In a much anticipated opinion, In re TOUSA, Inc., --- F.3d ----, 2012 WL 1673910 (11th Cir. May 15, 2012), the Eleventh Circuit Court of Appeals has resolved a disagreement between the Bankruptcy Court and District Court for the Southern District of Florida by upholding the Bankruptcy Court’s findings—to the chagrin of lenders, who are now arguably exposed to new liabilities and higher standards of due diligence.

The TOUSA saga began during the recent decline of the housing market. In 2005, TOUSA, at the time the thirteenth largest homebuilding enterprise in the country, entered into a joint venture to acquire the homebuilding assets of another company incurring significant debt to do so. By 2006, TOUSA had found itself in dire financial trouble due to the downturn in the housing market, and the joint venture began defaulting on its obligations. TOUSA then entered into a settlement through which TOUSA’s subsidiaries (the “Conveying Subsidiaries”) granted liens on their assets to secure a loan from new lenders (the “New Lenders”), the proceeds of which funded the settlement payment to the joint-venture’s original lenders (the “Transeastern Lenders”).