If It Looks Like a Duck, err, a SARE Debtor...

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Recently, the Ninth Circuit Court of Appeals brought smiles to the faces of many lenders (especially Bank of America, the appellee and secured lender) when it refused to combine the assets of related debtors without a substantive consolidation order and held that a single asset real estate debtor will be treated as a single asset real estate debtor.

Let’s take a little detour – some background information may be necessary. In 1994, the Bankruptcy Code (§ 362(d)(3)) was amended to include provisions relating to the “single asset real estate” (“SARE”) debtor. A SARE debtor (§ 101(51B)) is a debtor that owns a single property (commercial or residential with 4 or more units) which generates substantially all of the gross income of the debtor, is not a farmer and is not engaged in any other business (other than owning and operating that property). These provisions are fondly (at least in some circles) referred to as the “SARE Provisions.” The SARE Provisions require a debtor to propose a confirmable plan or commence making payments equal to the contract rate of interest (as opposed to default interest) due on the loan within a short time frame (90 days after entry of an order for relief or 30 days after the court determines that the SARE Provisions apply). If a SARE debtor fails to comply, a creditor (well, any creditor whose claim is secured by the property) may obtain relief from the stay and commence foreclosure. The effect of the SARE Provisions has been to shorten the life of a case and the economic burden placed on creditors whose claims are secured by a SARE debtor’s property.

Please see full article below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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