450 B.R. 828
Bankr. N.D. Ill.2011Background
- Debtor Highlands of Montour Run, LLC filed Chapter 11 with a single asset real estate property in Corapolis, Pennsylvania.
- Bank holds a first mortgage on the Property and asserted rights to rents after default.
- Court entered a Strict Compliance Order requiring cure of defaults and adequate protection payments by November 15, 2010.
- Bank alleged default and moved to lift automatic stay; possession of the Property and rents by Bank occurred in late 2010.
- Debtor proposed a Plan funded by rents, potential recoveries from actions, and sale/refinancing proceeds; Bank objected as to funding viability and disclosure adequacy.
- Court sustained the Bank’s objection, finding rents cannot be used to fund the Plan because the Bank validly controls rents post-possession.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether rents fund the Plan despite assignment. | Highlands contends rents remain estate property subject to plan funding. | GACC asserts an absolute assignment of rents; after default, Bank may collect rents. | Rents cannot fund the Plan; Bank has a present, absolute assignment and collection rights. |
| Adequacy of information in the Disclosure Statement. | Debtor argues information suffices given plan funding sources. | Bank contends disclosure fails to adequately describe how rents will fund the plan and status of rents. | Disclosure Statement disapproved; plan not confirmable due to reliance on rents. |
Key Cases Cited
- Sovereign Bank v. Schwab, 414 F.3d 450 (3d Cir. 2005) (constructive possession and notice can extinguish debtor's rents rights)
- Mountain View Village, Inc., 5 F.3d 34 (3d Cir. 1993) (rents not property of the estate where mortgagee enforces rights pre-petition)