FEDERAL INCOME TAX CONSEQUENCES
Question #6: What are Schedule 4 and Schedule 12 investors and how will that affect my distributions from the DBSI Real Estate Liquidating Trust?

As noted above, the Short Term Development Fund and the 2006 Land Opportunity Fund provided investors with a choice of investment, with certain (Preferred) investments receiving priority over other (Non-Preferred) investments.  In addition, the DBSI Land Improvement and Development Fund and the DBSI 2008 Development Opportunity Fund provided investors with a choice of investments, with certain (Notes) investments receiving priority over other (Sharing Unit) investments.  Pursuant to the Second Amended Joint Liquidating Plan, the DBSI Real Estate Liquidating Trust preserves the priority system for these the Short Term Development Fund, the 2006 Land Opportunity Fund, the DBSI Land Improvement and Development Fund and the 2008 Development Opportunity Fund with respect to recoveries from real estate assets. 

For the Short Term Development Fund and the 2006 Land Opportunity Fund, this means that recoveries from real estate assets are subject to the “waterfall” described above.  For the DBSI Land Improvement and Development Fund and the 2008 Development Opportunity Fund, this means that investors who purchased Sharing Units are not entitled to receive any distribution from real estate assets until investors who purchased Notes obtain a full recovery (which is not projected to happen).

However, the holders of Non-Preferred investments in the Short Term Development Fund and the 2006 Land Opportunity Fund, and the holders of Sharing Units in the DBSI Land Improvement and Development Fund and the 2008 Development Opportunity Fund, are entitled to share in the proceeds of certain litigation recoveries.

In order to properly calculate distributions of real estate proceeds versus litigation proceeds, the pro rata interests of the holders of Non-Preferred investments in the Short Term Development Fund and the 2006 Land Opportunity Fund, and the holders of Sharing Units in the DBSI Land Improvement and Development Fund and the 2008 Development Opportunity Fund, are listed on Schedule 12.

All other holders of beneficial interests (i.e. those investors whose original investment was not subordinated to other senior investments) are listed on Schedule 4.

Accordingly, the beneficiaries who are listed on Schedule 4 and the beneficiaries who are listed on Schedule 12 together share pro rata in litigation  proceeds, whereas only those beneficiaries who are listed on Schedule 4 share pro rata in the amounts distributed by the DBSI Real Estate Liquidation Trust from the sale of the real estate assets (subject to the “waterfall”).

The DBSI Real Estate Liquidating Trust distributed $47,343,817.60 in proceeds from real estate assets to Schedule 4 beneficiaries, and the DBSI Real Estate Liquidating Trust also distributed $9,156,182.40 in litigation proceeds to Schedule 4 and Schedule 12 beneficiaries.  The DBSI Liquidating Trust terminated on September 18, 2017.  However, pursuant to the Bankruptcy Court’s order, the Trustee has transferred the 60 % beneficial interest in the Estate Litigation Trust previously held by the DBSI Real Estate Liquidating Trust directly to its beneficiaries on a pro rata basis.  This means that 60% of any future funds available for distribution from the Estate Litigation Trust will be disbursed directly to the DBSI Real Estate Liquidating Trust beneficiaries on a pro rata basis.  Schedule 12 creditors who received a Limited Beneficial Interest in the DBSI Real Estate Liquidating Trust will continue to have the right to share in the distributable proceeds from the Estate Litigation Trust on a pro rata basis with all of the other DBSI Real Estate Liquidating Trust beneficiaries.  Currently, the Estate Litigation Trust has been extended, subject to further extensions, by order of the Bankruptcy Court through October 29, 2018.  Due to the uncertainties of litigation, it is not possible to predict the timing, amount or certainty of any distribution from the Estate Litigation Trust.

You can download copies of Schedules 4 and/or 12 from this website. Go Here For Schedule 4, select number 13, for Schedule 12 select number 21.