The Federal Bankruptcy Act prohibits public and private employers from engaging in various discriminatory acts against individuals because they have filed for bankruptcy. 11 U.S.C. § 525. Inexplicably, the statutes applicable to public and private employers are not identical. The law applicable to a public employer, for example, specifically provides that it "may not . . . deny employment to" one who has filed for bankruptcy. 11 U.S.C. § 525(a). This "deny employment to" language does not appear in the statute for private employers. 11 U.S.C. § 525(b).

As discussed in previous posts on this site, back in December the Second Circuit Court of Appeals issued a summary order that reversed the bankruptcy court’s confirmation of the reorganization plan (the “Plan”) of DBSD North America, f/k/a ICO North America (“DBSD”).

On February 10, 2011, the United States Bankruptcy Court for the Eastern District of New York issued a memorandum decision addressing whether the alleged holder of a mortgage loan had sufficient status as a secured creditor to seek relief from the automatic stay to pursue a foreclosure action.1 After resolving the primary issue in controversy on purely procedural grounds and granting the requested relief, the Court analyzed whether an entity that acquires its interest in a mortgage loan through an assignment from Mortgage Electronic Registration Systems, Inc.

MERS’s authority to assign mortgages was called into question by a bankruptcy court in New York. In re Agard, 2011 Bankr. LEXIS 488 (Bankr. E.D.N.Y. Feb. 10, 2011). In response to the servicer’s motion for relief from the automatic stay, the debtor challenged the servicer’s standing on the ground that MERS lacked the authority to assign the mortgage to the servicer. Because a state court had previously entered a judgment of foreclosure and sale in favor of the servicer, the court was compelled by the Rooker Feldman doctrine to reject the debtor’s claims.

When a loan is secured by real property, the current value of the property will be a determining factor in how the lender is treated in bankruptcy and will drive the lender’s bidding strategy in foreclosure. Valuing real property has never been an exact science. Volatility in the residential and commercial real estate markets over the last two years has made it even harder for lenders to rely with confidence on the appraisals they obtain to plan and predict how they will fare in bankruptcy or in foreclosure.

In a second decision of the United States District Court for the Southern District of Florida involving secured lenders to bankrupt homebuilder TOUSA, Inc., on March 4, 2011, Judge Adalberto Jordan affirmed the dismissal of fraudulent conveyance claims brought against the lenders on a revolving credit facility. In dismissing those claims, the Bankruptcy Court had emphasized that, because the revolving credit agreement was entered into, and the liens securing it were pledged, well before the company's alleged insolvency, they were immune from fraudulent conveyance attack.

Reprinted with permission from the March 18, 2011 issue of The Legal Intelligencer © 2010 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

Over the last couple of years, the predominant goal in many business bankruptcy proceedings has been the sale of substantially all of the estate's assets. Such bankruptcy sales are often favored by buyers under Section 363(f), which enables a "free and clear" transfer of the assets.

In a previous Financial Services Flash, we brought to your attention the decision of the United States Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”) in the case ofIn re Tousa. In a decision that raised serious concerns for lenders in the United States, Justice Olson held that the first and second ranking secured lenders of Tousa Inc. (“Tousa”) did not act in good faith and were grossly negligent in providing Tousa with a secured loan less than six months before Tousa filed for bankruptcy.

3V Capital Master Fund LTD. v. Official Comm. of Unsecured Creditors of TOUSA, Inc. (In re TOUSA, Inc.), 2011 U.S. Dist. LEXIS 14019 (S.D. Fla. Feb. 11, 2011).

The Executive Office of the United States Trustee, part of the Department of Justice, has embarked on an initiative to investigate bankruptcy-related practices of the major mortgage servicers. The United States Trustees have not identified any authority to conduct an investigation beyond specific matters pertaining to individual debtors or their estates.