scheduled for March 19, 2007 at 1:00 pm in Trenton, New Jersey.

Summary of 2/20 Hearing

On February 20, 2007, the Court held a hearing addressing the following items:

1. Bond Safeguard Insurance Co. and Lexon Insurance Co.’s Motion to Compel Debtor to Assume or Reject Executory Contracts and for Injunctive Relief: This motion was adjourned until March 19, 2007.

2. Motion to Compel Immediate Assumption or Rejection of Executory Contract on behalf of Peter Tiano: The parties entered into a consent order: 1) terminating the contract for purchase of real estate between Horizons at Woods Landing, LLC and Peter Tiano; and 2) vacating the automatic stay to allow Peter Tiano to proceed against the bonding company.

3. Motion for Relief from Stay filed by Guttman Family Trust, LLC: This motion was adjourned until March 5, 2007.

4. Motion to Reconsider Order Denying Payment of Pre-Petition Expenses and Wages: The Court granted this motion, in part, and entered an Order authorizing the Debtors to pay pre-petition wages, salaries and expenses to certain non-insider employees and to accrue unused vacation and sick time for the non-insider employees.

5. Motion for Relief from Stay to Terminate Contract to Purchase 51 Azalea Court, Old Bridge, New Jersey filed by Edmond Ying: The parties entered into a consent order terminating the contract of sale and granting the purchaser relief from the automatic stay to pursue any and all claims against the bonding company.

6. Motion for Temporary Increase in Salespeople’s Salaries: The Court granted this motion. The remaining salespeople at Kara Birbach Geller shall be paid at the rate of $75,000 per year until June 1, 2007. In addition, Mr. Thomas Jablonski, the Vice President of Sales and Marketing at Kara Birbach Geller, shall be paid $100,000 per year plus $2,000 for every home sold by the Debtors with a cap of $400,000 on the maximum total compensation Mr. Jablonski can receive.

8. Kara Homes at Enclave II, LLC Re-Notice of Certain Contractors re: Lien Claims: Consent order to be submitted.

The next omnibus hearing date is scheduled for March 5, 2007 at 1:00 pm in Trenton, New Jersey.