Single Asset Realty Entities in Chapter 11
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.