Magazine article American Banker

Bankruptcy Deadline Bill Wins Lender Endorsements; Objective Is to Clear the Way for Foreclosures

Magazine article American Banker

Bankruptcy Deadline Bill Wins Lender Endorsements; Objective Is to Clear the Way for Foreclosures

Article excerpt

Bankruptcy Deadline Bill Wins Lender Endorsements

A House bill aimed at shortening bankruptcy court delays - a growing problem for commercial real estate lenders - has been endorsed by trade groups representing mortgage bankers and insurance companies.

The bill, introduced by Rep. Steven Schiff, would tighten deadlines for filing reorganization plans in Chapter 11 bankruptcies involving only one real estate asset.

The New Mexico Republican stressed that it is pointless to delay the inevitable while a property's value declines, taking with it a bank's prospects for recovery.

"At least three-quarters of these entities that go into Chapter 11 never emerge," he said.

Losses Put at $2 Billion

Proponents of his bill say lenders have lost $2 billion in the past six years because of developers who skirt foreclosure by filing for reorganization under Chapter 11 of the bankruptcy law.

Although this amount is just a minor aspect of the real estate debacle, bankers fear that the problem could impede the recovery if bankruptcies multiply.

Besides, principle is involved. In the case of real estate assets involving only one property, "There is nothing to reorganize," Rep. Schiff asserted.

90-Day Deadline

His bill would require bankrupt entities to file a plan of reorganization within 90 days or show the judge a good reason why an extension is needed.

But some experts said the bill would not solve the problem. More specific criteria for extending the deadline beyond 90 days must be included, they said, or the bill would be little improvement over the current law - which has become a problem precisely because it allows extensions. …

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