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53 Am. Bankr. L.J. 363 (1979)
The Impact of the New Bankruptcy Reform Act on Real Estate Development and Financing

handle is hein.journals/ambank53 and id is 371 raw text is: The Impact of the New Bankruptcy Reform Act on Real Estate Development and Financing By Jan Z. Krasnowiecki* INTRODUCTION The Bankruptcy Reform Act of 1978 went into effect on October 1, 1979.1 This article discusses how the new Bankruptcy Code may affect persons who are involved in real estate development and financ- ing. The primary focus of the article is on the trustee's power to reject leases and executory contracts of the bankrupt and the effect which this power has on mortgage lenders and other persons who have relied on the continued viability of the project. One matter of grave concern to the mortgage lending industry2 *Professor of Law, University of Pennsylvania Law School; member Maine and Penn- sylvania Bars. My thanks are due to Eileen Weisman, a student at the University of Pennsylvania Law School, for her valuable contributions, both in research and substance, to this paper. 192 Stat. 2682, tit IV, § 402. 2Two additional lender concerns have been covered by the Code: (1) Loan Commit- mnents. Under earlier drafts it was feared that the Code would allow a trustee to assume an outstanding loan commitment and force the lender to advance funds to the debtor pursuant to it Statement of Stuart D. Root, Esq., Hearings on S. 2266 and H.R. 8200 before the Subcommittee on Improvements in Judicial Machinery of the Committee on the judiciary, United States Senate, 95th Cong., 1st Sess., Nov. 28, 29 and Dec. 1, 1977 (hereinafter Hearings), at 521. In the final version a provision was inserted which states clearly that a loan commitment or any other contract to extend financial accommodation may not be as- sumed by the trustee. 11 U.S.C. § 365(e)(2)(B). (2) Mortgages as Preferences. The Code expressly states that a mortgage given to secure a loan to enable the debtor to acquire the property, cannot be voided as a preference, to the extent the proceeds are in fact used for that purpose. 11 U.S.C. § 547(c) (3). In view of the general principle, which the Code also adopts, that a transfer in exchange for a contemporaneous new value is not voidable, 11 U.S.C. § 547(c)(1), it is difficult to see why the special, purchase money mortgage, provision was needed. Moreover, the presence of that provision raises questions 363

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