The term single asset real estate means 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.  11 U.S.C. §101 (51B).

A SARE designation dramatically changes the dynamics of a debtor’s Chapter 11 case.  A debtor designed a SARE debtor must either file a plan of reorganization with a reasonable chance of being confirmed within the later of (i) 90 days after the order for relief is entered in the case or (ii) 30 days after the date the court determines that the debtor is subject to the provisions of SARE, or must start making monthly payments to the secured creditor at the loan’s non-default interest rate. If a SARE debtor fails to satisfy these requirements, the court is likely to grant a secured creditor’s relief from the automatic stay to commence or continue with a foreclosure of the real property.

Who Falls Under the SARE Designation?  In determining if a debtor will fall into the SARE designation, courts have interpreted the meaning of “a single property or project.” If a debtor owns more than one piece of real property, the analysis will likely be simple. So long as multiple properties are not considered a single project, the debtor will not be designated as a SARE.  However, multiple real estate holdings within a single project may fall into the designation of a SARE.

If the real estate held is a single property or project, courts analyze whether the real estate is used in the operation of the business or whether it is simply held for income.  A SARE designation usually involves where income is passively generated such as from rents or leases.  Where business activities are being used to generate revenue for the debtor such as in the case of a hotel or golf course, the debtor falls outside of the SARE designation.

The Automatic Stay and SARE Debtors. The benefits of the automatic stay are limited in SARE cases. In order for the automatic stay to remain in place, Section 362(d)(3) of the Bankruptcy Code requires a SARE debtor, within 90 days after filing bankruptcy, to file a plan that has a reasonable possibility of being confirmed or commence regular payments to the secured creditor at the non-default interest rate.  If a debtor fails to do either of these, courts are likely to grant a secured creditor’s relief from the automatic stay to commence or continue with a foreclosure of the real property.  A SARE debtor cannot simply rest on the fact that it has equity in its property in order to avoid a motion for relief from the automatic stay, it has to file a plan within 90 days or commence payments.

A SARE designation provides additional challenges to the normal Chapter 11 process. These limitations may make it more likely that lenders will be granted relief from the automatic stay.  Nonetheless, with careful planning a debtor can successfully navigate through the requirements of a SARE designation and successfully reorganize. Ronald Page, PLC represents debtors and creditors in complex Chapter 11 cases.

Ronald Page, PLC services the Virginia Capitol area including Richmond, Henrico County, Chesterfield County, Hopewell, Petersburg, Hanover County, Caroline County, Powhatan County, Prince George County, Goochland County, New Kent County, and Amelia County.

In January, the Trustee for the LandAmerica 1031 Exchange Services, Inc. Trust (“LES Trust“) filed a motion to approve another settlement.  The proposed settlement is with one of the insurers, Lloyd’s, London, which proposes that Lloyd’s, London pay $37,855,029.06 to settle its liability in the LandAmerica case.  The proceeds shall be allocated 90% to the LES Trust and 10% to the LandAmerica Financial Group Trust for the first $10 million of proceeds, and 100% to the LES Trust thereafter (in other words, the LandAmerica Financial Group Trust will receive $1 million).

This settlement was approved by the Bankruptcy Court by its Order entered April 25, 2012.  It is not known at this time when the next distribution in this case will be made or how much will be distributed.

Promptly following the filing of a Chapter 7 Bankruptcy Petition, Bankruptcy Code Section 341 requires that the interim trustee appointed to review the case holds a meeting of creditors. At this meeting, the debtor gives sworn testimony, punishable by the penalties for perjury, regarding their debts, assets, and the circumstances surrounding the filing of their case.

The interim trustee is a local bankruptcy attorney who is been appointed to review the debtor’s bankruptcy case. In the context of Chapter 7, the trustee will seek to liquidate any on nonexempt assets which the debtor may own. An example of a nonexempt asset is a motor vehicle owned free and clear that is not covered by one of the applicable Virginia exemptions under Virginia Code Section 34-4 or 34-26.

Prior to the 341 hearing, the trustee should have been provided with certain financial information for the debtor. This information normally includes:
1. Debtor’s last two filed tax returns;
2. Debtor’s wage statements for the last two months;
3. Debtor’s bank account statements for the last two months;
4. Title and lien information for any vehicles owned by the debtor; and
5. Title and lien information for any real property owned by the debtor

At the 341 hearing, the debtor needs to provide verification of their identity. This verification is usually provided by showing government issued photo identification and a Social Security card. Also, in the Eastern District of Virginia the debtor also needs to fill out and execute an interrogatory form.

If the trustee requires the debtor to provide additional information, the 341 hearing can be adjourned to a later date in order to give the debtor time to provide the requested information. Failure to comply with requests of the trustee can result in a dismissal of the case or an objection to the debtor receiving a discharge.

September 12, 2011.  The Trustee for the LandAmerica 1031 Exchange Services, Inc. Trust (“LES Trust“) has filed a motion to approve two settlements in the case.  The first is a settlement with one of the insurers, Illinois Union Insurance Company (“Illinois Union”), which proposes that Illinois Union pay $9,000,000.00 (policy limit is $10,000,000.00 per claim) to settle its liability in the LandAmerica case.  The second is a settlement with the Trustee for the LandAmerica Financial Group, Inc. Trust (“LFG Trust”) as to how the insurance proceeds are to be shared between the trusts.  The LES Trust proposes to share recoveries from the insurance companies as follows:

1. The LES Trust shall control all claims and causes of action related to LandAmerica 1031 Exchange Services, Inc. (“LES”), despite the fact that such claims or causes of action may also relate to LandAmerica Financial Group, Inc. (“LFG”), against insurers that issued, subscribed, otherwise have coverage obligations with respect to the 2008 E&O Policies.
2. The $9,000,000.00 Illinois Union settlement, net of expenses and attorneys’ fees incurred in connection with the recovery, shall be allocated 75% to the LES Trust and 25% to the LFG Trust.
3. Net proceeds of the London Policy (which has a $50 million aggregate limit of liability) shall be allocated 90% to the LES Trust and 10% to the LFG Trust for the first $10 million of net proceeds, and 100% to the LES Trust thereafter.

Objections to these proposed settlements are to be filed by September 15, 2011 and the Bankruptcy Court hearing on the settlement motion will be held September 22, 2011 at 10 a.m.  Ronald Page, PLC represents creditors in complex Chapter 11 bankruptcy cases.

This week the bankruptcy court approved the proposed $95.5 million settlement with CGMI.  Payments equal to approximately 28% of the exchange funds you placed with LandAmerica 1023 Exchange Services, Inc. are to be made by the end of the year.  Ronald Page, PLC represents creditors in complex Chapter 11 bankruptcy cases.

The Trustee, on behalf of the LES Trust, seeks entry of an order authorizing him, pursuant to Bankruptcy Rule 9019(a), to enter into the settlement with CGMI. The Trustee investigated LandAmerica’s claims against CGMI and participated in extensive settlement negotiations with CGMI leading to the settlement, which resolves all of the LES Trust’s claims against CGMI in exchange for CGMI’s agreement to purchase all ARS which the LES Trust holds and which CGMI sold to LES for $95.5 million. The ARS Litigation Committee (which is composed of exchangers) has approved the settlement.

After legal fees and other associated costs, the remainder of the recovery will be paid to the exchangers as described in the Plan.  It is unknown at this time what will be the exact distribution to exchangers and when that will take place.  The hearing on the settlement will be November 9, 2010 at 11 am EST.  Ronald Page, PLC represents creditors in complex Chapter 11 Bankruptcy Cases.

With regards to the ARS litigation, the law firm of Jenner & Block is working towards filing suits against the issuers and sellers of the ARS.  As you may recall, Jenner & Block was approved by the bankruptcy court last summer to conduct the ARS litigation.  Jenner & Block is currently reviewing documents and examining witnesses in preparation for filing suit against the issuers and sellers of the ARS.  This process has been hampered as Citigroup Global Markets, Inc. has objected to a number of the Trust’s discovery requests.  The hearing related to this issue has been continued until September 16, 2010.

With regards to the sale of the ARS, the Trust continues to meet with representatives of SecondMarket to monitor the value of the ARS.  As you may recall, SecondMarket was approved by the bankruptcy court to sell and market the ARS.  While no additional recoveries have been made yet, the Trust is working to bring in more funds to enable further distributions.  Ronald Page, PLC represents creditors in complex Chapter 11 bankrutpcy cases.

A preferential payment is one made in the 90 days prior to the bankruptcy filing, that gives the creditor which received the payment preferential treatment to other similarly situated creditors.

The Bankruptcy Code permits a trustee (or a debtor in possession) to recover from creditors payments made shortly before the bankruptcy filing where the payment gave the creditor more than other, similarly situated, creditors would get through the bankruptcy process. The preference statutes are simply an attempt to achieve equity between creditors. Creditors are almost always better off attempting to get payment of their claims from their debtors and dealing with any efforts to recover the money when, and if, such attempts are made in bankruptcy.

Bankruptcy Code §547 defines a preference as

1. Payment on an antecedent (as opposed to current) debt;
2. Made while the debtor was insolvent;
3. To a non insider creditor, within 90 days of the filing of the bankruptcy;
4. That allows the creditor to receive more on its claim than it would have, had the payment not been made and the claim paid through the bankruptcy proceeding.

Defenses to the recovery of a preference are found in 11 U.S.C. 547(c).  They include:

1. contemporaneous exchanges;
2. amounts of subsequent credit extended and unpaid;
3. payments made in the ordinary course of the business of the debtor and the creditor on ordinary business terms;  and
4. security interests that secure debts that bring new value to the debtor.

These defenses need to be raised in an answer to a preference complaint. The burden of proof lies with the creditor to establish that despite the elements of a preference; the transfer is protected by one or more of these defenses.

The law firm of Ronald Page, PLC has extensive experience defending creditors in preference actions before the Bankruptcy Court.  Responses must be made to the S&K Famous Brands Liquidating Trust’s above referenced Omnibus Objections by 4 p.m. on July 15, 2010.  Please contact Ronald Page, a Richmond Virginia Bankruptcy Attorney, if you need assistance responding to the S&K Famous Brands, Inc. Liquidating Trust’s attempts to disallow your claim.