Commercial real-estate lenders have lost an estimated $1.7 billion over the past five years as a result of Chapter 11 bankruptcy filings that delay foreclosure on real estate properties, according to a survey released recently by the Mortgage Bankers Association.
The survey of life insurance companies, historically the largest commercial lenders, also found that Chapter 11 filings by debtors whose sole asset is a single piece of real estate increased by 900 percent between 1985 and 1990.
The association said the survey supports its call for reforms of Chapter 11 of the U.S. bankruptcy code. Chapter 11 permits a debtor to stop payments on most debt while drafting a reorganization plan for repaying creditors.
During the delay caused by Chapter 11, property often deteriorates and is worth less when foreclosure occurs, the association said.