The Facts:  A single asset real estate debtor files for Chapter 11. There are 4 secured liens:  1) 1st Mortgage of $2 Million; 2)  2nd Mortgage of $300,000;  3)  3rd Mortgage of $200,000; and 4) 4th Mortgage of $100,000.  There are also some unsecured wage claims totaling $50,000.  There are also some unpaid vendors in the amount of $30,000.  If the building is worth $1.5 million, the debtor may want to file a motion to value the property at $1.5 million, thus treating $500,000 of the 1st Loan unsecured as well as the rest of the 2nd, 3rd and 4th Loans as unsecured.  Debtor files a plan to extend the term of the 1st mortgage and to pay less interest due to the historically low interest rates.  Debtor also wishes to pay only 20% of the unsecured trade vendors and to pay the back wages over a period of time.

Debtor files a plan that classifies the secured 1st Mortgage as Class 1, the priority unsecured wage claims as Class 2, and the rest of the Unsecured Mortgages and the trade vendors as Class 3.

Scenario #1:  If all the claims voted on this plan, it is more than likely that the unsecureds left by the 1st, 2nd, 3rd and 4th mortgages will overwhelm and outvote the remaining unsecured claims.  This is usually the reason why a single asset real estate plan cannot be crammed down.

Scenario #2:  What if the employees with back wages decided that they would vote to accept the plan ?  But for some reason, not all the employees voted and only 1 voted to accept the plan ?  That would mean that the priority unsecured class of claims for priority wages would have accepted the plan.  Why ?  100% of the dollar amount and more than 1/2 of the number of claims have accepted the plan because only one vote was actually cast.  The same would not be true if only one of the vendors decided to cast a vote and the rest of the unsecured mortgages decided to cast a vote.

The result of Scenario #2 would be that Class 1 Claim of $1.5 million would be paid in deferred payments. Class 2 would be paid over time. How Class 3 is paid depends on whether the debtor was a corporate entity or an individual.  If a corporate debtor, then Class 3 may have to be paid 100% of its claims due to the "absolute priority" rule.  If an individual, then the absolute priority rule does not apply and less than 100% can be paid to Class 3.