Daily Development for
Monday, November 25, 1996

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.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Stacy Walter at the ABA. (312) 988 5260 or stacywalter@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.