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A recent decision out of the Western District of Pennsylvania, In re Veltre,[1] added to the split among courts about whether a non-collusive foreclosure sale can be avoided as a preferential transfer under § 547. Judge Carlota Böhm, joining other judges in her district, held that the sale cannot be avoided as a preferential transfer, primarily relying on the reasoning from Supreme Court decision BFP v. Resolution Trust Corporation.[2]

Recently, the United States Bankruptcy Court for the Eastern District of New York joined a growing list of courts that have disagreed with the First and Third Circuits and interpreted §1322(b)(2)[1] to prohibit a debtor from modifying a second lien secured by the debtor’s personal residence that is also an income-producing rental property.

The Bankruptcy Code allows a chapter 13 debtor to propose a plan that bifurcates undersecured claims into secured and unsecured claims except where the claim is one secured “only by a security interest in real property that is the debtor’s principal residence”.[1] If the sole collateral securing the claim is the debtor’s principal residence, then the Code prohibits the bifurcation of the claim and the plan must provide for payment in full.

While lawyers and trustees in individual debtor bankruptcy cases are likely familiar with § 363(h) of the Bankruptcy Code, many commercial bankruptcy lawyers often forget its existence. Today, creative real estate investment structures, like tenant-in-common (TIC) structures, are used by individuals to own portions of significant income-producing commercial properties, including office buildings, nursing homes and apartment complexes. These ventures often involve numerous owners with divergent backgrounds, financial means and interests.

[1]In yet another example of the lingering impact of the recession on the residential mortgage industry, the U.S. Bankruptcy Court for the District of Hawaii has weighed in on the meaning of a debtor's election to "surrender" his or her residence in a chapter 7 case.

The recent spate of major retail bankruptcy filings — Sports Authority, Radio Shack, Wet Seal, PacSun and Aeropostale, to name a few — have thrust landlords into the middle of unfamiliar and complex chapter 11 restructurings and asset sales. Whether the tenants in such cases intend to internally reorganize or liquidate their assets through one or more sales, they often seek to either assume or assume and assign their most attractive leases.

It’s been another great year for the Real Estate Committee. First, as co-chairs, we would like to thank its members for their support and continued participation on the Real Estate Committee for 2016. The committee is really only as good as its members and their contributions. In that vein, the committee is always looking for contributors to its newsletter, suggestions for presentation topics, or help producing new webinar content. If you are interested in contributing to the committee, please reach out to any of the committee leaders.