A landmark decision by the Alabama Supreme Court has clarified how receivers managing distressed hotel loans must handle pre-default debts, strengthening the position of secured lenders in the United States hospitality sector.
Hotel default sparks lender dispute
The case arose after SJP Investment Partners, owner of the Hotel Indigo Birmingham-UAB in Alabama, defaulted on a US $10.7 million commercial mortgage.
The loan, originally issued by DBR Investments Co. and later assigned to Wells Fargo Bank N.A. as trustee for the Benchmark 2019-B13 Commercial Mortgage Pass-Through Certificates, fell into default following allegations of mismanagement and missed payments.
To stabilise the asset, the Jefferson Circuit Court appointed Jeffrey Kolessar of BFAL Associates as receiver. His mandate included operating the hotel, maintaining its revenue stream and protecting the property’s value for creditors.
Soon after, a dispute emerged over whether Kolessar should use hotel income to pay more than US $1 million in pre-receivership vendor invoices and other debts.
Supreme court strengthens lender protections
In July 2024, a lower court ordered the receiver to settle those older debts using funds from the hotel’s operations.
Wells Fargo and Kolessar appealed, warning that such payments would improperly prioritise unsecured creditors over the secured lender, risking both the hotel’s continued operation and the value of its collateral.
On 24 October 2025, the Alabama Supreme Court overturned the lower court’s decision. The justices ruled that a receiver cannot be compelled to pay pre-receivership claims from the receivership estate when doing so would undermine the rights of secured creditors.
The court stressed that a receiver’s primary duty is to preserve the property and uphold creditor priorities until all claims are resolved.
The ruling reinforces that funds generated by a hotel under receivership are intended to maintain the asset and protect lender interests, not to satisfy old debts. It provides clearer guidance to courts, receivers and loan servicers dealing with similar disputes across the United States.
Impact on distressed hotel loan management
This decision carries weight for hotel lenders, owners and operators managing distressed hospitality assets. As more US hotels face refinancing pressures amid high interest rates and uneven post-pandemic recovery, clarity over how receivership funds can be used is crucial.
For secured lenders, the decision affirms their seniority in repayment order, limiting the risk that operating income will be diverted to unsecured creditors. For hotel operators and vendors, it highlights the importance of understanding creditor hierarchy when a property enters receivership.
Legal specialists suggest the ruling may influence future commercial real-estate disputes beyond Alabama, offering a reference point for courts handling defaulted hotel loans nationwide.
In a tightening financing environment, the Alabama Supreme Court’s decision underscores the growing focus on transparency, asset protection and creditor rights within the US hotel industry.
