In re B.R. Brookfield Commons

Summarized by Melissa De Groff , Kroger, Gardis & Regas, LLP
12 years 4 months ago

Citation:

-- F.3d --, 2013 WL 5881565 (7th Cir. 2013)

Tag(s):

Ruling:

Claim based on a non-recourse second mortgage must be allowed pursuant to Bankruptcy Code section 1111(b(1)(A), which requires only that the claim be secured by a lien on property of the estate, not that the claim be secured by value.

Procedural context:

Bankruptcy Court allowed the claim, over Debtor's objection. On Debtor's appeal, the U.S. District Court for the Eastern District of Wisconsin affirmed. Seventh Circuit affirmed District Court.

Facts:

Debtor B.R. Brookfield Commons No. 1, LLC and B.R. Brookfield Commons No. 2, LLC (together, the "Debtor") owned a shopping center ("Brookfield Property"). Creditor ValStone Asset Management, LLC ("ValStone") held a valid and enforceable second priority non-recourse mortgage lien on the Brookfield Property. The Debtor had no equity in the Brookfield Property on the petition date, and asserted that because ValStone's mortgage lien was non-recourse, the lien was therefore wholly unsecured and should be disallowed. ValStone argued, and the Court agreed, that the only prerequisite of section 1111(b)(1)(A) is that the claim be secured by property of the estate, and the fact that the claim was not secured by value is irrelevant. The Court found the Congressional intent was to balance the Debtor's protections with the equitable treatment of creditors, and concluded section 1111(b)(1)(A) therefore required allowanceof ValStone's claim, regardless of the value of the Brookfield Property.

Judge(s):

Bauer, Flaum, and Rovner.

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