Trigild’s eTips is a complimentary monthly email publication written for lenders, servicers and other professionals dealing with commercial non-performing loans. Each month we provide quick tidbits to help you maximize your loan recovery. We welcome your questions and comments.

Relief from Stay

Question: Our borrower filed for bankruptcy before we could complete a foreclosure or even get a receiver appointed. Our lawyer is planning to apply for relief from stay. What exactly does that mean?

Answer: Although a stay of execution is often understood to refer to a Governor’s last minute phone call to death row, the term “execution” does not mean executing a person, but executing a court order. Any order that can be executed can also be “stayed”, or prevented from being executed. In a bankruptcy filing, all creditors are “stayed” from executing any collection actions, including foreclosure or the appointment of a receiver. In short, the filing of a bankruptcy acts as a stay of execution. A creditor may petition the court for a motion for relief from stay, which would allow it to go ahead and execute its foreclosure or other creditor’s rights.

Question: What assets will the motion cover?

Answer: The assets protected by the bankruptcy stay are only those owned by the specific person or entity who filed the bankruptcy. In the case of a corporation or partnership which owns the secured asset, that entity must file, not an individual. Creditors of the partnership may carry out a foreclosure against the business entity, while the individuals associated with the entity are protected.

Once the bankruptcy filed and the stay is in effect, there are cases where bankruptcy law allows for relief from stay. One example would be when the asset’s value is less than the debt owed a secured creditor. That asset has no real value to the bankruptcy estate since an ultimate sale will not provide funds for any other creditors. If the creditor can prove this is the case, the court may allow the secured creditor to pursue its foreclosure remedy and minimize its loss.

Question: What happens when a receiver has been appointed prior to the bankruptcy filing?

Answer: In the case where a foreclosure was already in process and a receiver has taken possession of the asset, the general rule is that the receiver must immediately deliver possession back to the borrower. The bankruptcy code provides an exception for this immediate turnover in special circumstances.

An example would be if the receiver believes the asset is subject to immediate danger of loss, diminishment in value, or when the receiver has been notified that the lender/creditor is planning an immediate motion for relief from stay. The bankruptcy court will normally consider such a motion quickly. If the court rules against the relief from stay, it may still allow the receiver to maintain possession. Consult your attorney for such cases.

Legal Definitions

Automatic Stay: Bankruptcy. A bar to all judicial and extrajudicial collection efforts against the debtor or the debtor's property. The policy behind the automatic stay, which is effective upon the filing of the bankruptcy petition, is that all actions against the debtor should be halted pending the determination of creditors' rights and the orderly administration of the debtor's assets free from creditor interference.-- Also termed automatic suspension.

Motion for Relief from Stay: Bankruptcy. A party's request that the bankruptcy court alter the automatic bankruptcy stay to allow the movant to act against the debtor or the debtor's property, as when a creditor seeks permission to foreclose on a lien because its security interest is not adequately protected. -- Also termed motion to lift the stay; motion to modify the stay. Citation: Black’s Law Dictionary (Bryan A. Garner ed., 8th., West 2004)

Receiver: A disinterested person appointed by a court, or by a corporation or other person, for the protection or collection of property that is the subject of diverse claims.

About Trigild

Trigild is the only non-performing commercial loan specialist that combines receivership trustee, management and disposition services under one roof. That means no coordinating multiple companies, and no duplication of fees. We have the expertise to quickly take control of the assets, maximize operating results, and speed recovery by selling the assets quickly through our national network of industry contacts. This is our core business, not a sideline. The results? Absolute certainty that you will achieve maximum loan recovery-faster, easier and more cost-effectively.

If you have a question that you would like eTips to answer, please e-mail us at eTips@trigild.com