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Single Asset Realty Entities in Chapter 11

Published August 23, 2014 by Sasser Law Firm

Single asset reality entities (SARE) are viewed with some suspicion in bankruptcy courts. Bankruptcy is supposed to serve one of two purposes: either it officiates the fair and equal distribution to creditors of what can be gained by selling off a debtor’s assets, or it reorganizes a going-concern’s debt obligations with a view in mind of getting to creditors something even greater than they would get in a liquidation. But a SARE doesn’t really enable a bankruptcy to accomplish either of these very well. For one thing, a SARE typically only has one creditor – the secured lender that has a mortgage or deed of trust on the property. For another, there isn’t usually much of an operation to reorganize: there are no employees, no trade debt, no inventory. In short, when a SARE is involved, the bankruptcy system is reduced to a last-ditch effort for an entity to stave off foreclosure just a little bit longer. It’s rarely argued any more than SAREs simply don’t belong in bankruptcy at all, but they remain second-class citizens and are subjected to shortened time-constraints and the secured lender in these cases are granted certain rights that they ordinarily don’t possess in chapter 11 cases.

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