Single Asset Real Estate (SARE) Cases

Single Asset Real Estate (SARE) Cases

Bankruptcy LawChapter 11 Bankruptcy – Single Asset Real Estate (SARE) Cases

SARE Cases in Chapter 11

SARE cases are typically filed when real estate values are falling, such as the time during the “Great Real Estate Crash of 2008”. The Code defines a single real estate case as a single property that generates substantially all the debtor’s income, and the debtor is not significantly involved in any other business venture. The property must be a single property other than the debtor’s personal residence, and if it is a multi-residential property, it must have more than 4 units. For example, an apartment building will qualify while a duplex or quadplex will not. Until recently, other real estate cases that did not meet SARE requirements were prohibited by Chapter 11. 

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There are variables to consider in determining whether the debtor qualifies for SARE treatment under the Code that ultimately come down to the debtor’s intent. If the debtor owns several parcels of land and intends to build an apartment building on one parcel and retail on another, these can be combined as one multipurpose project. However, if the debtor is engaged in the business and the business is involved in various commercial activities that produce income, the debtor’s involvement in these activities might disqualify him or her from a SARE qualification. To qualify as a SARE debtor, the income needs to be generated from the real estate itself in the form of rents and not from other income-producing activities.

To gain protection of the automatic stay and prevent an imminent foreclosure, the SARE debtor must file a reorganization plan as quickly as possible. The Plan must have a reasonable possibility of being confirmed. Or the debtor needs to begin making monthly interest payments at the rate specified in the original contract.

A SARE case moves faster than the traditional Chapter 11 case. A SARE debtor has 90 days to file a confirmable Plan. But it does give the debtor facing foreclosure some breathing room to sell the property or to obtain new financing.

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