Resolution Trust Corp. v. Swedeland Development Group, Inc. (In Re Swedeland Development Group, Inc.)

16 F.3d 552 (1994)

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Resolution Trust Corp. v. Swedeland Development Group, Inc. (In Re Swedeland Development Group, Inc.)

United States Court of Appeals for the Third Circuit
16 F.3d 552 (1994)

  • Written by Philip Glass, JD

Facts

Swedeland Development Group, Inc. (Swedeland) (debtor), developer of a golf course and residential-unit complex, acquired loans from Carteret Federal Savings Bank (Carteret) (creditor). In turn, Carteret obtained a personal guarantee and mortgages from Swedeland. The mortgage on the golf course actually served to undersecure Carteret. Swedeland, which transferred cash collateral to Carteret, presumed that a positive cash flow would result from the complex’s operation and that no sale would occur. Financial problems compelled Swedeland to obtain more funds from Carteret. In debt to Carteret, Swedeland filed for Chapter 11 bankruptcy on August 2, 1991. On April 10, 1992, the bankruptcy court issued an order permitting Swedeland to borrow money from First Fidelity (FF) (creditor), to be secured by a super-priority lien on Carteret’s cash collateral. This caused Carteret to lose priority to FF. Swedeland claimed that an increase in the value of its property would compensate Carteret for losing priority, yet Swedeland’s unit sales had been underwhelming. Additionally, Swedeland offered to reduce payment to Carteret to ensure adequate protection of Carteret. Swedeland also asserted that the prepetition guarantees constituted protection for Carteret following the loss of priority. The bankruptcy court ruled that Carteret was adequately protected. Carteret appealed.

Rule of Law

Issue

Holding and Reasoning (Greenberg, J.)

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