In re: Heritage Highgate Inc., No. 11-1889 (3d Cir. 2012)
Annotate this CaseDebtors began development of a subdivision and entered into a construction loan agreement with Bank Lenders, who retained a lien on substantially all of Debtors' assets. Debtors subsequently borrowed from Cornerstone, which similarly received liens and later agreed to subordinate the claims to that of Bank Lenders. After selling approximately a quarter of the planned units, Debtors filed petitions for relief under Chapter 11. The final plan of reorganization, confirmed by the court, specified that claims of Cornerstone would be secured to the extent determined by the court and included a budget that anticipated full payment of both Bank Lenders and Cornerstone; unsecured claimants would receive about 45 percent. The court valued Cornerstone's claims, using fair market value of the project on the plan confirmation date, rather than potential use and disposition value. Because the amount due Bank Lenders exceeded that value plus the value of other assets, no collateral remained to secure Cornerstone's claims; Cornerstone was treated as unsecured. The district court and Third Circuit affirmed. The Bankruptcy Court properly accepted the valuation because it overcame the presumed validity and amount of the Cornerstone’s secured claims. Cornerstone did not prove that secured claims were worth more than the valuation indicated.
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