River Parishes Dirt & Gravel, LLC v. BankPlus (In re Willow Bend Ventures, LLC), 603 B.R. 293 (Bankr. E.D. La. 2019) –
A lender’s secured claim was challenged on the basis that postpetition it failed to take steps required to maintain perfection of its mortgage as required by state law. The matter turned on whether section 108(c) of the Bankruptcy Code extended the deadline for taking those steps.
The lender made loans secured by a mortgage on the debtor’s property. After the debtor filed a chapter 11 bankruptcy, the lender filed a proof of claim for ~$6.6 million asserting a…
Continue Reading Continuing Perfection: Does a Mortgage Lapse During Bankruptcy If State Law Would Otherwise Require Steps to Maintain Perfection?

UMB Bank, N.A. v Linn Energy L.L.C. (In re Linn Energy, L.L.C.), 927 F.3d 350 (5th Cir. 2019) –
A lenders’ agent sought a court order directing payment of postpetition default interest, contending that this was required by the terms of a confirmed plan of reorganization. The bankruptcy court denied the motion; the district court affirmed; and the lenders’ agent appealed to the Fifth Circuit.
The lender group included over 40 financial institutions that extended billions of dollars in credit prepetition pursuant to a credit agreement. The credit agreement provided that after an event of default outstanding loans would accrue…
Continue Reading Default Interest: What Does the Plan of Reorganization Say?

In re Montgomery, 602 B.R. 352 (Bankr. S.D. Ohio 2019) –
The debtor claimed a homestead exemption in residential property. The chapter 7 trustee objected that the debtor was not entitled to the exemption because he lived in a camper located on the property and his grandson occupied the house.
As a preliminary matter, the state exemption statute protected “one parcel or item of real or personal property that the person or a dependent … uses as a residence.” As the court put it: “That’s it – no further detail or information as to type, size, shape, quality, etc., required.
Continue Reading Homestead Exemption: The Back Story Matters

In re Big Dog II, LLC, 602 B.R. 64 (Bankr. N.D. Fla. 2019) –
A mortgagee sought relief from the automatic stay for cause on the grounds that (1) it was not adequately protected, and (2) the debtor did not have any equity in the property and the property was not necessary for an effective reorganization. Among other things, the debtor argued that there was an equity cushion that provided adequate protection.
The debtor was a single asset real estate debtor that owned property subject to a mortgage and an assignment of rents. The debtor got into financial trouble after…
Continue Reading Mortgage Defaults: What Is the Most Effective Path for Resolving Troubled Properties?

In re Puchi Properties Inc., 601 B.R. 677 (Bankr. D. Ariz. 2019) –
A chapter 11 trustee filed a motion with the bankruptcy court seeking to enforce a confirmation order and to compel a tenant to comply with terms of the plan of reorganization. The bankruptcy court addressed both jurisdiction and confirmation issues.
About three months prior to the bankruptcy the tenant entered into a lease with the debtor and a third party as 50-50 co-landlords. The lease provided for rent of $8,000 per month for the first five years of the term with one half of each rent payment…
Continue Reading Notice, Notice, Notice: When Is a Plan of Reorganization Not Binding?

Mitsuwa Corp. v Orama Hospitality Group, Ltd. (In re Orama Hospitality Group, Ltd.), 601 B.R. 340 (Bankr. D. N.J. 2019) –
The owner of property that had been leased to a chapter 7 debtor for operation of a restaurant brought an adversary proceeding to compel specific performance of its option to repurchase a liquor license from the debtor. The chapter 7 trustee objected, arguing that (1) the agreement was an executory contract that had been rejected, and (2) it was unenforceable under state law on public policy grounds.
The debtor bought the liquor license from the owner (Mitsuwa) for $700,000,…
Continue Reading Liquor License Sale Financing: Can a Creative Structure Save the Day?

In re Venincasa, 601 B.R. 296 (Bankr. D. Mass 2019) –
A law firm sought relief from the automatic stay so that it could release funds held in its IOLTA account to pay itself fees owed by the debtor. The chapter 7 trustee and a title company creditor objected. The key issue was whether the firm had an attorney’s lien on the funds in its client trust account.
In 2009 the law firm entered into a written contingency fee agreement to represent the debtor with respect to certain claims for a fixed fee of one third of the recovery plus…
Continue Reading Attorney Liens: Possession of Cash Is Not Always the End of the Story

Scott v. U.S. Bank N.A. (In re Scott), 600 B.R. 506 (Bankr. W.D. Pa. 2019) –
A stipulation between the debtor and a mortgagee misstated the original principal amount of the mortgage debt. Eventually the debtor sought to enforce the stipulation, claiming that the parties agreed to the incorrectly stated amount.
In particular, the debtor originally challenged the mortgage lien and the mortgagee’s claim. After the parties settled, they executed a “Stipulation and [Proposed] Order Approving the Settlement.” Under the settlement, the debtor was given time to sell the property. If a sale occurred by a designated date the loan…
Continue Reading Drafting Errors: The Importance of Proofreading Cannot Be Overestimated

In re Pena, 600 B.R. 415 (9th Cir. BAP 2019) –
Well over a year after a bankruptcy case was closed, the debtor filed an application with the bankruptcy court seeking to recover unclaimed rent from deed of trust property that had been abandoned by the chapter 7 trustee. Although none of the unsecured creditors who were served with notice of the application objected, the bankruptcy court denied the request, and the debtor appealed to the Ninth Circuit Bankruptcy Appellate Panel (BAP).
The debtor owned 29 rental properties. Although it filed for protection under chapter 11, the court converted the…
Continue Reading Rents: What Happens to Unclaimed Rents Collected from Property That Is Abandoned?

Garvin v. Cook Investments NW, SPNWY, LLC, 922 F.3d 1031 (9th Cir. 2019) –
The U.S. trustee objected to a chapter 11 plan of reorganization proposed by a group of real estate holding companies on the grounds that a tenant of one of the debtors was involved in a marijuana growing operation that was illegal under federal laws. The bankruptcy court overruled the objection and confirmed the plan; the district court affirmed on appeal; and the U.S. trustee further appealed to the Ninth Circuit.
Five real estate holding companies under common ownership and management proposed a plan of reorganization that…
Continue Reading Marijuana: Should a Plan “Go up in Smoke” Because a Debtor’s Tenant Operates a Marijuana Establishment?

Fishback Nursery, Inc. v. PNC Bank, N. A., 920 F.3d 932 (5th Cir. 2019) –
In this priority dispute two nurseries sold trees and shrubs to a commercial wholesale farm that went bankrupt. They claimed their agricultural liens in the debtor’s assets were senior to a third-party bank’s security interests. The district court found in favor of the bank, and the nurseries appealed to the Fifth Circuit.
The debtor’s headquarters were located in Texas, and it filed bankruptcy in Texas. The nurseries sold over $1 million worth of trees and shrubs to debtor locations in Michigan, Oregon and Tennessee. The…
Continue Reading Agricultural Liens: Better Figure out the Right i’s To Dot and t’s to Cross