The Bankruptcy Single Asset Real Estate Case - You Could Be SARE
You're the owner of a holding company that owns a single commercial property with only one debt - the mortgage. Although the value of the property has rebounded in the last few years, it is still worth less than the mortgage, and worse yet, the rental income is not sufficient to pay the monthly mortgage payment. The lender is not willing to work with you, as you have been in default for several years, and now a foreclosure sale is coming up soon. What to do? You have a genius idea - put the company into bankruptcy! The lender has to work with you then, right? Not so much.

The situation described is known as a Single Asset Real Estate bankruptcy - or SARE for short. A SARE bankruptcy involves a single real property or project, which generates substantially all of a debtor's gross income. A SARE bankruptcy typically includes shopping centers, office buildings, industrial and warehouse properties, and apartment complexes. Debtors who own real property with fewer than 4 residential units and family farmers are excluded from the definition of a SARE debtor.

A typical SARE debtor has very few debts other than the first mortgage on the property. Sometimes there are multiple mortgages and sometimes there are unsecured debts, such as utility bills and maintenance obligations.

A SARE debtor will usually attempt to use Chapter 11 to restructure the secured debt on the property. Sometimes a SARE debtor has equity in the property and is facing foreclosure, and will use the Chapter 11 to complete a sale or refinance of the property. Most commonly, however, a SARE debtor will use the Chapter 11 to bring the dispute to a different playing field, and hope that the bankruptcy will allow a restructuring of the existing debt on the property.

A contested SARE bankruptcy is very difficult to successfully complete. The designation of a debtor as a SARE debtor benefits the lender. In fact, whether a particular real estate interest constitutes a single "property" or "project" is frequently disputed in bankruptcy cases, with the debtor trying to avoid the SARE designation.

Why are SARE bankruptcy cases so difficult to successfully complete? Here are a few reasons:
  • A SARE debtor has a significantly shorter amount of time to reorganize, as compared to non-SARE Chapter 11 debtors.
  • A secured lender in a SARE bankruptcy case, especially one in which the lender is the only creditor, does not have to work with the debtor to amicably resolve the debt. There is no "forcing" the lender to the table. The lender has significant rights under the Bankruptcy Code to oppose the SARE debtor's efforts.
  • A SARE debtor is often faced with a motion to dismiss the bankruptcy case for bad faith, and there are lines of cases that favor dismissal when there is no reasonable prospect of reorganization.
  • Similarly, a SARE debtor is often faced with a motion for relief from the automatic stay, filed by the lender, so that the foreclosure action can continue.
  • Within 90 days of the bankruptcy filing (or 30 days after determination of SARE status), a SARE debtor must either file a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable period of time or commence monthly payments to the secured lender in an amount equal to interest at the then-applicable non-default contract rate of interest on the value of the lender's interest in the property.
  • Impaired creditors vote on a debtor's Chapter 11 plan, and the fewer creditors there are, the less chance of obtaining the necessary votes required under the Bankruptcy Code for confirmation and successful completion of the bankruptcy. (This applies for SARE and non-SARE debtors alike, however, SARE debtors typically have either 1 or very few creditors.)

This is not to say that a SARE bankruptcy cannot be successful. However, potential SARE debtors should proceed with caution before jumping into a SARE bankruptcy case. Any bankruptcy case involves an expense and a detailed cost/benefit analysis should be performed prior to filing a SARE (or any) bankruptcy.

The attorneys at Leiderman Shelomith, P.A. have experience working on numerous SARE bankruptcy cases. If you or someone you know owns an entity where a SARE bankruptcy may be appropriate, please contact Leiderman Shelomith, P.A. to schedule a no-cost initial consultation. 

Case Studies
Leiderman Shelomith, P.A. has been involved in a number of successful SARE bankruptcy cases. 

One example involved a commercial building with significant equity and a disputed secured debt. The owner of the holding company that owned the building was in the process of selling the building, when the potential buyer suggested that the sale take place within the Chapter 11 bankruptcy context. The debtor fell under the definition of a SARE debtor.

The bankruptcy took place quickly and the sale netted the owner over $1 million. The dispute with the secured lender was resolved during the bankruptcy process.

Another example involved a commercial building that had negative equity. The owner of the holding company that owned the building personally guaranteed the mortgage with the secured lender, which is common. The property was facing imminent foreclosure. A SARE bankruptcy was filed, and a mediation was quickly scheduled. Although the mediation lasted an entire day, a resolution was reached, which ultimately allowed for the sale of the property and the release of the personal guaranty.

Both clients were extremely pleased that the SARE bankruptcy process resulted in a favorable outcome. However, these results were specific to the factual scenario of each case, and a SARE bankruptcy could result in a wide variety of outcomes, both positive and negative.
Connect With Us

Like us on Facebook   View our profile on LinkedIn   Follow us on Twitter   Find us on Google+

Practice Areas

There are numerous circumstances that may warrant a Chapter 7 bankruptcy, the most common type of case filed by individual consumers. 

Many people are unaware that a Chapter 11 bankruptcy filing is available to individuals.

Personal Chapter 13

There are a number of reasons why a Chapter 13 filing may be right for you.

We discuss all options with you and we provide full implementation of the best strategy moving forward.

Corporate Chapter 7

If your business entity is facing overwhelming debt, a corporate Chapter 7 bankruptcy filing may be the solution to its troubles.

Corporate Chapter 11

A business that needs to restructure its finances is offered various beneficial tools in a Chapter 11 filing.
Creditors of bankrupt debtors have several avenues for recovering what is owed to them.


Assignment for the Benefit of Creditors

"ABC" is often the most efficient and cost-effective method for accomplishing the goals of a business that is in financial distress.


Upcoming Events

August 20, 2015 -
Student Loan Seminar sponsored by myLawCLE
Zach B. Shelomith will be speaking


August 27, 2015 -
Bankruptcy Bar Association for the Southern District of Florida Installation Dinner and Awards Ceremony
Zach B. Shelomith will be installed as Second Vice President and Felipe Plechac-Diaz will be recognized as a Committee Chair for the Young Lawyers Committee


November 2015 - Introduction to Chapter 7 and Chapter 13 Bankruptcy Seminar sponsored by Pincus Professional Education
Jonathan Leiderman will be a featured speaker

Bankruptcy Filings Continue To Decline, But Student Loan Debt At An All-Time High

Nationwide bankruptcy filings declined in 2014 for the fourth straight year and the decline is expected to continue. There were 910,090 bankruptcy filings in 2014, a decline of 11.8% from the prior year, and a similar decline is expected in 2015. The most common explanation for the decline is that the country has emerged from the great recession and household debt levels are reducing.

That is partially correct and is the major reason for the decline in bankruptcy filings - less debt means less bankruptcies. However, according to one report, total consumer debt (not including mortgages) is around $3.1 trillion, which is an increase from 2006. However, the Fed has been separately reporting student loans, and that figure has been growing as a percentage of total consumer debt. Bankruptcy can usually do very little for student loan debt, although there are a number of other remedies and strategies available.

Subtracting student loan debt, and adjusting for inflation and population growth, the consumer debt for which bankruptcy is most effective has fallen by around 20% since 2006. That is a significant percentage and explains the drop in bankruptcy filings, among other reasons.

Student loan debt is the only type of consumer debt not decreasing. In fact, student loans have increased by around 84% since 2008, and the total student loan debt is a staggering $1.2 trillion, which is an all-time high.

At Leiderman Shelomith, P.A., we represent borrowers of both federal and private student loans, including defending borrowers who have been sued by their private student lenders.
About Leiderman Shelomith, P.A. 

 

Leiderman Shelomith, P.A. was founded by Jonathan Leiderman and Zach Shelomith in 2003. The firm quickly built an excellent reputation across South Florida as a boutique bankruptcy law firm, handling both personal and corporate bankruptcy matters, including Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, as well as state court Assignments for the Benefit of Creditors. Felipe Plechac-Diaz joined the firm as an associate attorney in 2014.  The firm began representing borrowers with their federal, state, and private student loan matters in 2014, including the defense of student loan lawsuits.

 

The firm's attorneys, who have 38 years of combined legal experience, have been recognized as a South Florida Legal Guide Up and Comer, a Super Lawyer Rising Star for the State of Florida, a Florida Legal Elite Up and Comer, and a Florida Legal Elite. Our attorneys are members of the National Association of Consumer Bankruptcy Attorneys, the American Bankruptcy Institute, and the Bankruptcy Bar Association for the Southern District of Florida, among other organizations. The firm's attorneys are also frequent lecturers at seminars and community programs, speaking about bankruptcy law to attorneys and the general public.

 

The firm, Mr. Leiderman, and Mr. Shelomith, are AV® Preeminent Rated Attorney's, awarded by LexisNexis® Martindale-Hubbell®, for having obtained the highest possible peer-review rating for their ethical standards and legal ability.

 

The firm represents debtors, creditors, and bankruptcy trustees in all aspects of bankruptcy cases, including litigation and appeals, handling both liquidations and reorganizations. The firm also represents borrowers in all aspects of student loan law, including federal, state, and private student loans. Our office is conveniently located in suburban Fort Lauderdale, Florida, and is easily accessible from anywhere in Miami-Dade, Broward, and Palm Beach Counties. We handle bankruptcy debtor cases across the Southern District of Florida, particularly in Broward, Miami-Dade, Palm Beach, and Monroe Counties, and other bankruptcy cases and student loan matters throughout the entire State of Florida.