Single Asset Real Estate Cases

Single Asset Real Estate cases ("SARE") are a special type of Chapter 11.

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The definition of a SARE in the Bankruptcy Code is:

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[R]eal property constituting a single property or project, other than residential real property with fewer than 4 residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental thereto.

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What this actually means can be difficult to determine in some cases. If the debtor's only business is operating the property and the property generates substantially all of the debtor's income, it probably will be a SARE.

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A SARE cannot be a debtor under the Small Business Reorganization Act.

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Because not every entity that owns real estate is a SARE debtor, determining whether the debtor qualifies as a SARE is a fact-driven question, and can result in litigation to determine whether the business is a SARE.

Unlike in other Chapter 11 cases, a SARE debtor cannot rely on the automatic stay remaining in place throughout the life of the case. Instead, to maintain the automatic stay, the Bankruptcy Code requires a SARE debtor to either file a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time, or begin making monthly interest payments to the lender at the original contract rate.

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These actions must be made within the later of 90 days after the case is filed, or 30 days after the court determines a debtor is a SARE debtor.

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Therefore, to avoid termination of the automatic stay a SARE debtor has two options:

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•    File a plan that can be supported by reasonable prospects and assumptions regarding feasibility; or
•    Begin making monthly interest payments for the continuation of the automatic stay. 

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Making monthly payments could prove challenging for debtors with partially built or low income-producing real estate projects, forcing the debtor to file a plan. If the debtor fails to satisfy either of these requirements, the secured creditor will likely be able to obtain relief from the automatic stay to foreclose on the property.

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A SARE petition is generally filed in bad faith when it is filed solely to cause hardship to creditors without any real ability or willingness to reorganize (or liquidate in an orderly manner) for the benefit of all parties in interest. It is therefore vital to have a reorganization strategy in place before a SARE petition is filed. Filing solely to delay a foreclosure without a legitimate reorganization plan is bound for failure.

 

SARE cases can be difficult and complex. You need bankruptcy counsel who isn't put off by te specific requirements of a SARE case. Very few bankruptcy attorneys have the knowledge or experience to handle your SARE case.
 

We do.