Village Green I, GP v. Fed. Nat’l Mortgage Assoc.

Village Green owes FNMA $8.6 million under loan agreements executed when it purchased a Memphis apartment building. Village missed its $55,000 payment in December 2009; four months later it filed for Chapter 11 bankruptcy. The bankruptcy court stayed creditor actions, 11 U.S.C. 362(a), preventing FNMA from foreclosing on the building, which is worth $5.4 million and is Village’s only bankruptcy. Village’s only other creditors are its former lawyer and accountant. (minor claims) Village’s proposed reorganization plan called for paying down FNMA’s claim slowly, leaving a balance of $6.6 million after 10 years (foreclosure would reduce its balance to $3.2 million immediately) The plan would strip FNMA of protections in the loan agreements: requirements that Village properly maintain and insure the building. Village would pay the minor claims in full, but in two payments ($1,200 each) over 60 days. That 60-day delay, the court held, meant that those claims were “impaired,” so that the minor claimants’ acceptance would satisfy the requirement that “at least one class of claims that is impaired under the plan has accepted the plan,” 11 U.S.C. 1129(a)(10). The bankruptcy court confirmed the plan. The district court vacated. Following a second remand, the bankruptcy court dismissed the case and lifted the automatic stay. The Sixth Circuit agreed that the plan was an artifice to circumvent the Code requirement and was not proposed in good faith. View "Village Green I, GP v. Fed. Nat'l Mortgage Assoc." on Justia Law