Sutton 58 Associates LLC v. Pilevsky et al., is a New York case which gets to the heart of the enforceability of classic single-purpose entity restrictions in commercial real estate lending. At issue is how far a third-party may go to cause a violation of a borrower’s SPE covenants, and whether those covenants are enforceable at all.

A Defaulted Construction Loan and Frustrated Attempts to Foreclose:

Last year, a California Bankruptcy Court wiped out $10.2 million in default interest (“DRI”) when it ruled that a 5% DRI was an unenforceable penalty in a Chapter 11 bankruptcy case where the construction lender fully recovered principal, interest, and other costs of collection.

Last year, a California Bankruptcy Court wiped out $10.2 million in default interest (“DRI”) when it ruled that a 5% DRI was an unenforceable penalty in a Chapter 11 bankruptcy case where the construction lender fully recovered principal, interest, and other costs of collection.