1

The motion is so captioned but is docketed simply as Motion for Relief from Stay.

2

The court’s jurisdiction was not at issue. This Memorandum Opinion constitutes our

findings of fact and conclusions of law.

1

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE:

Onasni Property Group, LLC Bankruptcy No. 09-28455-JKF

Debtor(s)

Chapter 11

First Commonwealth Bank

Movant(s)

v. Related to Doc. No. 73, Motion for Relief 

Onasni Property Group, LLC from the Automatic Stay1

Respondent(s)

MEMORANDUM OPINION2

The issue before the court is whether First Commonwealth Bank (hereafter “Bank” or

“Mortgagee”), which has an undisputed and properly recorded first mortgage, together with an

absolute assignment of leases and rents in Debtor’s rental real estate located at 600 Fallowfield

Avenue, Charleroi, PA, 15022, is entitled to relief from stay:

1 - pursuant to 11 U.S.C. §362(d)(1), for cause because Debtor is in default, only one

tenant occupies the property, and the Bank is not adequately protected inasmuch as, although it

is collecting rent in the amount of $225 per month, interest on the note accrues at a per diem rate

of $31.545943 or $946.38 per month; and/or 

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3

The parties agree that there is no equity in the property but dispute its necessity to the

reorganization.

2

2 - pursuant to 11 U.S.C. §362(d)(2), for lack of equity in the property3

 coupled with

Debtor’s alleged inability to use the property for an effective reorganization because the rents the

property produces are not property of the estate.

Debtor contends that the Bank is the source of its own woes and defends the motion on

the grounds that the Bank is undersecured and not entitled to adequate protection. Debtor asserts

that there are eight rental units on site and, when fully rented, the units produce gross rents of

$2695 per month with net rents after operating expenses of about $1745 per month. Debtor

contends that when the Bank notified tenants to pay it rather than Debtor, all units were rented. 

Debtor acknowledges that at the time the Bank exercised its rights under its assignment of rents,

Debtor was in arrears on water bills and, as a result of nonpayment, soon after the Bank

exercised its rights, the water service was turned off resulting in seven of the eight tenants

vacating the building. (The eighth tenant has its own metered water service and was not required

to move. That tenant is still paying rent of $225 per month to the Bank.)

Debtor’s contention is that if the units were all rented, as they were prior to the loss of

water service to the building, and if a §506 action Debtor has commenced against the Bank is

successful, then the crammed down mortgage can be paid through a plan. For example, Debtor

asserts that a plan could permit the Bank to continue to collect the rents until the reduced debt is

paid off, following which the Debtor will have the property free of the mortgage and free of the

assignment of rents. Because the property generates approximately 19 per cent of Debtor’s

revenues, it would then produce income to pay other creditors in the case. We note that we are

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Because this is not the time set for plan confirmation, issues such as a potential §1111(b)

election by the Bank have not been addressed by either party.

5

Mountain View provides at 38: 

[i]f the owner is in default, the mortgagee may enforce the

mortgage provision that conveys the rents to him by peacefully

entering the premises and taking the profits until the debt is paid. 

Bulger v. Wilderman, 101 Pa.Super. 168, 172 (1931). ‘[T]he

equivalent of entry may be obtained by the mortgagee making

demand on the tenants for the rent ... and payment of the same by

them.’ Id. at 176. The mortgagee must account to the mortgagor

for the amount of rents received, however, and credit the mortgage

debt for the sums collected.”

5 F.3d at 38.

6

Robin Associates provides at 221: “the Third Circuit has held that, under Pennsylvania

law, a mortgagee under identical circumstances . . . obtains ownership of assigned rents from the

moment that notice is served by the mortgagee to a mortgagor’s tenants to commence making

rental payments to the mortgagee.” 275 B.R. at 221.

3

not called upon to determine plan confirmation issues; a plan has not yet been filed. However,

we agree with Debtor that if Debtor is successful in the §506 action and a plan is confirmed,4

 the

property will be necessary for a reorganization. Thus, we need go no further in looking at

§362(d)(2) at this time. However, that leaves at issue the dispute regarding adequate protection

or relief from stay “for cause” pursuant to §362(d)(1).

The parties agree that under Commerce Bank v. Mountain View Village, Inc., 5 F.3d 34

(3d Cir. 1993),5 and In re Robin Associates, 275 B.R. 218 (Bankr.W.D.Pa. 2001),6 the

postpetition rents generated by this property, which rents are subject to a valid rent assignment,

are not property of Debtor’s estate. The dispute centers, first, on whether the Bank took

possession when it exercised its right to collect the rents. The resolution of this matter will

inform as to the second issue, which centers on what the Bank’s obligations were regarding

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Exhibit B to Doc. No. 73

8

Exhibit C to Doc. No. 73

4

application of the rents after the Bank collected them.

From a review of the mortgage,7

 which contains an assignment of rents, and the separate

Assignment of Leases and Rents (hereafter Assignment),8 and based on the arguments of counsel

at the hearing on March 5, 2010, we find that the Bank did not take possession. 

Paragraph 17(b)(ii) of the mortgage defines how the Bank as mortgagee will take

possession. It states: 

FOR THE PURPOSE OF OBTAINING POSSESSION OF THE

MORTGAGED PROPERTY AFTER THE OCCURRENCE OF

AN EVENT OF DEFAULT, MORTGAGOR HEREBY

AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY

COURT OF RECORD IN THE COMMONWEALTH OF

PENNSYLVANIA OR ELSEWHERE, AS ATTORNEY FOR

THE MORTGAGOR . . . FOR ENTERING IN ANY COURT AN

AMICABLE ACTION IN EJECTMENT FOR POSSESSION OF

THE MORTGAGED PROPERTY . . . .

Mortgage at ¶17(b)(ii), Exhibit B to Doc. No. 73. Debtor consented to entry of a confessed

judgment in the mortgage, Mortgage at ¶17(b)(ii), Exhibit B to Doc. No. 73, and, later, agreed

not to contest certain confessed judgments pursuant to a separate forbearance agreement with the

Bank. See also Doc. No. 73, Exh. D, Letter of March 10, 2009, from counsel for First

Commonwealth Bank to Gary W. Short, Esquire, counsel for Debtor. Under the forbearance

agreement, the Bank would not take action on the confessed judgment upon Debtor complying

with the terms of that agreement. There is no indication on the record that the Bank took action

on the basis of the confessed judgment. It is thus clear that the Bank did not take physical

possession of the property. 

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Moreover, the Assignment uses the word “may” in describing the Bank’s various

entitlements which included the right to take possession and the right to collect rents, whether or

not the Bank also took possession. On this record, the Bank elected to collect rents but not to

enter into physical possession of the property and took no action to dispossess the Debtor from

its ownership or management of the property. It merely notified tenants to pay rents to it rather

than to Debtor.

The second dispute concerns what obligations the Bank incurred as the result of

exercising its right to collect the rents. A review of the mortgage and Assignment presents the

answer. Debtor’s contention is that, upon collecting the rents, the Bank was obligated to manage

the property and apply rents to the expenses of that management. However, that is not the case. 

Debtor cites paragraph 4 of the Assignment in support of its argument that the Bank was

obligated to apply sums received to expenses related to the management and operation of the

property. The fourth numbered paragraph of the Assignment provides that upon default, the

Bank as Assignee 

may, without notice enter and take possession of the Property or

any part thereof, and upon such entry, manage, lease and operate

the same on such terms and for such period of time as Assignee

may deem proper, and whether or not Assignee has so entered

and taken possession of the Property or any part thereof,

perform any of the obligations and . . . do any and all acts . . .

that Assignor is entitled to do, under and with respect to the

Leases, including without limitation . . . collecting and receiving

sums due thereunder. 

Doc. No. 73, Exhibit C at 2-3, ¶4 (emphasis added). Paragraph 4 continues as follows: 

Assignee shall apply any sums received . . . first to the payment of

all expenses which Assignee may be authorized to incur under the

provisions of this Assignment or the Mortgage . . . and then to the

payment of the sums due Assignee under the Note. 

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Id. Although the Bank would have to apply rents first to its expenses, if it had any such

expenses, there is nothing in the Assignment that requires the Bank to enter and take possession

or to manage the property. In fact, the Assignment is clear that the Debtor remained liable “to

perform all of the obligations of [Debtor] . . . to the same extent as if this Assignment had not

been executed.” Id. at 2, ¶3. Paragraph 3 of the Assignment further provides that the Bank

“shall not have any obligation or liability under the Leases or otherwise by reason of or arising

out of this Assignment.” Id. (emphasis added). Paragraph 9 of the Assignment states that the

Bank’s rights and remedies are cumulative and not exclusive of any rights and remedies the

Bank would have under the note and mortgage, at law or in equity. Here, the Bank collected

rents but did not enter into possession or manage the property. Id. at 3, ¶ 9.

Furthermore, paragraph 17(b)(ii) of the mortgage entitled “Possession,” shows again that

the parties provided discretion to the Bank with respect to taking possession, managing or 

operating the property and as to what to pay:

[the Bank] may enter into possession of the Mortgaged Property,

manage, . . . lease and operate Mortgaged Property, collect

therefrom all rentals . . . and, after deducting all costs of

collection and administration expenses, apply the net rentals to

any or all of the following in such order and amounts as [the

Bank], in [its] sole discretion, may elect: debt service on the

Mortgage, the payment of taxes, water and sewer rents, charges

and claims, insurance premiums and all other carrying charges, and

to the maintenance, repair or restoration of the Mortgaged

Property, and on account and in reduction of the principal or

interest, or both. . . . 

Doc. No. 73, Exhibit B at 11-12, ¶17(b)(ii) (emphasis added). 

Paragraph 18(a) of the mortgage provides that the rights and remedies of the Bank “shall

be cumulative and concurrent; may be pursued separately, successively or together against

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3

In United Sav. Ass’n of Texas v.Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365

(1988), the Supreme Court held that undersecured creditors are entitled to adequate protection to

compensate them for the depreciation in their collateral during the delay the automatic stay

imposes upon the exercise of their state law remedies. See also In re Deico Electronics, Inc.,

139 B.R. 945, 947 (9th Cir. BAP 1992)(“Although the bankruptcy code and Timbers mandate that

adequate protection payments be equivalent to the depreciation, no strict rule applies to the

amount, frequency, or commencement of those payments”)

7

[Debtor] or against the Mortgaged Property, or both, at the sole discretion of the Bank.” Id. at

13. From the terms of the mortgage itself it is clear that the application of rents collected is

solely in the discretion of the Bank. 

Thus, based upon the language of the mortgage and Assignment, Debtor’s view of the

Bank’s obligations upon collecting rents is in error. The Bank did not assume responsibility to

pay the delinquent water bill. Debtor remained responsible for paying the delinquent water bill

and for the consequences that followed nonpayment. 

Regarding the Bank’s statement that it is not adequately protected and is therefore

entitled to relief from stay for cause and Debtor’s assertion that the Bank is not entitled to

adequate protection as an undersecured creditor, the Court finds that Debtor is in error. The

United States Supreme Court has addressed this issue and determined that undersecured creditors

can be entitled to adequate protection.3

 However, the Court cannot determine the Bank’s

entitlement, if any, at this time. The Court has no evidence at present as to the value of the

property on the date of filing of the bankruptcy petition or on which to determine whether there

is a diminution in value caused by the bankruptcy that would warrant provision of adequate

protection to the Bank. The parties have indicated that they will present valuation evidence in

connection with the §506 action, as to which a pretrial conference has already been scheduled for

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8

March 31, 2010, at 9:30 a.m. This motion will be continued to the same date and time.

An appropriate order will be entered.

DATE: 

Judith K. Fitzgerald

United States Bankruptcy Judge

March 10, 2010

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1

The motion is so captioned but is docketed simply as Motion for Relief from Stay.

1

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE:

Onasni Property Group, LLC Bankruptcy No. 09-28455-JKF

Debtor(s)

Chapter 11

First Commonwealth Bank

Movant(s)

v. Related to Doc. No. 73, Motion for Relief 

Onasni Property Group, LLC from the Automatic Stay1

Respondent(s)

ORDER CONTINUING MOTION FOR RELIEF FROM STAY TO

MARCH 31, 2010, AT 9:30 A.M. FOR PRETRIAL PROCEEDINGS

AND NOW, this day of , 2010, for the reasons

stated in the foregoing Memorandum Opinion, it is ORDERED that the above-captioned Motion

for Relief from the Automatic Stay is continued to March 31, 2010, at 9:30 a.m. for pretrial 

proceedings. 

It is FURTHER ORDERED that counsel for Movant shall immediately serve a copy of

this Order and the accompanying Memorandum Opinion on all parties in interest who do not

receive electronic notice and shall file a certificate of service forthwith.

 

Judith K. Fitzgerald

United States Bankruptcy Judge

10th March

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