Real Estate Lenders Rejoice: Ninth Circuit Holds that the Property Held by One Debtor in a Bankruptcy Case Involving a Consolidated Group of Real Estate Companies Qualified as a Single Asset Real ...

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On January 27, 2012, the Ninth Circuit Court of Appeals held that a property level debtor was subject to the single asset real estate provisions of the Bankruptcy Code even though the debtor was one of fifty-three debtor subsidiaries in a bankruptcy case involving a consolidated group of real estate companies that had centralized management and a centralized cash management account. Meruelo Maddux Properties-760 S. Hill Street, LLC v. Bank of America, N.A. (In re Meruelo Maddux Properties, Inc.), No. 10-56128 (9th Cir. Jan. 27, 2011).

Under section 362(a) of the Bankruptcy Code, immediately upon the filing of its bankruptcy petition, a debtor receives the protection of the automatic stay, which, among other things, operates to prevent secured creditors from enforcing liens against the debtor’s estate. 11 U.S.C. § 362(a). One way a creditor can obtain relief from the automatic stay is if the bankruptcy estate qualifies as “single asset real estate,” commonly referred to as a “SARE.” 11 U.S.C. § 362(d). If a debtor’s property constitutes a SARE, the court will grant a creditor relief from the automatic stay unless, within the latest of (1) 90 days after the order for relief, (2) such longer period as the court determines during the initial 90-day period or (3) 30 days after the court determines that the debtor is subject to the SARE provisions, the debtor files a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time, or the debtor has commenced monthly payments equal to the interest at the then applicable non-default contract rate of interest on the value of the creditor’s interest in the real estate. 11 U.S.C. § 362(d)(3).

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