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ARTICLE · 01 APRIL 2014

Where Did They Get That Payoff?

Stites & Harbison PLLC
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As the saying goes: "Don’t look a gift horse in the mouth." But, should you question the source of the horse?

United StatesInsolvency/Bankruptcy/Re-Structuring
Elizabeth Thompson
Elizabeth Thompson
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As the saying goes: "Don't look a gift horse in the mouth." But, should you question the source of the horse? Most lenders with non-performing loans welcome a lump-sum settlement no matter the origins of the money; however, the recent Eleventh Circuit Court of Appeals decision in In re Tousa, Inc., 680 F.3d 1298 (11th Cir. 2012) may cause you to ask a few more questions before you accept such benevolence.

Tousa, Inc., the parent corporation, owed "Transeastern Lenders" $675 million. Tousa was the only obligor for the Transeastern loan. Tousa and some of its subsidiaries borrowed $500 million from several "New Lenders" to settle the Transeastern loan. Six months after the Transeastern loan was paid, Tousa and its subsidiaries filed bankruptcy.

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