ALI-ABA Course of Study Commercial Real Estate Defaults ...

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1.14 Lessors
1.14.1 Consider liability of a lessee that has assigned a lease to a party that later,
as a debtor in a chapter proceeding, rejects the lease under §365 of the
Bankruptcy Code. 28
1.15 Appraisers
A real estate appraiser may be liable for negligent misrepresentation to a thirdparty
purchaser of a mortgage. 29
2.0 Public Record Searches
2.1 Title Reports and U.C.C. Searches
Order title reports, U.C.C., and other pertinent public record searches for debtor,
collateral and guarantors.
2.2 Partnership and Other Entity Filings
If considered relevant, check partnership and other entity filings to determine if all
requisite filings have been made and if there were any unreported transfers of
entity interests. This information may be relevant in uncovering breaches of
warranties and covenants and may lead to approaches to piercing corporate and
limited partner liability veils.
3.0 Document Assembly and Examination
The immediate objective is to evaluate rights and remedies of the parties against known
and developing circumstances and to seek to identify deficiencies in documentation that
might be corrected in the course of any workout documentation. Possible basis of delay
in realization to be considered. Objective is to evaluate each parties' vulnerability under
various scenarios.
held not to be sufficient to support piercing of the veil. Generally the corporate veil will be pierced if the corporation is "a
device or sham used to disguised wrongs obscure fraud, or conceal crimes." See Cheatkem, 360 S.E.2d (get cite),
Perpetual Real Estate Services, Inc., v. Michaelson Properties, Inc. 974 F.2d 545 (4th Cir. Va. 1992). Corporate veil was
pierced under Missouri law where substantial purchases were made by insolvent store operator on brink of bankruptcy in
Fleming Companies v. Rich 1997 W.L. 610053 (E.D. Mo.)
28 Bond St. Assocs. v. TJX Cos. (In re Ames Dept. Stores), 148 B.R. 756 (Bankr S.D.N.Y. 1993) the court held that
rejection is a breach of lease, not a termination and that pursuant to a specific provision of the lease the tenant
assignor remains liable.
29 Soderberg v. Mekinney, 52 Cal Rptr 635 (Cal. App. 2d Dist. 1966).
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DSC:767996.2
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