441 B.R. 905
Bankr. N.D. Ill.2010Background
- Erie Playce LLC filed a voluntary Chapter 11 on May 18, 2010 as a single-asset real estate debtor owning a four-story building at 520 West Erie Street, Chicago.
- Harris N.A., as assignee from Amcore Bank N.A., holds a secured mortgage on Erie’s property and asserts a claim near $7.8 million.
- There was an ongoing state foreclosure proceeding (Amcore Bank N.A. v. Erie Playce LLC, 08 CH 29638) in Cook County; Harris obtained a $7,215,927.44 judgment on July 29, 2008 with a 9% rate, and a receiver was appointed on July 31, 2009.
- On May 28, 2010, the bankruptcy court ordered the receiver to retain prepetition and postpetition rents and pay expenses; Erie sought § 362(d)(3) relief to pay the nondefault contract rate of 5.990% on August 5, 2010, with Harris opposing.
- The court provisionally granted Erie's motion on August 12, 2010 to pay at least $25,607.25 (reflecting 5.990%), raising the issue of the correct calculation and application of 362(d)(3)(B)(ii) when a prepetition judgment rate substitutes for the contract rate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What rate applies under § 362(d)(3)(B)(ii)? | Harris argues the judgment rate of 9% should apply. | Erie contends the nondefault contract rate (5.990%) is the applicable rate. | The nondefault contract rate (5.990%) applies. |
| Does a prepetition judgment replace the nondefault rate for § 362(d)(3)(B)(ii)? | Harris maintains the judgment rate governs. | Erie argues the statute uses the nondefault rate as the metric and remains valid. | Judgment rate does not replace the nondefault rate under § 362(d)(3)(B)(ii). |
| How should the § 362(d)(3)(B)(ii) payments be applied—toward interest or principal? | Payments should be treated as interest payments. | Because Harris is undersecured, payments should be applied to interest; if oversecured, could be applied to principal. | Because Harris is undersecured, payments are applied to principal. |
Key Cases Cited
- In re Heather Apartments Ltd. P'ship, 366 B.R. 45 (Bankr.D.Minn. 2007) (statutory purpose to incentivize timely plans in single asset real estate cases; pays attention to 362(d)(3))
- United Sav. Ass'n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988) (undersecured creditors are not entitled to postpetition interest on their collateral)
- Doerr v. Schmitt, 375 Ill. 470 (1941) (merger doctrine; instrument merges into judgment thus no further action on contract)
- Lowrance v. Hacker, 966 F.2d 1153 (7th Cir. 1992) (merger principles relevant to contract actions and relitigation concerns)
- Mills Music, Inc. v. Snyder, 469 U.S. 153 (1985) (statutory interpretation: ordinary meaning governs when language is plain)