Shulman Bastian LLP

Post-Petition Settlement Proceeds Can Be Secured Lender's Collateral

The Ninth Circuit BAP recently held in In re Endresen, BAP Nos. OR-15-1141 and OR-15-1190, that post-petition settlement proceeds on construction defect claims were part of the secured lender's collateral and not the result of after acquired "commercial tort claims" as argued by the trustee. This should not worry trustees too much, though, because the ruling was based largely in part on the language and definition of the lender's collateral in the operative documents (and also on Bankruptcy Code section 552(b)). The Deeds of Trust included as collateral "Miscellaneous Proceeds" which definition included settlements or proceeds paid by a third party for damage to the properties. In this case, the settlement related directly to a construction defect claim, in other words, a claim for damage to one of the properties, and thus, the settlement proceeds were held to be part of the lender's collateral.

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