Valuation for Cramdown is "Replacement-Value" Not "Foreclosure-Value"

In Sunnyslope Housing Ltd. Partnership, the Ninth Circuit held that for chapter 11 cramdown purposes, the valuation of property need not account for the potential extinguishment of subordinated affordable housing covenants which, if extinguished through foreclosure, would significantly increase the value of the property. As such, the Ninth Circuit allowed the much lower valuation of the property which assumed the covenants were in place and allowed the debtor to value the senior lender's secured claim at a very low number. This allowed the debtor to value the lender's secured claim at a low amount and treat the rest of its claim as unsecured under Bankruptcy Code section 506(a). 

The Ninth Circuit found that the proper valuation for cramdown was the "replacement-value," which assumed the subordinated affordable housing covenants were in place, as opposed to the "foreclosure-value," which would value the property as if the subordinated covenants had been foreclosed out. The Ninth Circuit seemed to gloss over the fact that the covenants were expressly subordinate to the senior lien. Instead, the Ninth Circuit relied on Associates Commercial Corp. v. Rash, 520 U.S. 952 (1997), in finding that "replacement-value" was the proper valuation method, which did not require consideration of the value if the junior affordable housing covenants were foreclosed out. This is a very important case for Chapter 11 debtors and lenders, although obviously not favorable for lenders.

For the full opinion, please click here.

If you have any questions, please call Melissa Lowe or any of the other attorneys at Shulman Bastian Friedman & Bui LLP at 949-340-3400. 

No Comments

Leave a comment
Comment Information
  • NBLSC Board Certified Lawyer Rated By Super Lawyers | Ryan P. Durham Rated By Super Lawyers | Ben Boston
  • Tennessee Association For Justice | Member 2015-2016 American Association For Premier DUI Attorneys The National Trial Lawyers | Top 100 Trial Lawyers
  • American Institute of Family Law Attorneys | 10 best 2015 American Institute of Personal Injury attorneys | 10 best 2016 AV preeminent |  Jeffery Broker

Schedule a Consultation Today

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Shulman Bastian LLP | Full Service. Business. Lawyers.

Irvine
100 Spectrum Center Drive
Suite 600
Irvine, CA 92618

Map & Directions

Riverside
3550 Vine Street
Suite 210
Riverside, CA 92507

Map & Directions