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Real Estate

Single Asset Real Estate Tightening the Noose for Developers

By: Anna Drynda

St. John's Law Student

American Bankruptcy Institute Law Review Staff

 

Recently, the United States Bankruptcy Court for District of New Jersey in In re Kara Homes, Inc. held that affiliated Chapter 11 debtors, each owning separate real estate development projects for the construction of single family residences and condominiums, qualified as single asset real estate (“SARE”) cases, a holding that allowed the lenders expedited relief from automatic stay.

[1]

  The case focused on whether the debtors conducted “substantial business” other than operating the real property sufficient to exclude them from the SARE provisions.

[2]

  Adopting a “pragmatic approach,” the Court held that even if the business activities would qualify had the debtors performed them for third parties, such activities when performed for the debtor itself, or one of its affiliates, do not constitute substantial business.

[3]

  The residential home building business, although involving real estate, arguably has more similarity to a manufacturing operation than to the on-going property management operations of many SARE debtors.  The Kara Homes approach makes it very difficult for real estate developers to reorganize in bankruptcy.

Ride Through Option for Real Property Survived BAPCPA

By: James Lynch

St. John's Law Student

American Bankruptcy Institute Law Review Staff

 

Although the Bankruptcy Abuse Protection Act of 2005 (“BAPCPA”) largely eliminated the so-called “ride through” option for security interests in personal property, the Connecticut Bankruptcy Court in In re Caraballo

[1]

held that the option remains available for liens secured by real estate.  Under the ride through, a debtor whose real estate mortgage is not in default does not have to reaffirm the debt or surrender the real estate, but can retain the real estate by continuing to make the scheduled mortgage payments.

[2]

  Thus, since the debtor in Caraballo was not in default, the Court disapproved the debtor’s mortgage reaffirmation agreement as not being in her best interests “because she could retain the subject real property without reaffirming the [d]ebt.”

[3]

 

Should Escrow Accounts Funded by the Debtor be Property of the Estate

By: Meagan Mahar

St. John's Law Student

American Bankruptcy Institute Law Review Staff

 

Despite conflicting New York case law, the Delaware Bankruptcy Court in In re Atlantic Gulf Comtys. held that funds in an escrow account are not property of the estate even where the funds were deposited by the debtor.

[1]

  Only the debtor’s contingent right to recover the funds upon satisfying the escrow conditions is considered estate property.

[2]