The Law of Distressed Real Estate

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he LThe Law of Distressed Real Estate
Foreclosure, Workouts, Procedures By Baxter Dunaway

This article is a reprint of Chapter 24 of The Law of Distressed Real Estate, and includes the latest information in real estate workout, foreclosure and bankruptcy law. It is an exhaustive analysis and dissection of the bankruptcy reorganization process under Chapter 11 of the Bankruptcy Code and focuses on single-asset real estate entities and cases. This chapter was written by John C. Murray, Esq., Vice President-Special Counsel, First American Title Insurance Company. Mr. Murray handles transactional, underwriting, corporate relationship, and other responsibilities for the company’s Chicago National Commercial Division, has authored numerous pieces on various real estate, environmental, bankruptcy, taxation, and title insurance topics, and is a frequent speaker and guest lecturer. Chapter 24: Bankruptcy—Reorganization Under Chapter 11 is an updated and expanded version of John C. Murray, The Lender’s Guide to Single Asset Real Estate Bankruptcy, 31 Real Prob. & Tr. J. (Fall 1996).

John C. Murray, Vice President-Special Counsel, First American Title Insurance Company, Chicago, Illinois; B.B.A. 1967, University of Michigan; J.D. 1969, University of Michigan. The author expresses his appreciation to Thomas S. Kiriakos, a partner with Mayer, Brown & Platt, Chicago, Illinois, for his assistance with this chapter. Copyright reserved by the author of this chapter.

Table of Contents §24.01 Introduction [1] Relationship to Other Book Chapters [2] Background §24.02 Background and Ostensible Purpose of the Bankruptcy Code [1] Bankruptcy Reform Act of 1994 [a] Security Interest in Rents [b] Automatic Stay in Single Asset Real Estate Cases [c] DePrizio Case [d] Rights of Nondebtor Lessee When Lease Is Rejected [2] Chapter 7 and Chapter 11 §24.03 Powers Granted Under Chapter 11 [1] Automatic Stay [2] Preferential Transfers and Fraudulent Transfers [3] Subordination on Equitable Grounds—§510(c) [4] Fraudulent Transfers [5] Rejection of Unexpired Leases and Executory Contracts [6] Debtor Use of Assets—Adequate Protection §24.04 Economic Benefits to Debtor §24.05 Who Controls the System §24.06 General Overview of the Bankruptcy Process [1] Filing Petitions, Early Motions, and Responses [a] Assignment of Rents and Use of Case Collateral [b] Jurisdiction and Venue [c] Relief from Automatic Stay [i] In General Under §362(d) [ii] Under §362(d)(3) as Single Asset Real Estate [2] Reorganization by Debtor or Trustee [3] Involuntary Petitions [4] Exclusive Period: Developing the Plan of Reorganization [a] Term of Exclusive Period [b] Proof of Claim [c] Separation of Debt into Secured and Unsecured Claims [d] Classification of Claims [5] Reaching a Consensus for the Plan and Obtaining Confirmation [6] Emerging from Bankruptcy §24.07 Secured Creditors’ Strategies and Remedies §24.08 Understanding the Secured Creditors’ Options [1] Asking and Answering Questions [2] Reviewing Loan Files [3] Assessing the Property’s Value [a] Significance of Valuation [b] Approaches to Valuation in Bankruptcy [i] Prior to the Rash Case [ii] After the Rash Case

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[A] Valuation for Confirmation [B] Valuation for Lifting the Stay [C] Valuation for Sale Under §363(f) §24.09 Limiting Debtor’s Control over Property [1] Appointment of Trustee or Examiner [2] Involuntary Chapter 7 or 11 §24.10 Obtaining an Interest in Cash Collateral [1] Perfection of Assignment of Rents [2] Value of Cash and Prepetition Hoarding [3] Cash Collateral Motions §24.11 Moving for Relief from Automatic Stay [1] Grounds for Relief [a] Relief Due to Cause [i] Valuation of Property in Bankruptcy [A] Purpose of Adequate Protection [B] Interpretation of Adequate Protection [b] Adequate Protection of Rents [c] Adequate Protection of Hard Collateral [d] Relief Due to No Equity, and the Property Is Unnecessary for a Reorganization [2] Moving for Dismissal or Conversion to Chapter 7 [a] Case Filed...
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