i.e. They agreed to the trustee's sale of the restaurant, including the leasehold interest, to the buyer found by the trustee, subject to the Lovelady's leasehold mortgage. But, pursuant to the compromise with the trustee, the Loveladys agreed that the leasehold mortgage would secure a lesser amount than had been owed them by Loop's Hospitality.

     Consider the following illustration.  Suppose that the bankruptcy trustee had found a buyer willing to pay $200,000 for all of the assets of the restaurant business, including the unexpired lease.  The buyer is able to pay $100,000 down and will give a promissory note for the balance.  The trustee claims that the security interest of the Loveladys in the lease is unenforceable in bankruptcy.   The Loveladys, still owed (for example) $175,000, claim that the security interest in the lease is enforceable in bankruptcy and claim that the lease is worth $175,000.   Rather than litigating the issue, the parties compromise: they agree that the Loveladys have an enforceable security interest in the lease, but only to the extent of securing $100,000, with the $75,000 balance being unsecured.  Accordingly, the buyer pays the trustee $100,000 and gives the Loveladys a note for $100,000 secured by the lease.  The trustee uses the $100,000 (assume that there are no other assets to liquidate in the Loop's bankruptcy) to pay pro rata dividends to unsecured creditors, including the Loveladys.  If the dividend is 10%, the Loveladys receive $7,500 on their $75,000 claim and they also collect on the $100,000 note from the buyer.  They are out $67,500, which they pursue in the claim under consideration in the opinion.   

     If the Loveladys were willing to litigate the question of the enforceability of their security in this state court action against their broker and the escrow company and escrow officer, why didn't they litigate in the bankruptcy court? Did they have a different lawyer? In the bankruptcy court, they would have taken a position opposite to the position they took here, i.e. they would have argued that their security interest in the leasehold was properly perfected and thus could not be avoided by the trustee. You will more fully understand this point after considering Commentary.Avoidance of liens in bankruptcy, Commentary.Allowed secured claims and Commentary.Consumer Chapter 7. Had they litigated in bankruptcy court, and had the bankruptcy court reached the same conclusion that this state court does, this state court action would have been unnecessary. Does this mean that their bankruptcy lawyer committed malpractice or did the Loveladys simply decide to negotiate in bankruptcy court and litigate later?