In an important decision for secured creditors, the Ninth Circuit recently held that the proper “cramdown” valuation of a secured creditor’s collateral is its replacement value, regardless of whether the foreclosure value would generate a higher valuation of the collateral. The appellate court’s decision has the potential to significantly impact lenders that include certain types of restrictions on the use of the collateral (such as low income housing requirements) in their financing documents.
In First Southern Nat’l Bank v. Sunnyslope Housing Ltd. P’ship (In re Sunnyslope Housing Ltd. P’ship), No. 13-16180, 2017 U.S. App. LEXIS 9198 (9th Cir. 2017) (en banc), the debtor owned an apartment complex in Phoenix, Arizona. The financing for the apartment complex came primarily from an $8.5 million loan funded by Capstone Realty Advisors, LLC (“Capstone”), which was secured by a first priority deed of trust. The Capstone loan was guaranteed by the United States Department of Housing and Urban Development (“HUD”). Continue Reading