2014

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Although healthcare properties have historically provided the smallest share of collateral used for backing CMBS transactions (currently only 0.47%), according to the most recent report from Moody’s Investors Service, “healthcare edged out all other real estate asset classes as the worst-performing property type in Q2 2014.”  This is a stark turn for the sector.  Between 1994 and 2013, healthcare, as a CMBS asset class, had the highest months to liquidation rate at 52.06 days, as compared to 26.71 days for hotel properties, 23.42 days for retail properties, 22.17 days for multifamily properties, 20.1 days for industrial properties, and 20.51 days for office properties.  To be fair, a major reason for the poor Q2 healthcare figures was the inclusion of the abnormally large “105% loss severity on the Senior Living Properties Portfolio, which liquidated with a $117.7 million loss from the GMACC 1998-C1 transaction.”  However, although an outlier due to size, the Senior Living Properties Portfolio insolvency was linked to changes in Medicare and Medicaid reimbursements, a common refrain in the healthcare industry today attributed by many (in varying degrees) to the implementation of the Patient Protection and Affordable Care Act.  (more…)

Baker Donelson’s Commercial Lender and Servicer Team is pleased to announce the release of its interactive foreclosure map, available online here. This internet guide is provided by Baker Donelson to provide quick information about the foreclosure process in Alabama, Florida, Georgia, Louisiana, Mississippi, Tennessee and Texas. Additional jurisdictions, including Maryland, Virginia and Washington, D.C. will be added in the coming months. (more…)

Anyone involved in commercial lending transactions is familiar with provisions of loan agreements that provide for compensation to the lender in the event the indebtedness is paid in advance of the contemplated due date. These provisions are heavily litigated, particularly in bankruptcy proceedings. The title used for such provisions often reflects the arguments the respective parties will take during litigation. From the lending perspective, these provisions are usually emphasized to be “prepayment premiums” to reflect their purpose. These premiums are designed to prevent a borrower from attempting to refinance at a lower interest rate in a market where the lender will not be able to obtain the same benefit of its bargain because it will likely be re-lending the funds at the same lower interest rate. From the borrowing perspective, these provisions are usually emphasized to be “prepayment penalties,” with the borrower asserting that the payment is unreasonable or punitive in nature. (more…)

Introduction

By most accounts, a decision from the Georgia Court of Appeals last September represents a sea change in the law governing judicial confirmation of foreclosure sales and post-foreclosure deficiency claims.  Indeed, the Court’s decision in HWA Properties, Inc. v. Community and Southern Bank, 322 Ga. App. 877 (2013) appears to be first declaration in Georgia that the safeguards against excessive deficiency claims in O.C.G.A. § 44-14-161 can be waived in the loan documents.  The significance of HWA Properties cannot be overstated — a creditor who fails to judicially confirm a non-judicial foreclosure sale (either because the creditor opts not to seek confirmation or the superior court denies confirmation) may still sue the guarantor(s) of the loan to recover the deficiency. (more…)

A recent bankruptcy decision from a New Jersey Bankruptcy Court (In re Surma, 504 B.R. 770 (Bankr. D.N.J. 2014)) has once again drawn attention to the effect assignment of rents provisions in mortgages can have, depending on which state’s law governs.  In Surma, the court interpreted an absolute assignment of rents provision contained in a mortgage in light of the interplay between New Jersey state law and the Bankruptcy Code. The court held that because under New Jersey law an absolute assignment of rents passes title to the rents to the assignee, rents generated by property owned by the debtor were property of the lender. Therefore, the rents were not available to fund the debtor’s chapter 11 bankruptcy plan. (more…)

ZONE(-ING) DEFENSE — With March Madness in full swing, now is a great time to review how local zoning ordinances can turn a mortgage servicer’s foreclosure layup into a blocked shot. Many U.S. states rely on a judicial process for foreclosing on real estate title that is similar to a traditional lawsuit.1 This process means that even without debtor resistance, getting to the foreclosure sale may take months; add resistance and it may take years. In that interim, the servicer may decide not to pursue active property management or the appointment of a receiver to manage the collateral, as these measures tend to involve additional legal and management fees and expenses.  On the surface, it may appear to the servicer that the property is being adequately managed by the current owner. But what lies beneath the surface? (more…)

In a prior post (“Emerging Statutory Threats to Recourse Triggers”), we tackled Michigan and Ohio statutes that invalidated non-recourse triggers sprung by certain types of insolvency events. As noted there, the statutes were motivated by two Michigan decisions, Wells Fargo Bank, N.A. v. Cherryland Mall Limited Partnership, 812 N.W.2d 799 (Mich. Ct. App. 2011) and 51382 Gratiot Avenue Holdings, LLC v. Chesterfield Development Company, LLC, 835 F. Supp. 2d 384 (E.D. Mich. 2011), which had permitted recourse based on “insolvency”, including the non-payment of the loan debt itself. The Michigan and Ohio statutes now bar these types of recourse triggers.  (more…)

In many non-judicial foreclosure jurisdictions, a foreclosure is generally considered concluded when the foreclosure trustee conveys the property to the purchaser. Though this is true from the purchaser’s perspective, the trustee and the creditor’s attorneys still have work to do. Within six months of the sale, the trustee is required to file an accounting of the sale with the Commissioner of Accounts for the jurisdiction in which the sale took place. Understanding the accounting process is essential for creditors, their counsel, and foreclosure trustees, to keep the foreclosure process moving. (more…)

In the world of large loan modifications, servicers and borrowers have turned frequently in recent years to the A/B Note structure in situations where the collateral financed by a loan is valued at less than the outstanding balance of the loan. When set up thoughtfully, in most instances both servicer and borrower can benefit from the A/B Note structure. However, there is an underlying risk of inadvertently creating a windfall situation for borrowers under the A/B Note structure when making decisions based upon traditional risk metrics. It is important for servicers to get a handle on the mechanics, benefits, pitfalls, and strategies associated with the structure before considering implementation. (more…)

So you’re headed for receivership and foreclosure, when the borrower rep or your counsel asks, “What about a deed in lieu?” “I don’t know,” you think. “Getting a receiver appointed and foreclosing is what I’m most familiar with.” Fair enough. But the benefits of a DIL might surprise you. You just have to put a good agreement in place that protects you. (more…)