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UNITED SAVINGS ASSOCIATION TEXAS v. TIMBERS INWOOD FOREST ASSOCIATES

decided: January 20, 1988.

UNITED SAVINGS ASSOCIATION OF TEXAS
v.
TIMBERS OF INWOOD FOREST ASSOCIATES, LTD.



CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT.

Scalia, J., delivered the opinion for a unanimous Court.

Author: Scalia

[ 484 U.S. Page 367]

 JUSTICE SCALIA delivered the opinion of the Court.

Petitioner United Savings Association of Texas seeks review of an en banc decision of the United States Court of Appeals for the Fifth Circuit, holding that petitioner was not entitled to receive from respondent debtor, which is undergoing

[ 484 U.S. Page 368]

     reorganization in bankruptcy, monthly payments for the use value of the loan collateral which the bankruptcy stay prevented it from possessing. In re Timbers of Inwood Forest Associates, Ltd., 808 F.2d 363 (1987). We granted certiorari, 481 U.S. 1068 (1987), to resolve a conflict in the Courts of Appeals regarding application of §§ 361 and 362(d)(1) of the Bankruptcy Code, 11 U. S. C. §§ 361 and 362(d)(1) (1982 ed. and Supp. IV). Compare Grundy Nat. Bank v. Tandem Mining Corp., 754 F.2d 1436, 1440-1441 (CA4 1985); In re American Mariner Industries, Inc., 734 F.2d 426, 432-435 (CA9 1984); see also In re Briggs Transp. Co., 780 F.2d 1339, 1348-1351 (CA8 1985).

I

On June 29, 1982, respondent Timbers of Inwood Forest Associates, Ltd., executed a note in the principal amount of $4,100,000. Petitioner is the holder of the note as well as of a security interest created the same day in an apartment project owned by respondent in Houston, Texas. The security interest included an assignment of rents from the project. On March 4, 1985, respondent filed a voluntary petition under Chapter 11 of the Bankruptcy Code, 11 U. S. C. § 101 et seq. (1982 ed. and Supp. IV), in the United States Bankruptcy Court for the Southern District of Texas.

On March 18, 1985, petitioner moved for relief from the automatic stay of enforcement of liens triggered by the petition, see 11 U. S. C. § 362(a), on the ground that there was lack of "adequate protection" of its interest within the meaning of 11 U. S. C. § 362(d)(1). At a hearing before the Bankruptcy Court, it was established that respondent owed petitioner $4,366,388.77, and evidence was presented that the value of the collateral was somewhere between $2,650,000 and $4,250,000. The collateral was appreciating in value, but only very slightly. It was therefore undisputed that petitioner was an undersecured creditor. Respondent had agreed to pay petitioner the post-petition rents from the

[ 484 U.S. Page 369]

     apartment project (covered by the after-acquired property clause in the security agreement), minus operating expenses. Petitioner contended, however, that it was entitled to additional compensation. The Bankruptcy Court agreed and on April 19, 1985, it conditioned continuance of the stay on monthly payments by respondent, at the market rate of 12% per annum, on the estimated amount realizable on foreclosure, $4,250,000 -- commencing six months after the filing of the bankruptcy petition, to reflect the normal foreclosure delays. In re Bear Creek Ministorage, Inc., 49 B. R. 454 (1985) . The court held that the post-petition rents could be applied to these payments. See id., at 460. Respondent appealed to the District Court and petitioner cross-appealed on the amount of the adequate protection payments. The District Court affirmed but the Fifth Circuit en banc reversed.

We granted certiorari to determine whether undersecured creditors are entitled to compensation under 11 U. S. C. § 362(d)(1) for the delay caused by the automatic stay in foreclosing on their collateral.

II

When a bankruptcy petition is filed, § 362(a) of the Bankruptcy Code provides an automatic stay of, among other things, actions taken to realize the value of collateral given by the debtor. The provision of the Code central to the decision of this case is § 362(d), which reads as follows:

"On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay --

"(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or

"(2) with respect to a stay of an act against property under subsection (a) of this section, if --

[ 484 U.S. Page 370]

     "(A) the debtor does not have an equity in such property; and

"(B) such property is not necessary to an effective reorganization."

The phrase "adequate protection" in paragraph (1) of the foregoing provision is given further content by § 361 of the Code, which reads in relevant part as follows:

"When adequate protection is required under section 362 . . . of this title of an interest of an entity in property, such adequate protection may be provided by --

"(1) requiring the trustee to make a cash payment or periodic cash payments to such entity, to the extent that the stay under section 362 of this title . . . results in a decrease in the ...


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