Broker Commissions: Trying To Climb The Payment Priority Ladder

Posted on December 13, 2012 by BankruptcyRealEstateInsights

In re Grubb & Ellis Co., 478 B.R. 622 (Bankr. S.D.N.Y. 2012) –

Real estate agents who worked for Grubb & Ellis Co. prior to its bankruptcy sought allowance of their claims for commissions as an administrative expense.  Grubb & Ellis addresses the question of whether a commission due for a sale that closes post-petition where the buyer was procured prepetition is entitled to treatment as an administrative expense.

Section 503(b)(1)(A) of the Bankruptcy Code describes administrative expenses as including “the actual, necessary costs and expenses of preserving the estate, including – (i) wages, salaries, and commissions for services rendered after the commencement of the case.”  Classification as an administrative expense is beneficial because generally administrative expenses are entitled to payment before unsecured claims are paid. Continue reading →

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Ad Valorem Property Taxes: Deadline For Challenging In A Bankruptcy

Posted on December 11, 2012 by BankruptcyRealEstateInsights

Pinellas County Property Appraiser v. Read (In re Read), 692 F3d 1185 (11th Cir. 2012) –

Under Section 505(a)(1) of the Bankruptcy Code, generally a bankruptcy court may determine the amount or legality of any tax. However, under Section 505(a)(2)(C) of the Bankruptcy Code ad valorem real or personal property taxes cannot be contested if the applicable time period under non-bankruptcy law has expired.

Section 108 of the Bankruptcy Code provides for certain extensions of time, including the time a debtor has to commence an action if the normal non-bankruptcy period did not expire before the date a petition is filed.

So, what happens if the state law period for contesting ad valorem taxes expires shortly after a bankruptcy is filed: must the debtor challenge the taxes before expiration of that period, or does it have the benefit of the Section 108 extension?  In Read, the bankruptcy court as affirmed by the district court gave the debtor the benefit of the Section 108 extension.  The 11th Circuit reversed. Continue reading →

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“Loan to Own” Debtor: Public Interest Overrides Bad Faith Filing

Posted on December 6, 2012 by BankruptcyRealEstateInsights

In re 1701 Commerce, LLC, 477 B.R. 652 (Bankr. N.D. Tex. 2012) –

The capital stack for Presidio Hotel Fort Worth, L.P. consisted of (1) a senior loan of $39.6 million from Dougherty Funding, LLC, (2) a junior loan from Vestin Originations, Inc. and (3) a 20‑year tax agreement with the City of Fort Worth pursuant to which the City made annual grant payments.

The debtor (1701 Commerce, LLC) was a wholly owned subsidiary of Vestin that was created shortly after the borrower (Presidio) indicated that it was likely to default on both the senior and junior loans.  It was a special purpose entity formed to take an assignment of the junior loan and then to own the property in order to limit the potential exposure of the Vestin affiliates holding the loan prior to the transfer.  By the time this bankruptcy was filed, the borrower had transferred the hotel project to the debtor by deed-in-lieu of foreclosure. Continue reading →

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Golf Fees As Cash Collateral: Strike Three You’re Out

Posted on December 4, 2012 by BankruptcyRealEstateInsights

Far East Nat’l Bank v. U.S. Trustee, San Diego (In re Premier Golf Properties, LP) 477 B.R. 767 (9th Cir. B.A.P. 2012) –

Cash collateral is defined in the Bankruptcy Code as including cash, negotiable instruments, deposit accounts, or other cash equivalents in which both the bankruptcy estate and another entity have an interest.  A debtor may not use cash collateral unless it obtains either a court order or consent of the other entity with the interest.  In Premier Golf, the bank argued that its security interest extended to post-petition driving range and green fees, so that the fees constituted cash collateral and the debtor was required to obtain a court order or the bank’s consent to use the cash. Continue reading →

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Condo Liens: Judicial Lien v. Security Interest v. Statutory Lien – And Who Cares?

Posted on November 29, 2012 by BankruptcyRealEstateInsights

Young v. 1200 Buena Vista Condominiums, 477 B.R. 594 (W.D. Pa. 2012) –

Young, a chapter 13 debtor, sought to avoid a condominium association lien for assessments because his chapter 13 plan was feasible only if a large portion of the lien could be avoided.  If the lien was classified a security interest it could not be avoided (based on the anti-modification provisions applicable in a chapter 13 case); while if it was statutory lien, the debtor was hoping that he would be able to avoid the lien at least in part. Continue reading →

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Valuing Collateral: Do Low-Income Housing Tax Credits Count?

Posted on November 27, 2012 by BankruptcyRealEstateInsights

In re Creekside Senior Apartments, LP, 477 B.R. 40 (6th Cir. B.A.P. 2012) –

In valuing a bank claim secured by a low-income housing project for purposes of a plan of reorganization, should the remaining federal low‑income housing tax credits allocated to the project be taken into consideration?  In Creekside the bankruptcy court said yes, and the bankruptcy appellate panel agreed.

Five single‑asset real estate debtors owned low‑income housing projects that were subject to mortgages securing loans made by a bank.  Each project had been allocated federal low‑income housing tax credits (LIHTC) and in exchange was subject to rent restrictions.  As is typically the case, a limited partnership debtor was awarded the tax credits, and then under its partnership agreement 99.98% of the tax credits were allocated to an investor limited partner, which in turn “syndicated the investment and tax credits opportunity to a pool of investors.”  At the time of the bankruptcy there were 4 to 5 years of tax credits remaining and 24 to 25 years remaining on the rent restrictions. Continue reading →

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