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MMS's Default
In December 1994, MMS became insolvent. At that time, there
was an outstanding balance of $1,375,000 on the Miller/Huntington
Loan. On December 29, 1994, the Rapp Group, as guarantors, paid
$900,000 to Huntington in partial satisfaction of the
Miller/Huntington Loan. The Rapp Group then satisfied the
remaining $475,000 on the Miller/Huntington Loan by taking out
personal loans from Huntington and using the proceeds to purchase
the Miller/Huntington Loan note.10 Concurrently, petitioner and
the Rapp Group formed a new entity operating under the name MSR
Technologies, LLC (MSR), which purchased MMS's remaining assets
and completed MMS's outstanding contracts. Upon MSR's completion
of the contracts, MSR paid the proceeds to the Rapp Group, which
in turn used the proceeds to repay their personal loans from
Huntington.
As of the trial in this case, petitioner had not made any
payments to the Rapp Group to reimburse them for their payments to
satisfy the Miller/Huntington Loan pursuant to their guaranties,
nor had the Rapp Group sought reimbursement from petitioner.
Petitioner submitted a personal financial statement as of
December 29, 1994, to Huntington in connection with MMS's default,
which listed assets of $583,000 (consisting of petitioner's
10 It was anticipated that the completion of MMS's
outstanding contracts, coupled with the liquidation of its
assets, would result in proceeds of approximately $475,000.
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