If a loan or extension of credit requires collateral, banks prefer collateral that is readily marketable rather than taking a security interest in a closely-held business. Occasionally, the only collateral that is available or that the borrower can offer is corporate stock that is not traded on a public market, an interest in a limited liability company ("LLC") or a partnership interest. It is common for closely-held business entities to prohibit an assignment of an owner's interest or require as a condition to an assignment the consent of the other owners of the entity.
Grogan v. Harvest Capital Co. (In re Grogan), 476 B.R. 270 (Bankr. D. Or. 2012) –
In Grogan, the debtors planted and harvested Christmas trees. The bankruptcy court was called upon to determine whether the debtors could exercise their “strong arm” powers under Section 544(a) of the Bankruptcy Code to trump the liens of two of their lenders on the Christmas trees.
Michael and Theresa Annechino had a long-standing banking relationship with the Bank of Clark County. Before the events at issue, the Annechino had an approximately $1,150,000 balance at the Bank. Additionally, Mr. Annechino was an investor with the Bank. Shortly after the Federal Deposit Insurance Corporation (“FDIC”) increased its coverage for deposit accounts, the Annechinos’ contacted the Bank about depositing an additional $1,850,000, so long as it would be protected by the FDIC’s coverage.
Introduction
The Bottom Line:
A New York bankruptcy court recently rejected a debtor’s challenge to a consensual state court judgment (“Judgment”) in favor of mortgagee, General Electric Capital Corporation (“GECC”), that had accelerated a debt and obtained a prepetition foreclosure judgment against debtor, 410 East 92nd Street (the “Hotel”), in the amount of approximately $74 million. In re: Madison 92nd St. Associates LLC, 472 B.R. 189 (Bankr. S.D.N.Y. 2012).
Commercial real estate foreclosures present a number of significant challenges to lenders, special servicers and their counsel that residential foreclosures do not. But residential foreclosures make up the vast majority of state courts’ foreclosure dockets, so the court system – including Judges and Master Commissioners – is often unfamiliar of the challenges associated with commercial foreclosures. This can result in delays, unnecessary expense and the associated frustration that invariably follows when a commercial real estate asset is tied up in Court.
In S. White Transportation, by remaining silent until after confirmation, a mortgagee managed to retain its lien notwithstanding the debtor’s attempt to discharge it through a plan of reorganization.