Tuesday, November 08, 2005

Declining Values Brings Haste To Bankruptcys

This educational site has some information on foreclosures. "In an environment marked by rapidly escalating real estate values, readily available and cheap financing and quick sales, it is difficult to imagine, let alone to plan for, a real estate collapse. Yet, that is precisely the concern of some industry experts. Although the precise timing and extent are unknown, a correction in the real estate market is inevitable."

"When it occurs, there are several things that will be associated with or a consequence of a real estate 'correction.' Not only will this 'new world' likely increase the sheer number of bankruptcies, it will have a bearing on the strategies utilized and leverage in bankruptcy cases."

"Courts already tend to move real estate cases at a faster pace than other cases. This is particularly true for cases that involve raw land or partially completed projects. It is not unusual in real estate cases for bankruptcy judges early on to establish a tight schedule for submission and consideration of reorganization plans."

"Indeed, debtors in 'single asset real estate' cases, generally to involve small projects with debt of no more than $4 million, run the risk of losing bankruptcy protection if, within 90 days, they have not either (1) filed a reasonably viable reorganization plan or (2) commenced payments to the secured creditor based on current interest rates and the value of the real estate collateral."

"The recent amendment of the Code enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act goes so far as to require bankruptcy courts to conduct status conferences to assure prompt and economical resolution of bankruptcy cases. It is clear that real estate debtors have been and will continue to be under pressure to perform promptly or lose the potential benefit of bankruptcy. In a market in which interest rates are increasing and values declining, that pressure undoubtedly will be intensified as judges require debtors, in effect, to 'put up or shut up.'"

"If there is no equity cushion there is no right to interest or costs even if they are provided for by contract. In a real estate market in which values are declining, this will lead to careful evaluation of strategy."

"Recognizing that the secured creditor may not be compensated for delays in retrieving its collateral and may not be reimbursed for the fees incurred in seeking relief from the automatic stay, opposing a debtor's reorganization plan or otherwise contesting a debtor's reorganization. This risk may incent some secured creditors to reach an early agreement with a debtor rather than deal with the delay and cost incident to reorganization."

4 Comments:

At 2:30 PM, Blogger Chip said...

"...This risk may incent some secured creditors to reach an early agreement with a debtor rather than deal with the delay and cost incident to reorganization."

Presumably this includes, at the present time, acknowledgment by the creditors that a delay in dumping the repo'd property will increase their loss by virtua of continually declining prices.

 
At 4:58 PM, Blogger Chip said...

Ben -- I may be inane at times, but I'm loyal!

 
At 8:22 PM, Blogger Ben Jones said...

Thanks Chip,
If I'm right there will be hundreds of posts at this blog soon.

 
At 12:54 PM, Blogger screwnectady said...

About two months ago I started tracking US and NY foreclosure.com data. I can confirm that foreclosures are down about 5% nationally in the last month and down 1% in New York.

The bankruptcy data shows a divergence with the foreclosure data at the same website. US bankruptcy numbers have increassed 38% in the last 45 days vs 84% in NY.

Does this mean the blue states will lead the red in bankruptcies by a factor greater than 2 to 1?

 

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