Pub. 8 2017 Issue 4

www.wvbankers.org 10 West Virginia Banker Lewis Glasser PLLC is a proud Associate Member of the West Virginia Bankers Association. 300 Summers Street Suite 700, Charleston, WV 25301 Phone: 304.345.2000 Website: www.lewisglasser.com Ann Starcher and Spencer Elliott have over 40 years of combined experience in assisting commercial lenders throughout West Virginia both in and out of bankruptcy. Ann was in commercial lending for 11 years prior to attending law school, and was a Vice President at Citicorp North America, Inc. We specialize in pre-bankruptcy negotiations, forbearance agreements and other enforcement and collection mechanisms. Upon the filing of a bankruptcy, Lewis Glasser can assist lenders with the protection of cash collateral, securing adequate protection payments, relief from the automatic stay to pursue collateral, as well as navigating the often complex process of reorganization and plan confirmation of commercial debtors. be dispossessed of the property upon a sale free and clear despite being entitled to the benefits of possession after rejection under section 365(h). One of the questions that arises for banks in this scenario is what happens to the bank’s interests when the debtor-land- lord attempts to sell free and clear of the tenant’s leasehold interest (which might or might not be free and clear of the bank’s leasehold deed of trust lien, depending on the circumstances). If the lessee may stay in possession, and the debtor-landlord may not sell the property free of the lessee’s and the bank’s interests, then the bank may not be significantly affected. But if the landlord is permitted to wipe out the lease, then significant problems can arise in a variety of ways, depending on the particular facts of each case. These issues involve complex analyses beyond the scope of this article. By way of illustration, though, if the sale includes the structure in which the lessee operated, then the bank may suffer a double whammy, potentially losing out on a full recovery because it loses its leasehold deed of trust lien and suffers default by a borrower that might no longer be able to operate its business and make loan payments. In any case, a sale by the debtor-lessor free and clear could be catastrophic for the bank’s borrower, and problematic for the bank’s recovery on its loan. There appears to be no binding case law in the Fourth Cir- cuit on this issue. As a result, the ability of tenants to stay in possession of property is unclear in the context of the debtor-landlord’s sale of that property under section 363. The same goes for the bank’s ability to preserve its lien with respect either to the leasehold or to the underlying real property interests. Until there is binding precedent in this circuit, commercial tenants whose landlords file for bankruptcy, and the banks that lend to those tenants, should pay close attention to the debtor-landlord’s filings and consult with an attorney to determine how best to protect their interests.  Julia A. Chincheck and Daniel J. Cohn are lawyers in the CharlestonofficeofBowlesRiceLLP. Ms.Chincheck isapartner ofthefirmandconcentratesherpractice intheareasofbanking andcreditors’rightsandbankruptcy,withemphasisonsecured lending, complex commercial transactions and commercial litigation. Daniel Cohn focuses his practice in bankruptcy, foreclosure, and creditors’ rights, as well as commercial and financial service, including mergers and acquisitions, secured lending, and regulatorymatters. For more information, please contact Ms. Chincheck or Mr. Cohn at (304) 347-1100.