In re Fairview-Takoma L.P.

Fairview-Takoma Limited Partnership (Fairview) (debtor) bought an apartment complex (the property) in Maryland. To purchase the property, Farview signed a series of promissory notes and other documents (the loan documents), which were secured by a deed of trust. The deed of trust covered all rents, profits, and income from the property (the rents). The paperwork was properly recorded in 1986. On September 12, 1996, the loan documents and deed of trust were assigned to Condor One, Inc. (Condor) (creditor). On September 26, 1996, Condor sent Fairview a letter (the default notice) asserting that Fairview had defaulted under the loan documents and, therefore, Condor was accelerating the entire debt-balance. The next day, Condor sued Fairview seeking an immediate appointment of a receiver for the property pending foreclosure; however, Fairview filed for Chapter 11 bankruptcy on the same date. The circuit court stayed Condor’s lawsuit considering Fairview’s bankruptcy petition. During bankruptcy proceedings, Condor argued that Fairview could not use the rents without providing it adequate protection because the rents constituted cash collateral. Fairview argued that Condor did not perfect its interest in the rents because it failed to give Fairview proper notice of default before the default notice, as required by the loan documents. Accordingly, Fairview argued that it had the unrestricted ability to use the rents in the ordinary course of business under the Bankruptcy Code.