RECENT CHAPTER 11 BANKRUPTCY OPINIONS (2014)

Issue: Whether debtors' fractional interest in property became property of the estate despite state court's prior judgment of foreclosures and order placing a secured creditor in possession of the property as the mortgagee in possession.

Holding: The bankruptcy court held that under the state law in question, the debtors' fractional interest in real property became property of the estate notwithstanding a state court's prior judgment of foreclosures and order placing a secured creditor in possession of the property. The debtors were multiple limited liability companies ("LLCs") that held certain real property as tenants-in-common with twenty other non-debtors. A secured creditor moved for stay relief to continue foreclosure on the real property in state court. The bankruptcy court found that under the state law in question, real property owners such as the LLCs maintained their ownership interest until the foreclosure sale. Because the debtors filed for bankruptcy prior to the foreclosure sale, the court held that their fractional interest in the real property became part of the bankruptcy estate despite the state court's prior judgment of foreclosures and order divesting possession of the real property. Nonetheless, the court granted stay relief because the debtors' lacked equity in the real property and a sale of the property was not feasible.

v. In re AMRCO, Inc., 496 B.R. 442 (Bankr. W.D. Tex. 2013)

Issue: Whether failure to include the substitute trustee's address on the Notice of Foreclosure for deed of trust property as required by state law governing the foreclosure sale rendered the prepetition deed of trust foreclosure sale invalid, allowing the property to enter the debtor's estate.

Holding: The bankruptcy court held that the failure to include the substitute trustee's address on the Notice of Foreclosure for deed of trust property as required by state law governing the foreclosure sale rendered the prepetition deed of trust foreclosure sale invalid, allowing the property to enter the debtor's estate. The creditor argued that, although the substitute trustee was a different entity than the original trustee, the substitute trustee's address was the same as the original trustee's address, which was on the deed of trust attached to the Notice of Foreclosure. Additionally, the envelope used for the Notice of Foreclosure contained the correct substitute trustee and address. Thus, the creditor argued that it substantially complied with the state statute for notices of foreclosure. The court found that though it was a close call, a recent state court decision based on nearly identical facts required strict compliance with the state statute.

vi. Imperial Capital Bancorp, Inc. v. FDIC (In re Imperial Capital Bancorp, Inc.), 492 B.R. 25 (Bankr. S.D. Cal. 2013).

Issue: Whether tax refunds held by the debtor bank holding company and subject to a tax allocation agreement (TAA) became property of the debtor upon the debtor's filing for bankruptcy.

©2014 William L. Norton III