Opinion ID: 663089
Heading Depth: 2
Heading Rank: 2

Heading: Release Prices

Text: 48 We reiterate that Carteret's mortgage entitled it to be paid the first $42,100 from the sale of each housing unit as a release price, with $30,000 to be applied to the balance due under the construction loan and $12,100 to be applied to the balance due under the golf course loan. In its post-petition proposal, Swedeland produced six scenarios providing for varying release prices, but only two contemplated Carteret being paid $42,100. Averaging the other four situations, Carteret was to be paid only $28,000 from the proceeds of the sale of each unit. Swedeland justified this reduction in the release price by contending that inasmuch as the Crystal Springs Golf Course was not to be sold and would be generating income, it did not have to be adequately protected. Accordingly, Swedeland believed the proposed release prices did not have to take the golf course into account. 49 The bankruptcy court accepted this proposal to pay reduced release prices on a theory that Swedeland's projections showed that the residential debt could be satisfied. In considering this aspect of the bankruptcy court's decision, the district court indicated that the bankruptcy court did not explain why the reduced price should be allowed or how the reduced prices would conceivably provide adequate protection to Carteret. While, unlike the district court, we read the bankruptcy court's opinion to set forth an explanation of why the reduced release prices adequately protected Carteret, we reject the explanation. We believe that Swedeland did not provide adequate protection to Carteret by proposing to reduce the payments which would be made to Carteret, particularly in the inherently risky circumstances of this Chapter 11 proceeding. 50 Furthermore, the reductions in the release price could not be justified on a theory that the Crystal Springs Golf Course was not to be sold. There was nothing new in Swedeland's undertaking to retain this asset as the original financing agreement between Swedeland and Carteret did not contemplate a sale of the golf course. Instead, it envisioned that Swedeland would own the course and Carteret's lien against it would be released on the sale of each residential unit. We are at a total loss to understand how a court can suggest that a pre-petition creditor with a lien being subordinated to a superpriority lien can be thought to have adequate protection because an asset encumbered by its lien will remain so encumbered. Of course, Swedeland's argument that the golf course did not have to be adequately protected misses the point for it is the interest of the pre-petition lender, not a particular asset, which must be adequately protected. This principle is demonstrated plainly by the recognition in section 361 that a secured lender may be adequately protected by a replacement lien. At bottom, the record does not support the bankruptcy court's view that the payment of the release price offered Carteret additional protection. Instead Swedeland's proposal placed Carteret in a worse situation than it was in before the Chapter 11 filing.