Archive for the 'Real Estate' Category

7th Circuit Court of Appeals Decision Finds Indiana Curative Statute is Retroactive

Published
by
Laura Faulkner
on March 8, 2010
in Bankruptcy Filings, Local Procedures & Rules and Real Estate
. 0 Comments

In Indiana, as in most states, a mortgage must be properly acknowledged in order to be valid. This means that the notary present at the mortgage closing must make a written statement confirming that the notary witnessed the mortgagors sign the mortgage documents. If the notary acknowledgement is incomplete or improperly formatted, the mortgage is invalid.

Bankruptcy trustees use their powers under 11 U.S.C. § 544 to avoid mortgages that are defective. In 2007, the Indiana legislature passed an amendment to the recording statute that provided mortgages with certain technical defects would be treated as properly recorded mortgages (a ‘curative’ statute). Despite this amendment, bankruptcy trustees continued to file actions to avoid defective mortgages, arguing that the 2007 Amendment only applied to mortgages executed after July 1, 2007, the date of the amendment.

The 7th Circuit Court of Appeals issued a decision on February 19, 2010 that clarified this issue. The Court held that the 2007 Amendment applied to all mortgages, regardless of when they were executed. This is a positive result for creditors. It means that, in cases filed after July 1, 2007, the bankruptcy trustees are unable to avoid mortgages based on technical defects in the notary acknowledgement. This case applies to mortgages filed in the state of Indiana. 

If you have any questions, please contact Laura Faulkner at lfaulkner@weltman.com.

Debtors May Not Use Bankruptcy To Extend Expired State Court Deadlines

Published
by
Monette Cope
on March 4, 2010
in Bankruptcy Filings and Real Estate
. 0 Comments

Lenders are faced with more and different challenges from debtors in these stressful financial times. One tactic being tried in Illinois is to use bankruptcy to attempt to extend a state court right of redemption on real estate in foreclosure.

Illinois Foreclosure law gives a mortgagor a specified and limited time to redeem a mortgage from foreclosure.  This time may not be extended by the state court judges.  Other states have similar laws.

Debtors are trying to use the bankruptcy courts to extend the time to redeem.  11 U.S.C. § 108 of the Bankruptcy Code is entitled “Extension of Time.”   § 108(b) deals with extensions of time to cure defaults inside a bankruptcy case.  The time to cure is either the state law deadline, or sixty days after the filing of the petition for relief, whichever is later.

If the state law redemption period has not expired when Debtors file bankruptcy, but will expire within 60 days after filing, they can extend the time to redeem to that 60 day date under Section 108. However, Debtors in Illinois are trying to use this section of the Code to extend the time to redeem when it had already expired before the bankruptcy was filed. 

One judge (Judge Schmetterer) in the Northern District of Illinois (Chicago) addressed these attempts in In re Brandi McKenith, in a written opinion that will be published.  While this judge is only one of eleven judges in this District, his is the only opinion on this issue in the District.  He found that an expired state court deadline to the right to redeem real estate from foreclosure could not be resurrected by filing of bankruptcy case.

By analogy, Section 108 could not be used to resurrect other state law deadlines.   For instance, Debtors could not extend an expired deadline to redeem a vehicle before sale at a public auction or extend the time to redeem purchased real estate taxes. 

If you encounter such unwanted improper demands by debtors, contact your bankruptcy attorney immediately to stop the attempt to resurrect expired state court deadlines. If you have any questions, please call Monette Cope at mcope@weltman.com.

Commercial Real Estate Slump Likely To Result In Uptick In Bankruptcy Filings

Published
by
Scott Fink
on February 10, 2010
in Bankruptcy Filings, Chapter 11, Commercial and Real Estate
. 0 Comments

With the commercial real estate market in a continued pattern of free fall, coupled with the still-lagging economy overall, creditors are likely to see a continued increase in overall bankruptcy filings for the foreseeable future.  For every strip mall or office park that watches as long-time, valued tenants vacate their spaces, there are landlords who cannot service the debt on their property due to an overall decrease in rental income, and there are small business owners now joining the ranks of the newly-unemployed, along with their employees.

The unfortunate trickle down sees both employees and small business owners seeking bankruptcy protection, along with a growing number of commercial property owners who are unable to find replacement tenants to make up the shortfall in rental income.

Additionally, those tenants remaining behind may see a lag in business as a result of the loss of “anchor stores” which attracted casual shoppers to the area.  This point was driven home by the recent Chapter 11 filing by Movie Gallery, Inc., the operator of the Hollywood Video chain.  Preliminary indications are that a “significant number” of Hollywood Video stores will be shuttered in the coming months, leaving hundreds of strip malls across the country without a valued tenant.

The Bankruptcy Department at Weltman, Weinberg & Reis will continue to monitor trends in bankruptcy filings and will update you as data becomes available.

Has Mortgage Cramdown Died Its Final Death?

Published
by
Monette Cope
on December 17, 2009
in Chapter 13 and Real Estate
. 1 Comment

The House on December 11, 2009 rejected an amendment to the Wall Street Reform and Protection Act of 2009 that would allow mortgage cramdowns in Chapter 13 bankruptcies.  The surprise is that this is the same amendment that the House passed earlier this year.  This time it was defeated by a vote of 241 to 188 with both Democrats and Republicans voting it down.

The proponents argued that it would have limited effect on the mortgage financing industry because it would only apply to existing loans, not future loans, while slowing the rate of foreclosures and home depreciation.

Opponents argued that it would create havoc and more losses to the already unstable mortgage and lending industries, while increasing interest rates and toughening mortgage standards for all home buyers. 

Because the measure has now been defeated by both the House and Senate, it is unlikely to reappear in another bill, and should ease one of the worries facing lenders and investors from the flurry of new financial regulatory legislation.

6th Circuit BAP Finds Kentucky’s Mortgage Curative Statute “IS” to be Applied Prospectively

Published
by
Jack Day
on November 23, 2009
in Real Estate
. 0 Comments

In 2006, the Kentucky legislature passed a statute titled “exception for instruments lodged for record prior to July 12, 2006” to cure defects in mortgages with defective acknowledgments.(1) Prior to that statute, bankruptcy trustees were filing many actions to avoid mortgages whose acknowledgment clauses contained minor technical and clerical errors. After passage of the statute, courts were applying the statute only to save mortgages filed prior to July 12, 2006. This may seem reasonable, given the title of the statute.

The 6th Circuit Bankruptcy Appellate Panel has now issued a decision finding that this statute must also be applied prospectively – to mortgages filed on or after July 12, 2006. The court noted that the title of the statute is not part of the statute and is ignored in determining what the statute means. Looking at the statute, the court agreed with the amicus brief filed by the Kentucky Bankers Association and held that the statute applies to both a mortgage which “is” or “has been, prior to the effective date of this Act, lodged for record. . . .”(2) In this case the “is” makes all the difference.  The court ruled the curative statute must also be applied to save mortgages with defective acknowledgments filed on or after July 12, 2006 from attacks by bankruptcy trustees.
(1) Ky Rev. Stat Ann. section 382.270
(2) In re Pelfrey, 2009 Bankr. Lexis 3623 (6th Cir BAP November 9, 2009)