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Lessons From In re Sunnyslope Housing Ltd. Partnership

In First S. Nat’l Bank v. Sunnyslope Hous. Ltd. P’ship (In re Sunnyslope Hous. Ltd. P’ship), 2017 U.S. App. LEXIS 9198 (9th Cir., 5/27/2017), the Ninth Circuit Court of Appeals permitted a bankruptcy debtor to cram down a first-position deed of trust because of restrictive covenants in junior position deeds of trust. The lender, in this case, First Southern National Bank (“First Southern”) argued that the court’s ruling would discourage future lending in similar circumstances.

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In First S. Nat’l Bank v. Sunnyslope Hous. Ltd. P’ship (In re Sunnyslope Hous. Ltd. P’ship), 2017 U.S. App. LEXIS 9198 (9th Cir., 5/27/2017), the Ninth Circuit Court of Appeals, because of restrictive covenants in junior position deeds of trust, permitted a bankruptcy debtor to cram down a first-position deed of trust to an artificially low value.

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California Lenders License Legislation, SB 297, Fails

Efforts by the California legislature to expand the licensure and regulation of finance lenders and brokers under the California Finance Lenders License (CFLL) through California Senate Bill 297 (SB 297) have failed. SB 297 would have expanded the licensure and regulation of finance lenders and brokers under the California Finance Lenders License (CFLL) to include finders, referred to as “lead generators” by the provisions of SB 297.

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Ascentium Sued For Suspicious Finance Lease Transactions

Recently in the early spring of 2016, Ascentium Capital was the named defendant in two Texas District Court lawsuits connected to a business arrangement whereby doctors would sell home health care, administered by nurse practitioners hired by the vendor. Ascentium financed $45,000,000 of these deals involving a small number of iPads and a license to use a home health care product! The Plaintiffs are seeking damages as well as certification of a class action.

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An Update On SB 297

SB 297 amends the California Finance Lenders Law by increasing licensing and registration requirements while expanding oversight of lead generators in the lending industry. The law adds a new category of regulation to the legislation that now requires brokers and lenders to secure finance lenders licenses in California.

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On May 4, 2017, the House Financial Services Committee approved Chairman Jeb Hensarling’s (R-TX) Financial CHOICE Act (H.R. 10) by a party-line vote of 34-26. The bill goes to the full House and will be considered on the floor later in May sometime before the Memorial Day recess.

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Contract provisions known as “hell or high water” clauses typically refer to contractual and statutory safeguards common in finance leases whereby a lessee agrees to pay rent to the lessor despite the circumstance, come hell or high water. The assurance of payment provided by this type of clause is a lessor’s major motivating factor in providing the necessary funds for the transaction.

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An Analysis of California Senate Bill 297 As Amended

SB 297 was introduced in the California Senate in 2016 to expand the licensure and regulation of finance lenders and brokers by including finders, i.e., individuals that facilitate loans between borrowers and lenders. The latest version of SB 297, amended on April 17, 2017, now refers to “finders” as lead generators. Reaction to the amended version finds attorneys, scholars, and observers alike questioning various aspects of the bill.

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A Summary of California Senate Bill 297 As Amended

An earlier blog discussed the California Senate’s bill to expand the licensure and regulation of finance lenders and brokers to include finders. On April 17, 2017, SB 297 was amended in the California Senate. As the bill amends the California Finance Lenders Law it would increase licensing and registration requirements while expanding oversight of lead generators in the lending industry.

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Mitigating Voidable Transaction Risks – Savings Clauses

Because modern voidable transaction laws permit certain transactions to be avoided despite the lack of any actual fraud, the advice of experienced legal counsel is often necessary for avoiding transfers which may suggest fraud that is constructive or otherwise not purposeful. Managing, and therefore, mitigating the risk of voidable transactions involves balancing cost and results. As with most transactions, the insertion of certain, key, important terms in an agreement may help bring desired results.

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