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Buying and Selling Real Estate in Bankruptcy

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To most people who are not insol-vency professionals, bankruptcy is a specialty, a discrete area of law. Insolvency experts, however, know that bankruptcy is one of the most generic of subjects, impacting virtually every legal discipline as well as many non-legal disciplines. Successful bankruptcy practice requires not only specialized knowledge of the complexities of the Bankruptcy Code, but also knowledge of a broad range of discrete substantive areas as they apply in bankruptcy cases. The problem is that many of us do not have broad enough multi-disciplinary perspectives to be able to integrate the bankruptcy issues with some other disciplines.

We need help, and that is what John Collen has provided with his new book, Buying and Selling Real Estate in Bankruptcy. He has built a bridge for both the bankruptcy attorney and the real estate practitioner to link real estate sales to bankruptcy practice.

There has long been a kind of synergy between bankruptcy and real estate transactions. Much bankruptcy case law and legislation has been written in the context of troubled real estate. From Pine Gate in the 1970s to 203 N. LaSalle Street in the 1990s, from relief from the stay to classification to new value, real estate transactions have played a major role. Collen, who practices in the Chicago office of Sonnenschein, Nath & Rosenthal and is an active ABI member (currently serving as vice chair of the Real Estate Committee), has had more than 18 years’ experience in both real estate and bankruptcy, and has combined this expertise to produce a remarkable inter-disciplinary volume.

The opening chapter is a primer on the "Structure of the Bankruptcy Code," undoubtedly directed primarily to the real estate expert. Clearly written and easily understood, it would, standing alone, make a fine monograph for non-bankruptcy attorneys involved in bankruptcy cases, providing a chapter-by-chapter analysis of Bankruptcy Code provisions, an under-standing of the players involved in bankruptcy cases and a clear analysis of the bankruptcy court system.

Starting with Chapter 2, the book covers specific issues in sale transactions including notice, hearing and approval requirements for sales; when and under what circum-stances sales may be accomplished free and clear of liens and other interests in the property; successor liability; types of sales including auctions and sales under a plan of reorganization; assignments of leases; retention and compensation of real estate professionals; the effect of common terms of real estate transactions in bankruptcy; and a wonderful chapter dealing with miscellaneous special transactions such as sale-leasebacks, timeshares and Illinois Land Trusts. An appendix contains useful forms.

In addition to the clear and concise writing style, what I like most about the volume is its organization. Perhaps the book contains more about real estate sales in bankruptcy than some people really ever want to know, but this is the book’s greatest asset. While virtually everything is there, the attorney can easily read only what is important to the particular case and move, laser-like, right to the issue involved. For example, let’s assume that a bankruptcy attorney representing creditors is trying to analyze a debtor-in-possession’s proposed sale of certain real estate under its plan of reorganization. The DIP determines the value of the property using a discounted cash flow analysis to capitalize the projected yield, a method with which the creditor’s bankruptcy lawyer is not entirely comfortable. The lawyer wants to know whether the formula is appropriate for this property and whether it was correctly applied. Easy. Turn to Chapter 3 on "Court Approval of Sales." Paragraph 3.03 covers "Valuation Techniques" and 3.03[3] deals with "Appraisal Methodology" with sub-paragraph [c] analyzing yield capitalization on a discounted cash flow analysis.

On the other hand, the attorney with major expertise in real estate may want to know what standards the bankruptcy court will apply in approving such a sale. Easy again. Paragraph 3.02 covers all applicable tests for court approval of sales.

Thus Collen succeeds in synthesizing real estate and bankruptcy aspects of real estate sales. In doing so, he has rendered an important service to the insolvency community. This unique volume is indispensable for any bankruptcy or real estate practitioner involved in the sales of real property in bankruptcy.

For additional information or to place an order, call West Group at (800) 221-9428.

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Wednesday, April 1, 1998

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