Guild Investment Group Granted Stay Relief to Continue Foreclosure Action

Last week, the U.S. Bankruptcy Court for the Southern District of New York entered an order granting Morrison Cohen client, Guild Investment Group, stay relief to continue the foreclosure sale of a 74-acre site in Albany, NY, valued by the Debtor in excess of $100 million. Significantly, although the Debtor filed a plan of reorganization – as required in a single asset real estate (SARE) case – the Court discounted it as a mere “placeholder.”

The Debtor, Kenwood Commons, LLC, filed for bankruptcy relief on March 28, 2022, two days before a state court-ordered foreclosure sale of its property. While the bankruptcy prevented the foreclosure from proceeding due to the automatic stay, it also set a deadline for this SARE Debtor to file a proposed plan of reorganization. Moreover, the plan would be required to have a reasonable possibility of being confirmed within a reasonable time. The Debtor ultimately filed its plan on the very last day permitted by the Bankruptcy Code.

Although stay relief in general is not uncommon, it is often not granted in SARE bankruptcy cases because the property to be foreclosed is usually the sole significant asset of the debtor. In its decision granting the lender relief, the Court provided a roadmap to the interplay between various sections of the Bankruptcy Code as they apply in SARE cases and the requirements a debtor’s plan of reorganization must meet to defeat a lender’s lift stay motion.

The Court acknowledged that Congress had enacted the stay relief provisions applicable to SARE debtors expressly to fast-track single asset real estate cases and to specifically “avoid the usual delays experienced in chapter 11 in SARE cases, which historically have been filed to avoid a foreclosure, and in the hopes that the debtor can come up with some form of miracle in order to formulate an acceptable plan.” In granting Guild the relief Morrison Cohen sought, the Court stated: “To make Guild and other secured creditors wait any longer, while Kenwood begins a marketing and sale process at this late juncture would fly in the face of the underlying statutory intent of a prompt process in single asset real estate cases.”

Joseph T. Moldovan, David J. Kozlowski and Gayle Pollack represented Guild Investment Group.

The case is In re Kenwood Commons, LLC, Bankr. S.D.N.Y. 22-35169-SHL. The Court’s bench decision can be found at docket entry 88, and the order granting the relief at docket entry 90.