In re Heritage Highgate, Inc.

Summarized by ,
13 years 9 months ago

Citation:

In re Heritage Highgate, Inc. and Heritage Twin Ponds, L.P., Debtors, Case No. 11-1889, ---F.3d ---- (3d Cir. May 14, 2012)(slip opinion) (Rendell, J.)

Tag(s):

Ruling:

First, real estate is to be valued under Section 506(a) at fair market replacement value as of the date of Chapter 11 Plan confirmation. Second, lien-stripping is allowed in a Chapter 11 reorganization even though lien-stripping would not be allowed in a liquidation plan; a plan to complete real estate development and sell finished lots does not qualify as a liquidation. Determining the value of a secured claim involves shifting burdens in which “the party seeking to negate the presumptively valid amount of a secured claim . . . bear[s] the initial burden” and the “creditor thereafter bears ‘the ultimate burden of persuasion . . . to demonstrate by a preponderance of the evidence both the extent of its lien and the value of the collateral securing its claim.’”

Procedural context:

Appeal from the United States District Court for the District of New Jersey, which had affirmed the Bankruptcy Court’s decision. The issue of burden of proof as to the value of secured claims was raised for the first time by the Circuit Court, which requested supplemental briefing on the issue.

Facts:

In support of a contested cash collateral motion, the Debtor had submitted an appraisal of real estate showing a valuation sufficient to cover both senior and junior secured claims. Subsequently, some lots were sold. Before plan confirmation, the Official Committee of Unsecured Creditors filed a motion to value the secured claims of the junior lien holders at zero because interim sales had reduced the value of the collateral to less than the amount of the senior secured claim. The junior lien holders argued their claims should be deemed wholly secured because plan projections estimated that the Debtors would derive revenue from the project sufficient to pay their claims in full.

Judge(s):

Rendell, Fisher, and Chagares, Circuit Judges.

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