Joaquin Village, a proposed student housing project in northeast Provo that's been on hold for more than a year, may remain a field of weeds indefinitely.

A dispute over financing for the construction of Joaquin Village resulted in its developer filing for Chapter 11 bankruptcy protection last month to block a partner from foreclosing on the 5-acre land parcel.

Joaquin Development, which is managed by Wayne Ross, president of Arrowstar Construction, claims it was forced into bankruptcy after Peak Capital Partners allegedly duped the developer into thinking it was making an equity investment when it provided $12 million in project financing.

The proposed 236-unit project is supposed to replace Joaquin Elementary School in the block between 500 North and 600 North and 500 East and 700 East. The school was torn down in preparation of Joaquin Village's construction, but then the recession deepened and the developer lost its funding.

When discussions with Zions Bank and other lenders for construction financing for Joaquin Village collapsed in the wake of the deepening recession last year, Peak decided to "claim its rights as a creditor" and foreclose on the project, according to documents filed by Joaquin in U.S. Bankruptcy Court.

"We don't believe Peak has the right to foreclose on the property because they're an owner of the project, not a lender," said Stephen Stoker, the developer's bankruptcy attorney. "We're seeking a court order to recharacterize Peak's claim to that of owner rather than a lender."

Attorneys for Peak disagreed, saying the $12 million investment is a loan and is secured by a deed of trust, and that it has the right to foreclose on the property because Joaquin failed to obtain construction financing of up to $48 million by Oct. 31, 2008 to complete the project, and also failed to make interest payments since January.

Hoping that the bankruptcy reorganization will allow the project to be made viable, Ross said the company is working "as fast as it can" with prospective lenders.

"Financing is very, very difficult now with the state of the economy. The lenders say it's very difficult to lend on any commercial and residential project because regulators require them to conserve capital. We're hoping the lenders will change their attitudes over the next several months as the economy continues to improve," he said.

Peak's attorneys disagreed. In court papers, they argued that Peak should be allowed to foreclose on the property because Joaquin already "admits that there is no prospect that it will obtain the financing that is needed to generate revenue to fund a plan of reorganization."

Joaquin is also seeking a court order to secure lien priority for Mocha Properties LLC, which provided a $2.3 million loan to help fund Joaquin's acquisition of the land. That loan is secured by a trust deed on the property.

"If the court determines that Peak is not a lender, then Mocha is ahead of them in terms of lien priority," Stoker said.

Meanwhile, Joaquin Neighborhood Chairman Kurt Peterson said the bankrupt project may provide temporary reprieve for homeowners and students living in the area, and hold off implementation of a proposed parking permit program indefinitely.

"It's a reprieve for homeowners because they won't have 1,000 more students living on that block, and also for students, because they'll have fewer people to fight with for parking spots, and they won't have to deal with the parking permit program," he said.

The city allows neighborhoods to petition for the program, which require cars parked on the street overnight to have a permit. The program is designed to give residents in the area access to the permits, while those who don't live there won't be able to leave their cars on the street and block residents from parking in front of their homes.

On the downside, the land may "sit there looking terrible for a few years longer," Peterson said.

Provo councilwoman Cindy Richards said she wasn't sure if Joaquin's bankruptcy would put the parking permit program on hold indefinitely.

"The program is driven by resident requests, and residents there are frustrated with the state of parking as it exists," she said. "It's yet to be seen how things will change, what the needs of the residents will be and how they want us to address them."

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• Students in Provo plead for parking redress
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