Intercreditor Agreements: Recognize That Second Lien Financings Are A Special Case Of Subordinated Lending

BOKF, N.A. v. JPMorgan Chase Bank, N.A. (In re MPM Silicones, LLC), 518 B.R. 740 (Bankr. S.D.N.Y. 2014) –

Senior lienholders sued lenders holding junior liens on common collateral, arguing that the junior lienholders violated an intercreditor agreement.  The bankruptcy court addressed the issues in the context of motions to dismiss the senior lienholder complaints.  Continue reading

Posted in Financing | Tagged , , | Leave a comment

Recording Errors: A Typo Is Not Always Fatal

Deirdra Renee Gause v. Citifinancial Services, Inc. (In re Deirdra Renee Gause), 525 B.R. 35 (Bankr. M.D. N.C. 2014) –

A chapter 13 debtor sought a court determination that a mortgage loan was unsecured because there was a small typo in her name when the mortgage was indexed.  The mortgagee brought a motion to dismiss for failure to state a claim.

Applicable state law included the following provisions:

  • “’No deed of trust… shall be valid to pass any property as against lien creditors… but from the time of registration thereof.’”
  • “Registration of the instrument is only deemed valid if the instrument is ‘indexed in a manner to put a reasonably careful and prudent examiner on notice upon inquiry, and, if upon inquiry, the instrument would have been found.’”
  • “Furthermore, ‘substantial compliance with the indexing statutes’ is required in order for a recordation to be effective as notice.”In the context of a motion to dismiss for failure to state a claim, the court noted that well-pleaded allegations made by the plaintiff are taken as true and all inferences are liberally construed in the plaintiff’s favor, but the plaintiff is required to allege sufficient facts to state a claim for relief that is “plausible on its face.” In a very short and to the point opinion the court found that the debtor failed to plead a facially plausible claim.
  • The bankruptcy court briefly discussed a state court decision determining that a judgment docketed under the name “Philips” instead of “Phillips” (with one “l” instead of two) was sufficient notice to create a valid lien. The state court found that there was substantial compliance notwithstanding the minor discrepancy in the name. Noting the parallel facts in this case, the bankruptcy court held that omitting one letter from the middle of the debtor’s name alone did not lead to a reasonable inference that indexing under the incorrect name was a failure to substantially comply with the notice requirement.
  • The debtor’s name was “Deirdra Gause.” However, the deed of trust was indexed under “Deirda Gause” (without the second “r”). The issue was whether omitting a single letter in the debtor’s first name constituted a failure to substantially comply with the recording requirements.

While this seems like a reasonable decision, there are a surprising number of cases in which a court has determined that a mortgage fails due to some seemingly minor error.  See, for example: Mortgage Execution: Even A “Teensy-Weensy Boo-Boo” Can Come Back To Bite YouMortgage Recording Requirements: Tiny Technical Defect Strikes AgainStrong Arm Powers: Mortgage Boo-Boo Strikes Again; and Recording Defects: A Continuing Theme – Trivial Mistakes May Not Be So Trivial.

Vicki R. Harding, Esq.

Posted in Financing, Real Estate | Tagged , , | Leave a comment

Cramdown Hurdles Round 3: Try, Try Again

In re Ramz Real Estate Co., LLC, 510 B.R. 712 (Bankr. S.D.N.Y. 2013) –

An undersecured mortgagee objected to a debtor’s proposed plan of reorganization on several grounds, including that (1) the plan was not approved by a proper impaired class and (2) retention of equity by the debtor’s members violated the absolute priority rule. Continue reading

Posted in Financing, Real Estate | Tagged , | Leave a comment

Security Agreement: When Drafting You Better Say What You Mean

State Bank of Toulon v. Covey (In re Duckworth), 776 F.3d 453 (7th Cir. 2014) –

A chapter 7 trustee sought to treat a secured lender as unsecured based on an error in the security agreement.  The lender argued that the error was subject to reformation to conform to the intent of the parties.  The bankruptcy court and the district court found in favor of the lender, and the trustee appealed to the 7th Circuit. Continue reading

Posted in Financing | Tagged , | Leave a comment

“Deed in Lieu”: Deed That Is Not Really In Lieu Of Foreclosure Will Likely Not Be Treated As a Deed

In re Primes, 518 B.R. 466 (Bankr. N.D. Ill. 2014) –

A mortgagee moved for relief from the automatic stay, arguing that it acquired title to property prior to the bankruptcy under a quit claim deed given to it by the debtor. However, the bankruptcy court agreed with the debtor that the deed, which was given in connection with a forbearance agreement, should be treated as an equitable mortgage. Continue reading

Posted in Financing, Real Estate | Tagged | Leave a comment

Bailment: Retaining Funds Received From a Bankrupt Bailee Is Not a Slam Dunk

In re Mississippi Valley Livestock, Inc., 745 F.3d 299 (7th Cir. 2014) –

A debtor sold cattle for the account of a cattle producer and then remitted the proceeds to the producer.  A chapter 7 trustee sought to recover the payments as preferential transfers.  The trustee lost in both the bankruptcy and district courts, and then appealed to the 7th Circuit. Continue reading

Posted in Uncategorized | Tagged , | Leave a comment

Trespass And Other Claims: Ever Wonder If Litigation Is Worth It?

Flyboy Aviation Properties, LLC v. Franck (In re Flyboy Aviation Properties, LLC), 525 B.R. 510 (Bankr. N.D. Ga. 2015) –

A chapter 11 debtor operated a small private airport.  The debtor and an adjacent landowner had a long running dispute that led to the debtor suing the landowner pre-bankruptcy for trespass.  After the bankruptcy petition was filed, the case was removed to the bankruptcy court.  The court’s decision provided an extensive discussion of the back and forth between the parties. Continue reading

Posted in Real Estate | Tagged | Leave a comment