The Real Estate Lender’s Updated Guide to Single Asset Bankruptcy Reorganization

by Eversheds Sutherland (US) LLP


After eighteen years of nearly uninterrupted growth in commercial real estate markets, defaults by commercial real estate borrowers are rising dramatically. In some cases, loans have defaulted because (due to the general downturn in the economy) the property is no longer generating income sufficient to pay the property’s debt service and operating costs. In other cases, the property may currently be able to cover expenses, but the loan has matured with no new financing on the horizon. Regardless of the cause, lenders face a scenario that is becoming all too familiar: The borrower is a special purpose entity that owns a single real estate project. The project was financed by a mortgage loan, which may be either recourse or non-recourse to the borrower and which may (or, may not) be guaranteed (in whole or in part) by the borrower’s principals. With no cure, refinancing or workout in sight, the lender has accelerated its loan and begun the process of foreclosing on the project. But, the borrower, who remains convinced that an economic recovery is just around the corner, insists that if the lender will just renegotiate the loan terms, the project can survive the current crisis, enabling the (eventual) repayment of the debt and the salvaging of the borrower’s equity in the project. To increase the lender’s willingness to agree to terms, the borrower has filed a Chapter 111 bankruptcy petition, threatening a “cramdown” unless the lender agrees (among other concessions) to reinstate the loan and extend its maturity.

What are a lender’s options when a single asset borrower files a Chapter 11 petition? Outside of Chapter 11, the rules are fairly simple: either the mortgage lender gets its loan repaid or it gets its collateral. In Chapter 11 the rules are quite different. The mere filing of a Chapter 11 petition initiates an automatic stay enjoining virtually all acts against the debtor or its property, including foreclosure.2 Unlike a Chapter 7 liquidation, where a trustee is appointed immediately upon filing, the borrower in a Chapter 11 reorganization remains in control of its assets as a “debtor-in-possession.” Virtually all business entities, including corporations, limited liability companies, partnerships, and sole proprietorships, may seek Chapter 11 relief.3 Insolvency is not a requirement.4

Over twenty-five years ago, in the midst of another severe recession, a bankruptcy court aptly observed that in Chapter 11 “there are seldom any winners, just survivors.”5 This Article summarizes the key issues that arise in single asset Chapter 11 cases and discusses strategies and tactics mortgage lenders can employ to maximize their chances of survival. In particular, this Article examines two significant changes in the world of commercial real estate finance since the last real estate recession: (1) the impact of the Bankruptcy Abuse and Consumer Protection Act of 20056 (“BAPCPA”) on bankruptcies by single asset real estate entities and (2) the increasingly widespread use of so-called “springing,” “exploding” and “non-recourse carve out” guaranties in commercial real estate loans. As discussed below, while these two developments may discourage bankruptcies by single asset entities and limit single asset debtors’ options once a bankruptcy petition has been filed, lenders are likely to face new challenges by debtors who are able to seek bankruptcy protection.

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.

© Eversheds Sutherland (US) LLP | Attorney Advertising

Written by:

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP on:

Readers' Choice 2017
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 using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*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.