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not give the nonrecourse creditor a deficiency claim if the "property is sold under section 363 of this title or is to be sold under the plan."226 An example of this approach is T-H New Orleans.227 The debtor's plan eliminated the § 1111(b) election by providing that the debtor would actively market the hotel to obtain the highest possible price, but if it were not sold within two years it would be deeded to the secured creditor. The Fifth Circuit found this treatment permissible because the secured creditor retained the right to credit bid the "full allowed amount of its finally allowed claim," not just the secured portion equal to the value of the collateral.228 If such a delayed sale is permissible,229 it provides a strategy for debtors to avoid the problem of the large unsecured Code-created deficiency claim while speculating on the ability to profit from future appreciation in the value of the property.
Virtually all of the modern classification debate stems from the Code's new confirmation requirement of an accepting impaired class. This poses particular problems for single asset cases with few creditors, as was predicted in one of the 1977 decisions that apparently led to the requirement.230
Classification is only the first hurdle in satisfying § 1129(a)(10), however. To satisfy § 1129(a)(10), the class must also be impaired. This has created some recent debate as to what constitutes impairment, and whether it must be in "good faith."
The need to satisfy § 1129(a)(10) might cause a single asset debtor to attempt to
226
11 U.S.C. § 1111(b)(1)(A)(ii). Case law holds that for the exception to recourse treatment to apply, the creditor must be given an opportunity to credit bid pursuant to § 363(k). In re California Hancock, Inc., 88 B.R. 226 (9th Cir. BAP 1988); In re Western Real Estate Fund, Inc., 75 B.R. 580, 589 (Bankr.
W.D. Okla. 1987); In re Woodridge North Apts., Ltd., 71 B.R. 189 (Bankr. N.D. Cal. 1987); but see In re Broad Associates, Ltd., 125 B.R. 707 (Bankr. D. Conn. 1991). There is also case law that the sale exception to recourse treatment applies even if the secured creditor forecloses. In re Tampa Bay Associates, Ltd., 864 F.2d 47, 50 (5th Cir. 1989).
227 Matter of T-H New Orleans Ltd. Partnership, 10 F.3d 1099 (5th Cir. 1993).
228 Matter of T-H New Orleans Ltd. Partnership, 10 F.3d 1099 (5th Cir. 1993) (The opinion replaces an earlier opinion at 5 F.3d 86.).
229 Other courts have held the exception to the Code-created recourse claim does not apply when the timing of the sale is not certain or too delayed. In re Western Real Estate Fund, Inc., 75 B.R. 580, 589 (Bankr. W.D. Ok. 1987)(even where plan calls for sale subject to § 363(k), the § 1111(b)(1)(A)(ii) exception does not apply when there is no specificity as to when the sale would occur within 10 years of confirmation).
230
In re Hobson Pike Associates, Ltd., 3 BCD 1205 (Bankr. N.D. Ga. 1977).
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