Lease Interpretation: “Clear and Unambiguous” Is In the Eye of the Beholder?

Posted on October 4, 2012 by BankruptcyRealEstateInsights

Woodhollow Loft, Inc. v. Sisters of St. Francis Health Services Inc., 472 B.R. 494 (N.D. Ind. 2010) –

The results can be unpredictable if a lease does not precisely document the parties’ intent, leaving matters up to a court’s imagination.

The Sisters of St. Francis Health Services bought a fitness center with a sports bar through a subsidiary (SMMHC) in January 1998.  As a matter of policy, they decided against direct ownership of the liquor license.  Instead SMMHC entered into a three-year Consulting and Non-Competition Agreement  with the seller (Et Al) to continue to operate the sports bar and maintain the liquor license. Continue reading →

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Treatment Under A Plan of Reorganization: What Does It Take To Discharge A Mortgage?

Posted on October 2, 2012 by BankruptcyRealEstateInsights

Acceptance Loan Co. v. S. White Transp., Inc. (In re S. White Transp., Inc.), 473 B.R. 695 (S.D. Miss. 2012) –

In S. White Transportation, by remaining silent until after confirmation, a mortgagee managed to retain its lien notwithstanding the debtor’s attempt to discharge it through a plan of reorganization.

Acceptance Loan Company, Inc. claimed that it had a lien on an office building owned by S. White Transportation, Inc. (SWT) to secure its loan to SWT.  The parties ended up in state court litigating the validity of the lien.  When SWT filed bankruptcy, it identified Acceptance’s claim as a secured claim in its schedules but designated the claim as disputed.  When SWT filed a plan of reorganization, it discussed the Acceptance claim in the disputed claims section, noting that no proof of claim was filed and that the time to file had expired.  (The significance being that the claim should be disallowed since there was no timely proof of claim, and the fact that the claim was scheduled did not make any difference since it was identified as disputed.) Continue reading →

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Mortgage Foreclosure: Beware the Automatic Stay

Posted on September 27, 2012 by BankruptcyRealEstateInsights

Kline v. Deutsche Bank Nat’l Trust Co. (In re Kline), 172 B.R. 98 (B.A.P. 10th Cir. 2012) –

Under Section 362 of the Bankruptcy Code, filing a bankruptcy case automatically stays a wide variety of actions, including commencing or continuing a case against the debtor or collecting prepetition claims from the debtor.  In Kline, Deutsche Bank commenced foreclosure of a condominium by filing a complaint on March 9, 2005.  It then filed an amended complaint on March 16, 2005.  The original complaint was served on March 18, 2005, and the amended complaint was served on March 29, 2005.  In the meantime, the owner of the condo (an individual) filed a chapter 13 bankruptcy case on March 21, 2005.  The bank was not aware of the bankruptcy filing until it received an e-mail from its servicer on April 11, 2005.

Upon learning of the bankruptcy, the bank suspended action in the foreclosure case but did not dismiss it, and sought relief from the automatic stay in the bankruptcy court.  A default order granting relief from the stay was entered on July 1, 2005, and the bankruptcy court dismissed the debtor’s bankruptcy case on July 13, 2005. Continue reading →

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Delinquent Property Tax Collection: Foreclosure May Be Vulnerable

Posted on September 25, 2012 by BankruptcyRealEstateInsights

Williams v. City of Milwaukee City Clerk (In re Williams), 473 B.R. 307 (Bankr. E.D. Wis. 2012) –

Wisconsin has a strict tax foreclosure procedure in which the tax authority effectively obtains the property without any public or competitive bidding in satisfaction of the delinquent tax bill.  Williams was one of several cases where the former property owner challenged the tax foreclosure as a fraudulent transfer.  As discussed in a prior blog (TOUSA), one basis for finding that a transfer is a fraudulent conveyance is that the debtor (i) was insolvent and (ii) did not receive “reasonably equivalent value” in connection with the transfer.

So, the key question was whether the property owners received reasonably equivalent value.  In the cases discussed in the Williams opinion, the City of Milwaukee foreclosed on properties with delinquent taxes of ~$14,500, ~$8,000 and ~$12,000, where the estimated fair market value of the properties was ~ $206,000, ~$116,000 and ~$82,000, respectively.  That certainly doesn’t seem like reasonably equivalent value under any normal sense of the concept. Continue reading →

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“Strong Arm” Powers Round 3: What Happens If A Mortgage Is Recorded Before a Deed?

Posted on September 20, 2012 by BankruptcyRealEstateInsights

Olsen v. Heaver (In re Heaver), 473 B.R. 734 (Bankr. N.D. Ill. 2012) –

The short story is that when a deed and mortgage are executed at the same time, but the mortgage is recorded before the deed, the recorded mortgage does not provide constructive notice and can be avoided in a bankruptcy – at least under Illinois law as interpreted by the Heaver bankruptcy court. Continue reading →

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Automatic Stay Is Not Absolute: You Can Still Go To Jail

Posted on September 18, 2012 by BankruptcyRealEstateInsights

In re D’Mello, 473 B.R. 207 (Bankr. E.D. Mich. 2011) –

Although the stay that automatically arises under Section 362 of the Bankruptcy Code when a bankruptcy petition is filed is very broad, there are exceptions, including actions to enforce a governmental entity’s police and regulatory power.  In D’Mello Ypsilanti Township obtained a mandatory injunction prior to bankruptcy requiring Cormello, LLC and Dominic D’Mello (apparently its member) to abate what was characterized as “a serious public nuisance” at a property known as the Ypsilanti Mobile Village.

After finding D’Mello in contempt of its abatement order, the state court gave him an opportunity to come into compliance and scheduled a hearing to review the status with the intent of remanding him to jail if he remained in contempt at that time.  The morning of the hearing D’Mello filed a chapter 7 bankruptcy case.  At the hearing, the state court required the Township to go to the bankruptcy court for further instruction regarding the effect of the automatic stay on enforcement of the abatement judgment. Continue reading →

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