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Single Asset Real Estate Cases Should Be Excluded from a Reformed Chapter 11 According to April ABI Journal

Alexandria, Va. — Any reform efforts to chapter 11 of the Bankruptcy Code should look to exclude single asset real estate (SARE) cases from chapter 11, according to an article in the April edition of the ABI Journal. “SAREs do not belong in chapter 11 because chapter 11 is intended to preserve going-concern value that would be lost in liquidation and to protect the rights of creditors,” writes Jonathan M. Landers of Scarola Malone & Zubatov LLP (New York) in his article, “Time to Exclude SARE Cases from a Reformed Chapter 11.” “SARE is simply a contest between the secured lender and the property-owning debtor in which the debtor seeks to preserve its equity interest by using the tools of bankruptcy to reduce the lender's secured debt.” A single asset real estate is defined in the Bankruptcy Code as "real property constituting a single property or project, other than residential real property with fewer than 4 residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental." The value of a SARE property, according to Landers, is essentially the economic value of the real estate, and little or no going concern value will be lost by an outright sale or transfer of the asset. “Such cases do not accomplish any significant social or policy benefit, unless reducing the lender’s claims and transferring value to the debtor is considered such a benefit,” Landers writes. Landers found that the typical SARE case is a dispute between the lender and debtor where the debtor cannot pay its secured debt under the terms and conditions of its loan and needs more time, lower payments, lower interest rate, reduced principal and/or different terms. “If the lender agrees to these terms, chapter 11 is not needed, so SARE cases are filed when a consensual arrangement cannot be reached,” Landers writes. Landers advocates for SARE cases to be excluded from chapter 11 because he finds that it is hard to justify the expense of chapter 11 and the work involved with a debtor that is dealing with nominal amounts of unsecured debt, as well as the service providers and employees who are likely to follow the asset into new hands. “Chapter 11 has never been justified as a mechanism to transfer value from creditors to the debtors,” Landers writes. To obtain a copy of “Time to Exclude SARE Cases from a Reformed Chapter 11,” published in the April issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at [email protected] ### ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit For additional conference information, visit