Bankruptcy: Absolute Priority Rule

             Two bankruptcy cases well explain the rights of parties to contribute new value upon bankruptcy reorganization. 

     In In Re Woodscape Limited Partnership the United States Bankruptcy Court for the District of Maryland at Rockville held that the owners of the debtor corporation have an independent right to contribute new value to the reorganization, and in exchange may receive an interest in the reorganized debtor, which is equivalent to the new contribution. This decision was contrary to In Re Greyston III Joint Venture. 

     In Travelers Ins. Co. v. Bryson a Bankruptcy Court in North Carolina ruled that a provision in a debtor reorganization plan which limited the right to contribute new capital to the debtor's partners, as well as the right to the return of their new capital prior to recovery by an unsecured creditor, is not fair and equitable to the unsecured creditor. 

     Commercial creditors should carefully consider contributing new capital to debtor business. In some instances, the investment may be wise.

Real Estate: Using Deeds of Trust to Secure Your First, Second, Equity Line or Refinance Home Loans

      Properly securing debts through real estate could make the difference between collecting the funds and incurring a loss. In this blog, we will review the benefits of securing your first, second, equity line or refinance home loans with a deed of trust.
      Real estate liens provide important security for your debt. Since real estate is the largest investment and asset for most individuals, they will usually make every effort to pay debts secured by their real estate first. However, you need to know the chain of title in order to make an informed decision about your loan. Specifically, in what position will your lien be? Are there any “clouds” on the title? You will not know the answer to these questions without a proper title search and review.
      Once you know your position you will need to examine the available equity to cover your loan. What is the value? What are the balances due on the liens ahead of your anticipated position? Beyond the business decision of determining when the equity is sufficient for your risk tolerance, in order to take advantage of the “$1.00 rule” in the bankruptcy code for chapter 13 cases (should your debtor decide to later file bankruptcy), you need to ensure that there is at least $1.00 in equity to cover the loan. You should take into consideration that property values may go down (e.g., 2008 to present).
      If the deal is made and the real estate closing occurs, immediate and proper recording of your deed of trust is essential to preserve your position. If the debtor defaults, foreclosure on the property can occur. If the debtor seeks reorganization of his debt in chapter 13, you can seek full payment of the debt.
      We have experienced attorneys and staff who can examine title and properly represent your interests in real estate closings.