NINTH CIRCUIT REJECTS “WHOLE BUSINESS ENTERPRISE” EXCEPTION

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A late January ruling by the Ninth Circuit Court of Appeals has gladdened real estate lenders and struck terror into the hearts of developers. Essentially, the court prevented a major real estate developer from using the “whole business enterprise” designation in order to avoid the requirements of the Bankruptcy Code’s “single asset real estate” designation.

To understand the significance of this decision, today’s posting will take a quick trip through the pushing and shoving that has occurred in bankruptcy between developers and lenders. My next posting will then address the recent Ninth Circuit ruling.

To begin with, one must first understand that bankruptcy has long presented an enormous headache to real estate lenders. In making real estate loans, they generally go to the enormous trouble of protecting their loan positions by taking back mortgages, rent assignments, and other security interests which are designed to protect their position as strongly as possible. [We’ll pass on the chance to make a snarky comment about the recent mortgage bubble.]...

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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.

© Joel Glucksman, Scarinci Hollenbeck | Attorney Advertising

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