In a decision to be hailed by buyers of distressed debt and bankruptcy claims on the secondary loan market, on Oct. 15, 2009, the New York Court of Appeals (the “Court”), in a fact-specific ruling, held that an assignment of claim does not violate New York’s champerty statute (forbidding trading in litigation claims) if the purpose of the assignment is to collect damages by means of a lawsuit for losses on a debt instrument in which the assignee holds a pre-existing proprietary interest. Trust for the Certificate Holders of the Merrill Lynch Mortgage Investors, Inc.

On November 12th, the Third Circuit affirmed both bankruptcy and district court findings that, under the Rooker-Feldman doctrine, federal courts lacked subject matter jurisdiction over a claim seeking rescission of a mortgage filed in an adversarial action in federal bankruptcy court after a state court entered a default foreclosure order on that mortgage. The Third Circuit held further that the entry of summary judgment against plaintiff on her Truth in Lending Act claim was proper.

There are hundreds of hotel properties in special servicing or foreclosure and even more that are on the brink. When dealing with a distressed hotel property, there are several issues and opportunities to consider.

Receivership

As we count down the days until the New Year, we are reminded of the momentous year we will leave behind us on December 31. While memorable for many things, 2009 may long be remembered as a year of record corporate insolvency. In 2009, General Motors, CIT, Chrysler, and Thornburg Mortgage filed four of the ten largest corporate bankruptcies in U.S. history. Equally notable are the number of corporate filings made in 2009.

The commercial real estate market is in distress. While residential foreclosures have received the bulk of media coverage, owners of commercial real estate are defaulting on their mortgages at an unprecedented pace. If your business leases commercial space, the likelihood that your landlord will file for bankruptcy is higher now than it has been in recent history. Because a landlord bankruptcy may occur without warning, tenants need to be aware of their rights and responsibilities in the event a filing does occur.

This past Monday, in the wake of last month's termination of TCW Group, Inc.

On January 11th, the Eighth Circuit held that a bankruptcy court properly awarded summary judgment to the bankruptcy trustee in a suit seeking to avoid as a preferential transfer, the pre-petition transfer of a mortgage from the debtor to the bank. Because the bank failed to record the home mortgage prior to the borrower's filing of a Chapter 7 bankruptcy petition, Section 547(e)(2)(C) of the Bankruptcy Code deemed the transfer of the mortgage to have occurred immediately before the debtor filed his bankruptcy petition.

In a significant ruling with potentially wide-reaching implications, Judge Lewis Kaplan of the U.S. District Court for the Southern District of New York dismissed the Securities Act of 1933 causes of action (Sections 11, 12, and 15) against McGraw Hill and Moody's (the "Rating Agencies") in In re: Lehman Brother Mortgage Backed Securities Litigation.

On January 28th, the Ninth Circuit addressed the issue of whether a Chapter 7 bankruptcy trustee had actual notice of an unrecorded refinanced mortgage when the bankruptcy petition was electronically filed simultaneously with schedules listing the mortgage as a secured debt. The Court held that the trustee lacked actual notice. The Court found that the filing of the petition was a separate event from the filing of the schedules. The trustee was therefore a bona fide purchaser for value without notice and under state bona fide purchaser law, the trustee could avoid the unrecorded mortgage.

Just in time for the fifth anniversary of the enactment of chapter 15 of the Bankruptcy Code, which allows foreign debtors to administer assets located in the U.S. or stay the actions of U.S. creditors – Judge Martin Glenn of the Bankruptcy Court for the Southern District of New York has issued a decision reaffirming the broad utility and scope of chapter 15.