Document Type
Research Memorandum
Publication Date
2009
Abstract
(Excerpt)
Recently, the United States Bankruptcy Court for District of New Jersey held in In re Kara Homes, Inc., 363 B.R. 399 (Bankr. D.N.J. 2007) that secured construction lenders of affiliated chapter 11 debtors were entitled to expedited relief from an automatic stay of foreclosure pursuant to section 362(d)(3) of the Bankruptcy Code because the court determined each debtor constituted single asset real estate case under section 101(51B) of the Code. The significance of expedited relief under section 362(d)(3) is it imposes an “expedited time frame for filing a plan” of reorganization in chapter 11 for single asset real estate cases, which historically are viewed as abusive postponements of foreclosure filed for the single purpose of holding on to the property, encumbered by a “major lender who is grossly undersecured,” with “no real hope . . . [of] a viable confirmable Chapter 11 plan.” In re Kkemko, Inc., 181 B.R. 47, 49, 51 (Bankr. S.D. Ohio 1995). The expedited time frame requires a debtor to file a reasonable plan of reorganization or commence making monthly payments either within 90 days after an entry of order for relief by the creditor or if there is an issue as to whether the debtor is a single asset real estate case then 30 days after court determines a debtor to be a single asset real estate case under section 101(51B) and if debtor fails to file a plan or commence payments, then the automatic stay will be lifted allowing the creditor to foreclose on the property. See Kara Homes, 363 B.R. at 406–07; see also Janet Flaccus, Single Asset Real Estate Case and the Bankruptcy Abuse Prevention and Consumer Protection Act, 2007 ARK. L. NOTES 83, 84 (2007) (explaining requirements under section 362(d)(3) of Bankruptcy Code and its ramifications on debtor). Furthermore, in other chapter 11 cases, there is no statutorily specified time period for reorganization and thus debtors would want to avoid being determined a single asset real estate in order to avoid the time constraints set by section 362(d)(3). See In re Philmont Dev. Co., 181 B.R. 220, 223 (Bankr. E.D. Pa. 1995). Therefore, the Kara Homes approach as to what constitutes a single asset real estate case significantly increases the level of difficulty for large developers to reorganize in bankruptcy as current market conditions are hindering real estate developers from honoring commitments to their lenders.