The Lotus at Diamond Head, a boutique hotel formerly known as the W Hotel, might be heading to foreclosure auction after all.

Bankruptcy Judge Robert Faris dismissed the Chapter 11 case yesterday for Big Island developer Brian Anderson's Anekona W LLC.

Anderson filed for voluntary Chapter 11 bankruptcy for the Lotus, a 51-room hotel, in May, listing $10 million to $50 million in assets and liabilities.

Attorneys for the Office of the United States Trustee filed the motion for the dismissal, saying the Lotus — Anekona's sole asset in this case — was encumbered by two bank loans, which would leave unsecured creditors with nothing.

Also, the U.S. Trustee alleged that Anderson was just stalling the foreclosure process by filing for bankruptcy.

The trustee also alleged that Anekona W was incorrectly identified as a small business when it was not, and failed to comply with basic obligations.

Anekona holds mortgages from First Hawaiian Bank and Central Pacific Bank.

Richard Emery was appointed commissioner for the Lotus in April, but before the scheduled auction, Anderson filed for bankruptcy.

A foreclosure auction date should be scheduled within the next few days.

Both banks supported dismissing the bankruptcy petition.

The trustee said there were no sales prospects for Anekona, which indicated it wanted more time to sell the hotel on its own rather than through a state court-appointed commissioner.

Even with a sale, there is no hope for payment other than to the banks, the trustee said.

The trustee also supported appointing a Chapter 11 trustee, but First Hawaiian opposed that.

Anderson's attorney, William Gilardy, declined to comment on the ruling.

Gilardy had a contract drawn up with Colliers Monroe Friedlander to sell the Lotus — which sits on about 28,455 square feet of both fee-simple and leasehold land — for a list price of $14 million.

The hotel continues to remain open for business under the management of Castle Resorts, with a summer online special promoting rooms for $169 per night.