Bankruptcy and Commercial Real Estate Foreclosure
In Texas, commercial real estate foreclosure happens more often than you may think. If you or your company owns an Apartment Complex, Shopping Center, Office Building or Land Development, Strip Mall, Commercial Building, Shopping Mall, Office Building, or other type of Commercial real estate and are facing foreclosure, contact the The Law Offices Of R.J.Atkinson for a free bankruptcy evaluation. We can explain the options available to stop foreclosure and reorganize under Chapter 11 Bankruptcy as well as provide non-bankruptcy options for reorganization, workout, or liquidation. The Law Offices Of R.J.Atkinson has represented apartment complexes, shopping centers, and other commercial real estate concerns in bankruptcy proceedings throughout Texas.
There are a significant number of Chapter 11 Bankruptcy cases which involve partnerships, limited partnerships, corporations, LLCs or other entity debtors whose sole significant asset is an apartment complex, shopping center, office building, industrial warehouse, or similar commercial real property. In most cases, the primary creditor is the mortgage company or sole lien holder. There are numerous reasons commercial real properties end up facing foreclosure. Many face foreclosure proceedings due to a decrease in vacancy, an increase in property taxes, an increase in interest from a hard money lender, unexpected repairs or maintenance, a balloon payment has come due, an increase in insurance or escrow requirements by the lender. Whatever the reason, when the debtor becomes unable to pay its obligations when they become due, they fail to maintain debt service on the property. As a result of falling behind, the mortgage on the commercial property goes into default, which in turn initiates the foreclosure process by the lender. In vast majority of cases, the lender fails to provide any reasonable workout options for the debtor, so the debtor often considers filing for Chapter 11 Bankruptcy in order to stop the foreclosure.
A single asset real estate debtor as they are referred to is subject to special provisions in the Bankruptcy Code. The term "single asset real estate" is defined 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." So if an apartment complex, commercial building, or shopping center is the only thing your company owns, it will most likely be considered a single asset real estate debtor in bankruptcy.
A Chapter 11 proceeding is initiated by filing a petition which is the official documentation that lists basic information about the debtor, the approximate amount of debt owed, the approximate value of the assets owned, and any prior bankruptcies. Shortly thereafter (15 days), the Schedules, Statement of Financial Affairs are due. If they aren’t timely filed with the Bankruptcy Court, the case can be dismissed. In most Chapter 11 cases, a bankruptcy trustee is not automatically appointed, instead the debtor remains in possession of their property and is referred to as a debtor-in-possession. If there is fraud, malfeasance, or a recommendation by a creditor, creditor’s committee, or the US Trustee, a bankruptcy judge may appoint a trustee in a Chapter 11 Bankruptcy case. This is usually the exception rather than the rule but it does happen.
After the Schedules and Statement of Financial Affairs are filed, there is a meeting of the creditors. The meeting of the creditors is a mandatory hearing, usually held within 45 days after the Chapter 11 Bankruptcy filing. At the meeting of creditors, the trustee and creditors may examine the debtor regarding the assets and liabilities of the bankruptcy estate. Section 341(a) of the Bankruptcy Code mandates the meeting of creditors. The debtor or their representative can be asked questions under oath as to the condition of the debtor and the viability to reorganize. If more information is needed a 2004 examination can be requested. A 2004 examination is an extended examination of any person pursuant to Federal Rule of Bankruptcy Procedure 2004 regarding one or more aspects of a debtor's financial affairs. A Rule 2004 examination is similar to a deposition in a non-bankruptcy proceeding.
In the interim, the debtor has time to file a proposed plan of reorganization along with a disclosure statement. The disclosure statement is a document filed in a Chapter 11 proceeding that describes a debtor-in-possession's reorganization plan, its effect upon the creditors, the ability of the plan to be performed, and a comparison of the reorganization plan's repayment proposal to the results likely to be obtained in a Chapter 7 proceeding for the same debtor. The creditors of a Chapter 11 debtor-in-possession may not vote for or against the reorganization plan until the court approves the contents of the Disclosure Statement at a Disclosure Statement hearing.
The Chapter 11 plan of reorganization sets forth in detail how the debtor intends to conduct its business, while continuing to make payments to its creditors. In certain situations, the creditors can also propose their own plans of reorganization. In a Chapter 11 plan, creditors are divided into different classes with different rights depending upon what types of debt claims they hold. Getting a Chapter 11 plan approved often involves diligent and skillful negotiation by the debtor’s counsel with input from creditors. In the end, a Chapter 11 plan of reorganization has to be approved by the Bankruptcy Court. In certain cases, the Bankruptcy Court can approve the plan even when some of the creditors did not. If a plan cannot be approved, the Chapter 11 Bankruptcy is oftentimes converted to a Chapter 7 liquidation or alternatively the Chapter 11 case may be dismissed.
In a Chapter 11 Reorganization Under The Bankruptcy Code, an Apartment Complex, Shopping Center, Strip Mall, Office Building, Residential Building Project or other single asset real estate Debtor can do many things to help aid in its reorganization and regain control of its financial affairs. Getting a Chapter 11 plan of reorganization “confirmed” or approved by the Bankruptcy Court is the key.
Chapter 11 Bankruptcy can allow a commercial real estate debtor to:
- Reject and get rid of leases
- Reject and get out of contracts
- To pay unsecured creditors less than 100% of debts owed
- To extend repayment of taxes
- Reorganize finances
- Stop lawsuits or initiate lawsuits
- Stay in business or remain in control of the property
- Sell assets
- Liquidate the property
- Repay creditors
- Get time to market the property for sale
- Get time to increase occupancy
A Chapter 11 Bankruptcy has many benefits when facing foreclosure. Depending on the facts of a particular property situation, Chapter 11 Bankruptcy can be an excellent option to reorganize a commercial real property when facing imminent or irreparable financial damage due to a pending foreclosure, a pending lawsuit, the collection efforts of creditors like a mortgage company, second lien holder, hard money lender, or when a property has hit some temporary decrease in occupancy, and wants or needs time to get back on track, Chapter 11 bankruptcy may be an option.
In some commercial foreclosure situations there are also alternatives to bankruptcy. Such options include out of court workouts and settlement arrangements, assignments for the benefit of creditors, as well as receiverships and forbearance agreements.
Texas Commercial Real estate Foreclosure Help
If you want to learn more about stopping foreclosure on a Texas commercial property or filing bankruptcy for commercial real estate in Texas, Contact the Texas Bankruptcy Attorneys at The Law Offices Of R.J.Atkinson, we might be able to help.
If your commercial property, apartment complex, office building, multifamily property, shopping center, strip mall, industrial warehouse, building project, construction project, or land development is located in Houston, Austin, San Antonio, Dallas, or anywhere in the State of Texas, and is facing foreclosure Contact Us.
Chapter 11 Commercial Bankruptcy can be quite complicated so if you or your apartment complex, office building, multifamily property, shopping center, strip mall, industrial warehouse, building project, construction project, or land development is facing foreclosure and you are considering filing for bankruptcy, contact The Law Offices Of R.J.Atkinson,LLC today. With offices in Austin, San Antonio, Houston, Dallas, Waco, Plano, New Braunfels, we can help you decide if Chapter 11 Bankruptcy is right for your property. Contact Us for a real estate bankruptcy evaluation.
Stop Foreclosure on Commercial Real Estate | Reorganize Real Estate | Prevent Foreclosure
Contact the Texas Bankruptcy Attorney R.J.Atkinson: 800-436-9056