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In re Clare House Bungalow Homes, LLC

United States Bankruptcy Court for the Eastern District of Washington
447 B.R. 617 (2011)


Clare House Bungalow Homes (Clare House) was a senior living facility that filed for bankruptcy. Each resident of Clare House entered a lease, called a Resident Agreement, that required payment of a lump sum for the right to occupy a bungalow and use the common areas of the property until the resident’s death or physical disability. Clare House would then return a set percentage (typically 80 percent) of the lump sum to the resident’s estate and remarket the bungalow. Only two of the residents recorded their Resident Agreements in county records. Twenty-four residents (plaintiffs) did not. Three groups of creditors that had loaned Clare House funds and filed deeds of trust against the property (defendants) sought priority over the residents’ right to occupy the premises under the nonrecorded Resident Agreements. Although the creditors’ due diligence prior to extending the loans varied somewhat, all three groups of creditors extended credit under circumstances that would have placed a reasonable person on notice that the bungalows were rented and occupied.

Rule of Law


Holding and Reasoning (Williams, J.)

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