Shorewood Realtors files for Chapter 11 bankruptcy
Shorewood Realtors’ office at 33rd Street and Highland Avenue in Manhattan Beach. The company has filed for Chapter 11 bankruptcy protection to stay a lawsuit from former partner company ERA Franchise Systems. Photo
Shorewood Realtors, one of the South Bay’s highest-performing real estate brokerage firms, has filed for bankruptcy, according to a petition filed in Colorado, where Shorewood’s parent company is based.
Roger Herman, the president and CEO of Shorewood, says that the filing was a strategic move to stay a lawsuit filed by a creditor and former partner, and that the company is not in dire financial straits.
“The bankruptcy wasn’t for financial viability,” Herman said. “We’re very profitable this year…it’s had nothing to do with financial issues.”
As reported by BusinessDen, on June 23, Herman’s company LBH National Corporation, which does business as Shorewood, filed for Chapter 11 bankruptcy in Colorado. At issue is $6 million that ERA Franchise Systems, a one-time partner to Herman’s LBH National Corporation, says it is owed by LBH. A 2014 deal between the two companies, put in place to complete a real estate franchise agreement, gave ERA a security interest in LBH’s accounts as collateral.
Two years later, the companies split when ERA filed a lawsuit claiming that LBH broke their agreements and made an attempt to freeze LBH’s — and thus, Shorewood’s — assets. To protect the company, Herman filed for reorganization.
LBH purchased Shorewood in February 2014 from founder Arnold Goldstein and co-owner Larry Wolf, who respectively stayed on as chairman emeritus and consultant. Shorewood operates nine offices in the South Bay, from Palos Verdes to El Segundo, alongside offices in Colorado, Florida and Nevada.
The creditor’s list reports that $3.75 million is owed by Shorewood Realtors to Goldstein and Wolf.
But according to Goldstein, he and Wolf are only owed about $250,000 from the sale of their company. The $3.75 million listed in filings is owed them for Brighton Escrow in Hermosa Beach. Goldstein said Herman was to have personally bought the escrow company within two years of purchasing Shorewood Realtors. Shorewood and Wolf have retained ownership of the escrow company.
According to a declaration filed by Herman, LBH owes $516,745 to 26 real estate sales agents, and approximately $45,161 to its office staff.
Shorewood-affiliated Realtor Ed Kaminsky, who was shown in a filing to be among the agents owed commission, was unconcerned with the situation, likening it to a real estate transaction.
“There’s no effect on me, I’m not waiting for my checks; my business operations are fine,” he said. “It’s equivalent to an escrow that gets delayed — if you’re in real estate, you’re used to delays.”
His lack of concern was typical among local Shorewood agents who were reached for this story, which must come as good news to Herman. As he noted in a court declaration, sales agents would quit and would “easily relocate to other brokerages” if they weren’t paid.
Those fears may have been allayed by a trip made by Herman to speak to Shorewood agents. A source familiar with the bankruptcy said Herman flew out from Colorado, telling agents that Shorewood Realtors would continue to operate as usual. He also elaborated that the Chapter 11 filings were put in place due to pressure from ERA Real Estate.
According to Herman, business will continue as usual. Late on July 1, Herman said the court accepted evidence that Shorewood is financially viable, unfreezing its accounts to allow for payments to both real estate agents and Shorewood office staff.
“The Chapter 11 bankruptcy filing stayed the lawsuit and put us both in a position to settle, which is what we wanted all along,” Herman said.