In today’s lending climate, confession of judgment provisions (“COJ Provisions”) have become a fact of life for the Virginia banker.  Indeed, as troubled loans become more prevalent, a properly drafted COJ Provision can often be a creditor’s best friend.  No longer can we afford to lump COJ Provisions into that fuzzy “boilerplate” category that we so easily gloss over.  More and more bankers are coming to the realization that a COJ Provision is one of the most powerful tools a creditor can have against a defaulting debtor. 

A promissory note is a one-way undertaking. The maker promises to pay to the payee. There is nothing promised by the payee. The whole point of having a promissory note is to have a document that clearly states an obligation to pay. By contrast, most contracts are bilateral, meaning that each party promises to do something. And those promises are usually mutually dependent: if one party breaches, then the other may be excused from further performance. But that is not the case with a promissory note.

A recent decision of the Delaware bankruptcy court serves as a reminder of a key risk for lenders who finance leveraged transactions—namely, that a bankruptcy court may “collapse” the components of a leveraged transaction in order to avoid the lender’s liens and the debtor’s loan obligations as fraudulent transfers.

On October 20, 2011, the Director of the Arizona Department of Insurance filed a Complaint to place PMI Mortgage Insurance Company (PMI) into receivership in Arizona. In an interim Order, the court required the director, as Receiver, to take possession and control of PMI, which had been under the formal supervision of the insurance department since August 19, 2011. The court also directed that certain related affiliates of PMI be placed under administrative supervision.

Whittle Development, Inc. v. Branch Banking & Trust Co.

In two recent decisions in the General Growth Properties, Inc., et al. chapter 11 cases, the United States Bankruptcy Court for the Southern District of New York upheld certain loan provisions which provided for an automatic event of default and imposition of a default rate of interest upon the commencement of a bankruptcy case, and held that certain creditors were entitled to receive postpetition interest at the contractual default rate.  General Growth Properties, Inc. and its affiliated debtors own, develop, and operate regional shopping malls across the United States.

Governor Corbett is almost certain to sign legislation that places a Receiver in charge of Harrisburg‟s finances after the House agreed to Senate changes and sent the bill to the Governor‟s desk.

The General Assembly acted despite a recent move by Harrisburg City Council to file for bankruptcy. The architects of the Harrisburg „Receiver‟ plan, State Rep. Glen Grell, R-Cumberland and State Senator Jeff Piccola, R-Dauphin, both maintain that the bankruptcy move was illegal.

Introduction

In re Gelt Financial Corporation (Bankr. E.D. Pa.) Case no. 11-15827

In the recent case of Whittle Development, Inc. v. Branch Banking & Trust Co. (In re Whittle Development, Inc.), No. 10-37084, 2011 WL 3268398 (N.D. Tex. July 27, 2011), a bankruptcy court was asked whether a preference action could be sustained against a creditor who purchased real property in a properly conducted state law foreclosure sale. Recognizing a split of authority and some contrary principles enunciated by the Supreme Court in its prior decision, BFP v. Resolution Trust Corp., 511 U.S. 531 (1994), the bankruptcy court found that a preference claim could be asserted.