JSMedia – The bankruptcy court ruling in re Soho 25 Retail LLC benefits both lenders and borrowers. The case involves a note secured by a mortgage against a commercial property. The mortgagee was able to collect rent from the property by serving a notice to tenants. In addition, the lender began a foreclosure action against the property and appointed a receiver. Although the loan remained outstanding, Soho was still in default.
Soho 25 was an important bankruptcy decision. It holds that mortgagee enforcement actions determine whether the debtor-in-possession can utilize rental proceeds from the property. As such, aggressive lenders will be unable to use rental proceeds. The case is silent about the precise step that the lender took to trump the rights of the bankruptcy estate. In the meantime, the decision is an important step in the evolution of lending practices.
The Soho 25 decision is important for lenders in New York. It is an important decision for the future of the industry. It clarifies that lenders can use post-petition actions to enforce their loan covenants and impose penalties on borrowers who do not follow those requirements. In re Soho 25, the mortgagee must revoke its license and reclaim the property in bankruptcy.
In Re Soho 25 Retail LLC Benefits Mortgage Lenders in New York
In re Soho 25, the Soho 25 decision leaves open the question of whether the pre-bankruptcy transfer of rents did occur. The Soho 25 decision states that the bank does not need to resolve the threshold question of whether the Assignment was effective and absolute. This raises questions about the Soho 25 decision. In re Soho 25, the mortgagee was unable to challenge the Soho 25 ruling.
Despite the Soho 25 decision, the debtor’s ability to keep rental income is a major concern for distressed commercial real estate owners. Soho 25’s decision also raises questions about the pre-bankruptcy transfer of rents. In re Soho 25, the bankruptcy judge left the issue unresolved, stating that the assignment did not impose any conditions on the landlord and mortgagee.
Moreover, the Court did not have to resolve a murky legal question. It only needed to determine that the Lender had taken adequate affirmative steps to make the Assignment effective under New York law. It was also clear that the Lender’s actions in the case were sufficient. Its underlying interest in the property was not at stake. The debtor’s failure to pay rents would damage the neighborhood.
While resolving this murky legal question will ultimately be up to the Court, the fact remains that the Assignment is self-executing. The debtor argues that the assignment of rents is not self-executing because the Lender asserted its rights to it. It also argues that the Referee’s appointment was sufficient to make the Assignment effective under New York law.