Wolfson Bolton PLLC Wolfson Bolton PLLC

Forbearance Agreement Provides Sufficient Value

The United States Bankruptcy Court of Appeals for the Seventh Circuit ruled that a lender could defeat an avoidance action because its agreement to forbear exercising its rights provided sufficient value. In 1756 W. Lake St. LLC v. Am. Chartered Bank, 787 F.3d 383 (7th Cir. 2015), the bank lent the borrower $1.5 million secured by a mortgage on real property. The borrower was not able to repay the loan, and the bank entered into several forbearance agreements. Under one of the agreements, the borrower gave a deed to the mortgaged property to an escrow agent for the bank's benefit in the event of a default. The borrower later defaulted and the bank recorded the deed. The borrower subsequently filed for bankruptcy and sought to avoid the recording of the deed by claiming it was a fraudulent transfer. The borrower argued that it did not receive reasonably equivalent value because the property was worth $1.7 million, $200,000 more than the $1.5 million loan that it satisfied. The Court ruled in favor of the bank by holding that the forbearance agreements themselves had value. Specifically, the Court found that the borrower was able to generate over $400,000 in gross income during the term of the forbearance agreements, thereby receiving sufficient value to defeat any fraudulent transfer claim.

Categories: 
Related Posts
  • Shareholder Suits after Cash-Out Mergers: Direct, Derivative, or Dead on Arrival? Read More
  • Expiration of the Coronavirus Aid, Relief, and Economic Security (CARES) Act Read More
  • Client Alert: GM Imposes New Warranty Chargeback Process Read More