Some tenants remain at closed Modesto motel as its operators try to pay off debt

Some tenants remained in their rooms at the Budgetel Inn & Suites on Monday, two days after they were told the motel was abruptly closing and they had to leave the premises immediately.

United Resorts LLC, which operates the roughly 100-room motel, filed for Chapter 7 bankruptcy Friday. United Resorts claims it had assets of $256,350 against liabilities of $392,360.

The Budgetel has provided housing for poor individuals and families; nearly half of the people who stayed at the motel were long-term guests. The motel — two blocks south of Briggsmore Avenue — has been a concern to police because of problems that include vagrancy, drugs and prostitution.

Steven Altman, a Modesto bankruptcy attorney with the Law Offices of Borten Petrini, said filing for Chapter 7 bankruptcy is an indication the motel’s operators are liquidating its assets to “try to pay off its debts,” and the motel’s business activities will cease.

It’s called an “orderly liquidation” supervised by the federal bankruptcy court and a designated trustee to ensure that those owed money are paid with some degree of equality, said Altman, who has specialized in bankruptcy law for more than 25 years.

There wasn’t much activity at the motel Monday. The main office remained closed, its doors fastened with a padlock. Two people were cleaning the parking lot, one of them using a leaf blower. The other, who was sweeping and picking up litter, told The Modesto Bee that the property was closed and anyone on site was trespassing.

Motel debt

United Resorts leases the property from its Modesto-based owners, the Khatri Brothers limited partnership.

United Resorts’ liabilities included $61,439 owed to the Khatri Brothers in lease payments, $99,534 to the California Department of Industrial Relations and $160,000 that United Resorts CEO and President Shafi Ahmed loaned the motel for renovations, capital improvements, lease payments and other expenses, according filed court documents.

Altman told The Bee that bankruptcy law establishes a priority list of which creditors get paid first; unpaid taxes or government agencies are typically near the top of that list. He said CEOs who provided money for the business are typically “the last on the totem pole” of priorities.

This process is not like filing for Chapter 11 bankruptcy, which allows for the reorganization of the business as the bankruptcy court approves a repayment plan to creditors. In that process, the business would be allowed to continue to operate.

Altman said Chapter 7 bankruptcy allows the business to try to pay off its debt, before creditors seek legal action that could result in acquiring portions of the business itself.

In his career, Altman has seen other motels or hotels file for Chapter 7 bankruptcy. He said these types of businesses don’t always evict tenants immediately. They typically work with local agencies to help relocate tenants, especially those who have been living there for a long time.

“Usually, there’s an orderly transition,” Altman said during a phone interview Monday.

Those living at the Budgetel were told they had to leave a day after United Resorts filed for bankruptcy.

Altman said the displaced tenants from the Budgetel may have some recourse in court, but that all depends on whether they have any written contracts to stay at the motel on a week-to-week or month-to-month basis. But it’s unlikely that people struggling to find affordable housing will have the ability to hire an attorney to take their case.

Modesto police

Motel guests have been told that police would make them leave if they didn’t pack up their belongings and go. Modesto Police Chief Galen Carroll has told The Bee that his officers will not get involved in a civil matter between the motel and the people staying there.

Tina, who said she’s been living at the motel since November, remained in her room Monday. She declined to give her last name. It was about noon, and she was heading to work. But she was leaving behind her belongings in the locked room.

She said she has been told to leave the motel on Saturday, Sunday and Monday. But she said she wasn’t leaving until she was ready. She would pay $55 a day to stay there, paying each day. She said she would find another motel to move into.

The St. Vincent De Paul Ministry of St. Stanislaus Catholic Church on Sunday arranged temporary lodging at other Modesto motels for families with children, the disabled and seniors, in all 57 people, including 16 children. Single men and women were advised to go to Beard Brook Park, where the city in September allowed the homeless to set up a tent city.

Also over the weekend, Stanislaus County brought out social service workers to the Budgetel and staffed its homeless outreach and engagement center in downtown Modesto to provide assistance.

This story was originally published January 28, 2019 at 4:23 PM.