First Southern National Bank v. Sunnyslope Housing LP (In re Sunnyslope Housing LP), ___F3d___ (9th Cir. EN BANC May 26, 2017) (case #12-17241)
First Southern National Bank v. Sunnyslope Housing LP (In re Sunnyslope Housing LP), ___F3d___ (9th Cir. EN BANC May 26, 2017) (case #12-17241)
In an En banc decision, 8 to 3, the US Court of Appeals for the Ninth Circuit, on 5/26/17 reversed a 9th Circuit decision from 2016 on cramdown valuation, for “cramming down” a Chapter 11 plan on a secured creditor which rejected the Chapter 11 debtor’s proposed Chapter 11 plan. EN BANC, the Ninth Circuit held that Cramdown Value Is Not the Higher of Foreclosure or Replacement Value, it is replacement value.
Specifically, the en banc 9th Circuit decision held that a secured creditor in a “cramdown” of a Chapter 11 plan on that secured creditor, after creditor voted to reject (or did not vote to accept) the Chapter 11 plan, is only entitled to the replacement value of the collateral, not the price that would be realized after foreclosure in those rare cases where foreclosure value is higher than replacement value.
The majority in the three-judge panel opinion from April 2016 believed that valuation, governed by Section 506(a), is not measured by the income an owner could generate by operating the property as affordable housing. In the 2/1 decision a year ago, the majority believed that the bankruptcy court could not shortchange a secured creditor if foreclosure would generate a higher value by freeing the property from the strictures of affordable housing.
The enc banc decision decided that Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997) requires using the “replacement value standard” rather than the value from a foreclosure sale that will not take place.