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

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5.24 "Fixtures" v. Personalty. 172
5.24.1 Intent. 173
5.25 Waste - Impairment of Security. 174 Third parties, otherwise exculpated
mortgagors and transferees of the mortgaged property may be personally liable to
the mortgagee for waste which may include not only physical damage and
improper maintenance of the mortgaged property, but also intentional
"impairment of security" which may exist as in the case of a diversion of rental
income and failure to pay taxes or maintenance expenses and other items. A
claim by a mortgage against a third party contractor of the mortgagor 175 has been
sustained. An action for impairment of security where permitted may be brought
either before foreclosure 176 or if the full debt is not satisfied after foreclosure on
the theory that a mortgaged is entitled at all time prior to foreclosure to
unimpairment security.
5.26 Fraudulent Transfers.
5.26.1 "Upstream" and "Cross-Stream" Financing. 177 Corporate guaranties
of and providing collateral for parent and shareholder debt or for debt of
sibling entity 178 may be subject to avoidance or be invalidated as a
fraudulent conveyance under the Uniform Fraudulent Conveyances Act or
Uniform Fraudulent Transfer Act, §§548 and 544(b) of Bankruptcy Code,
or under Model Business Corporation Act, or similar statute, if it does not
172 See Garfinkel, 1 Pract. Real Estate Lawyer, Jan. (l985). Lighting in a store has been held to be a trade fixture and
not part of the real estate. Roebel v. Kossenyans, 629 N.E. 2d 241 (Ind. App. Ct. 1994).
173 In In re International Bldg. Components, 159 B.R. 173 (Bankr.W.D. Pa. 1993) the court, by applying Pennsylvania
law, determined that a floor joist system removed and sold by the debtor was personalty and that therefore since the
financing statements filed at the situs of real estate rather than at the location of the debtor's principal place of business
did not perfect the security interest, a payment to the secured party of the proceeds of the sale of the collateral was a
preference.
174 See Leipziger, The Mortgagee's Remedies for Waste, 64 Calif. L.Rev. 1086 (1976) and Dunaway Text Supra N.
2Chapter 8 “Actions for Waste” .
175 Turner v. Kerin & Associates, 283 Mont. 117, 938 P.2d 1368, 1997 WL 325907 (Mont., Jun 11, 1997) (NO.
96-002)
176 W& R Inv. Co. v. Edwards Supply Co. 24 N.E. 2d 518 (MA. 1939)
177 See Item 3.3.5 above and the discussion of fraudulent conveyances at Item 8.6 below. See Dunaway Text Supra N.
2 Chapter 18 “Law of Fraudulent Transfers” .
178 See Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979 (2nd Cir. 1981), Weintraub & Resnick, Indirect
Economic Benefit as Fair Consideration in Fraudulent Conveyance Cases, 15 UCC LJ 75, 76 (1982). See In re Duque
Rodriquez, 77 BR 937, 939 (Bankr. S.D. Fla, 1987). This may also be referred to as a "sidestream" guarantee.
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