Inside: Bankruptcy & Real Estate

In this edition of the Contra Costa Lawyer, we explore and discuss the impact and significance of both time-tested and newly articulated aspects of both bankruptcy and real estate law. In these (still) troubling and unsettled economic times, it behooves almost all legal practitioners to have at least an awareness of certain basic tenets of bankruptcy law in order to have a general discussion concerning the prospect of a bankruptcy with one’s clients. In this issue, we have selected some of the lesser known, but significant, issues of which practitioners should be aware in the bankruptcy context. We also examine certain established and developing law in the area of real estate and its interaction with bankruptcy law.

The advent of a bankruptcy filing, as we learn, can potentially both protect certain assets from, and expose other assets to, the reach of creditors. In the article entitled Keeping a Slice of the Pie for Yourself: Exempting IRAs, 401Ks and 529 Plans, David Arietta explains how and to what extent these plans may be protected from creditors in a bankruptcy. In the article entitled Proprietor Beware: Corporate Refuge Can Ensnare, David Katzen discusses the perils of having elected to conduct business in the corporate or limited liability company form when seeking protection from the bankruptcy court.

When representing creditors, the threat or actual filing of a bankruptcy is typically viewed as an unwelcomed development, to say the least. However, Marlene Weinstein informs us in her article entitled, The Bankruptcy Trustee – A Creditor’s Friend, of the various ways in which a bankruptcy trustee may actually enhance a creditor’s position vis-à-vis the debtor. Marlene Weinstein also offers advice regarding the necessity of preserving divorce-related claims in her article entitled, Family Law Attorneys Beware: Possible Exceptions to the Chapter 7 Bankruptcy Discharge.

As we expand our view of bankruptcy to include its interface with real estate law, we must acknowledge that many homeowners are seeking bankruptcy protection as a result of the housing crisis, which has left them owing more on their residence than it is worth. Steve Knuppel, in his article entitled Lien Strip Basics and the Evolving Law on “Chapter 20”, details the procedure for removing a junior lien from a debtor’s residence in the bankruptcy court, thus providing a certain degree of relief to such debtor. A hot off the press Ninth Circuit Case, which could effectively eliminate a debtor’s right to retain proceeds from the sale of a homestead claimed as exempt, is discussed in the Pro Bono Section and highlighted via the emergency petition for rehearing filed by Katzen & Schuricht. In the article entitled To file or not to file: How the timing of the bankruptcy can impact the exclusion of cancellation of indebtedness income , Mark Ericsson provides an explanation as to the tax treatment of debt forgiveness in the bankruptcy context.

Finally, we address a significant new case in real estate law concerning the dangers of using unartfully drafted letters of intent. In the article entitled Unintended Consequences of Preliminary Agreements, written by Roger Brothers (and contributed to by Dominic Signorotti and Ericka Ackeret), we are made aware of First National Mortgage Company v. Federal Realty Investment Trust (631 F. 3d 1058 [9th Cir. 2011]), in which the Ninth Circuit held that a preliminary agreement not necessarily intended as a final expression of the parties intent may be nonetheless enforceable, under certain circumstances.

We hope that you find this edition to be interesting and enlightening.