by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
The Reporter for today's Daily Development is Jim Stillman of Murphy, Weir & Butler, San Francisco.
BANKRUPTCY; RENTS; ALLOWANCE OF PARTIAL SECURED CLAIM: The allowed amount of an undersecured real estate creditor's claim will increase as postpetition rents accumulate, under the clear wording of revised section 552.
In re Homestead Partners, Ltd., 200 B.R. 274 (Bankr. N.D.Ga. 1996).
The Bankruptcy Court firmly rejects the "single valuation" line of cases, and holds that the wording of the Code, as well as the holding of United Savings Ass'n of Texas v. Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365, 108 S.Ct. 626 (1988), entitle the creditor to postpetition accretions in collateral value, as occurs in the case of accumulating rents. The Bankruptcy Court also holds that a flat 10% award of attorney's fees (equalling $1,210,228.93) was avoidable as a preference, in that the 10 day letter required under Georgia state law for "perfection" of the right to such fees had been served within the preference period.
Reporter's Comment: One hopes this case will be much cited for its correct rejection of the "single valuation" line of cases pertaining to treatment of postpetition rents, and that it will never be cited for its chopped reasoning about flat percent fee awards. The serving of a notice of default to enforce a duly perfected mortgage is not easily construed as a preference under the law of any state, including Georgia; the more direct analysis under bankruptcy law is that, pursuant to review under Section 506(b), the 10% fee award in this case was grossly unreasonable and therefore not allowable.
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