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Single Asset Real Estate

As discussed in earlier posts, individual debtors’ whose objective is to save their investment property (which is owned under their name) and are above the monetary jurisdiction limits for a chapter 13, are regulated to filing a chapter 11 bankruptcy. The monetary limits increase every three years. As of April 1, 2016, the limits are $1,184,200.00 for secured debt and $394,725.00 for unsecured debts. The portion of the mortgage that is above the value of the property is counted as unsecured debt. Investment properties that are owned under a corporation or LLC must be filed as a chapter 11.

The bankruptcy code defines a single asset real estate as “

a single property or project, other than residential real property with fewer than four residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental.

Simply stated, the filing of a bankruptcy for the sole purpose of reorganizing an income producing property is subject to the timelines provided for a single asset real estate filing. There is a shorter time-frame for the debtor to file a plan of reorganizations as the bankruptcy code expedites the process. Thus, the designation of a single asset real estate benefits the lender. To be clear, while this designation may benefit the lender, it is still possible to save a single asset through the filing of a bankruptcy.

Commercial properties have a slight advantage in avoiding the single asset real estate designation. Some courts have held that where the property has income that is in addition to the rental revenue, those properties cannot be forced as a single asset. Examples include hotels, marinas or a golf course with a shop that sells any type of product.

Borrowers who fit the above criteria should not wait for a foreclosure judgment prior to discussing whether a bankruptcy would help them save their property. Strategizing well in advance can be the difference in saving the property, should they need to file a bankruptcy in an effort to save the property.