Undersecured loans: Protecting your rights in Chapter 11 bankruptcies By John D. Stiner


Originally published in Oklahoma Banker - July 2011.

Commercial lenders know the story. They made loans prior to 2008 when asset values were high. The economy soured. Asset values declined. A tepid recovery has, at best, led to stagnation of those values. Now, balloon notes are maturing and refinancing is difficult. Borrowers are stressed. As a result of all this, commercial lenders are often undersecured when a loan default occurs with the collateral worth far less than the amount owed. For example, in the recent mortgage foreclosure of Crossroads Mall in Oklahoma City, the lender was owed more than $60 million. During the foreclosure proceedings the mall appraised at slightly less than $17 million. Only the lender bid at the sheriff’s sale, credit bidding its judgment and taking title to the property for just over $11 million.

When a default is imminent or has already occurred, the lender may find itself on the receiving end of a Chapter 11 bankruptcy petition if the parties are unable to structure a workout. As a result of the Bankruptcy Code’s so-called “automatic stay,” absent permission by the bankruptcy court, the lender cannot pursue foreclosure proceedings, liquidate the collateral, and move on. Rather, the lender must attempt to enforce its rights during the often lengthy pendency of the bankruptcy case. However, the filing of a bankruptcy petition is not always a bad thing.

Article authored by McAfee & Taft Attorney: John D. Stiner.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

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.

© McAfee & Taft | Attorney Advertising

Written by:


McAfee & Taft on:

Popular Topics
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.