Header graphic for print
Lenders 360

Category Archives: Workout Issues

Subscribe to Workout Issues RSS Feed

The Lender Holds the Bag When the Appraisal is Wrong

Posted in Tough Times for Lenders, Workout Issues

The Bankruptcy Code permits a bankruptcy trustee to “surcharge” a lender’s collateral when the cost will benefit the lender and there is also benefit to the bankruptcy estate.  The friction arises when the collateral is worth less than the lender’s secured claim plus the surcharged expenses.  In short, who is left holding the bag when… Continue Reading

The Only Thing Worse Than a Claim in Bankruptcy is Claim Subordination

Posted in Collection, Guaranty Issues, Remedies, Tough Times for Lenders, Workout Issues

Claim subordination is the opposite of alchemy.  In most bankruptcy cases, creditors might look for ways to improve their treatment.  Claim subordination in the bankruptcy code provides a mechanism to force a creditor to receive worse treatment (relative to other non-subordinated claims which is, admittedly, not that great of treatment). In bankruptcy, there are a… Continue Reading

PWC Escapes MF Global, Inc. Class Action Suit Claiming In Pari Delicto

Posted in Collection, Remedies, Tough Times for Lenders, Workout Issues

I have been told that in a traffic jam ambulance drivers are taught to move to the first opening available in traffic and figure out where to go after that.  Sometimes legal strategy takes that same philosophy.  In a recent 2nd Circuit Case, PriceWaterhouseCoopers, LLP (“PwC”) asserted in pari delicto to avoid immediate liability in… Continue Reading

Make Whole Provisions: the Need to Aggressively Walk Back Aggressive Collection Provisions

Posted in Collection, Tough Times for Lenders, Workout Issues

Unexpected things happen in bankruptcy.   Some debts can be restructured, some debts can be reduced and some debts the debtor is just stuck with.  In contrast, outside of the bankruptcy ecosystem, economic interests are treated normally.  Because of the difference, a creditor’s activities for recovery in bankruptcy will, at times, seem at odds with their… Continue Reading

7th Circuit Holds Construction Lender “Caused” M&M Liens when it Cut Off Funding, Can’t Seek Coverage Under Title Policy

Posted in Insurance & Environmental Risks, Tough Times for Lenders, Workout Issues

Knowing when to cut your losses and walk a deal is a difficult skill to master.  In the construction loan context it is particularly difficult because a half completed building lacks the intended value anticipated on the loan.  On the other hand, cutting off disbursements causes a whole other set of risks including mechanic and… Continue Reading

The Plaintiffs Suing the Lender May Not Exist At the Time the Loan Documents Are Signed

Posted in Lender Liability, Tough Times for Lenders, Workout Issues

It is often surprising to me how often people are unaware of the fairly high risk of being sued in connection with a chapter 11 bankruptcy case when there is money in the case.  Many times, non-debtor parties’ falsely comfort themselves with the belief they will not be sued because existing management wouldn’t want to… Continue Reading

Bankrupt Bitcoin Exchange Mt. Gox begins to Pay Back Account Holders in Bitcoin

Posted in Technology Notes, Workout Issues

Bitcoin is one of several crypto-currencies which are exchanged generally outside of sovereign control and all electronically.  In early 2014, a Bitcoin exchange named Mt. Gox filed bankruptcy in Tokyo and subsequently sought additional protection in the US by filing a chapter 15 bankruptcy petition.  Just recently, the bankruptcy trustee in Tokyo has announced he… Continue Reading

Bankrupt Individuals Can’t Strip Down Senior Lenders in Ch. 7, but the SCOTUS will decide if they Can Strip Off – Leaving Junior Mortgage Lenders Unsecured

Posted in Tough Times for Lenders, Uncategorized, Workout Issues

The SCOTUS has recently decided to hear an appeal to consider whether junior mortgage liens, which are out of the money, on chapter 7 debtor’s homes may be voided simply because there is no equity in the home to attach to the junior lien at the time of the bankruptcy filing.  The effect of a… Continue Reading

Confidential Information May Not be so Confidential in Bankruptcy. Just Ask Apple.

Posted in Tough Times for Lenders, Trade Secrets, Workout Issues

It is said that when the debtor files bankruptcy the debtor is in a fish bowl.  The reason is simple:  the debtor in bankruptcy is required to make honest and sworn disclosure of all manner of financial and operational information on request and at regular intervals per the bankruptcy code.  Often, new and exciting liabilities… Continue Reading

OCC Lending Handbook Needs Parenting on Important Legal Topics

Posted in Articles, Training, Workout Issues

In an earlier posting, I reviewed the OCC’s new Commercial Real Estate Lending handbook .  The purpose of the handbook is to give parenting – I mean guidance – on risks inherent in commercial real estate lending.  On legal topics, the handbook takes a mind-boggling approach: it swings from legal light, to “I know it when I… Continue Reading

Grading the Examiners: OCC’s Commercial Real Estate Lending Handbook gets a “C”

Posted in Good Times for Lenders, Guaranty Issues, Insurance & Environmental Risks, Remedies, Training, Workout Issues

Last month, the Office of the Comptroller of the Currency published the Commercial Real Estate Lending handbook (August 2013).  The 128 page handbook gives guidance to bank examiners and bankers on risks inherent in commercial real estate (“CRE”) lending.  It replaces a 95 page version published in 1995 (and revised in 1998). For this new school year… Continue Reading

What Law to “Choose” in Commercial Mortgage Loan Docs? Simple.

Posted in 1 Guest Writers, Good Times for Lenders, Training, Workout Issues

Provisions in commercial mortgage loan documents,  where a particular state law is “selected” as the governing law, can drive a deal into a ditch, and take a good (or growing) lending relationship into the emergency room.  In many situations, this topic is a good example of over-thinking, and perhaps over-lawyering. Simply stated, which of these two… Continue Reading

Hide and Seek: Service of Process as a New Loan Provision

Posted in Good Times for Lenders, Remedies, Training, Workout Issues

Lenders are refreshing their mortgage loan documents with provisions based on the “lessons learned” during the recent (continuing?) economic experience.  One change is to add a service of process provision. The change is based on this basic lesson learned: when the tough times hit, borrowers and guarantors sometimes are hard to find. A few simply… Continue Reading

Early Pay-off of a Commercial Mortgage Loan? Shhhh – here’s “why” it makes sense

Posted in Tough Times for Lenders, Workout Issues

Acceptance by commercial real estate lenders of a partial payment in full satisfaction of the loan (as a “discounted payoff” – a “DPO”), prior to the maturity of the loan, is a topic that receives little “public” attention. Here are a few reasons why we hear so little about this topic, and the challenges in… Continue Reading

Why the Co-lender Train Wreck? Lenders Used Wrong Agreement

Posted in Good Times for Lenders, Tough Times for Lenders, Training, Workout Issues

Train wrecks draw a crowd.  Look at this old film from the 1913 California State Fair (click the text).       1913 Train Wreck                             Unfortunately, many co-lender structures (secured by distressed commercial real estate) look exactly like this train wreck…. Continue Reading

Need to “Reposition” the Distressed Project or REO? Consider a Condominium

Posted in Tough Times for Lenders, Workout Issues

So much of dealing with distressed commercial real estate is an “out of the box” experience. But my use of the phrase “out of the box” is extremely nuanced: change your thinking; and change the box (the property), too. Here’s an approach that goes out of box and then reverses field to “remake” the box… Continue Reading

Lessons Learned: More Tips on Topics to be Included in Loan Documents (& Modifications)

Posted in Market Trends, Training, Workout Issues

Periodically I touch on topics that could be, or should be, covered in loan documents – either when the loan is initially closed and funded, or when the terms of the loan are revisited during an extension or a restructure (collection of blog posts on "lessons learned" [it is a long list]).    Here are… Continue Reading

More Trouble: Will Record Online Sale Numbers Transform Sticks & Bricks Retailing in 2012? I say “yes”

Posted in Market Trends, Technology Notes, Training, Workout Issues

2012 should be the year when online sales broadly impacts "how" retailers view and use their "physical" stores.  This will impact both the owners AND the lenders. Record online sales point to the need (RIGHT NOW) to take a different approach in reviewing and approving retail leases – which for lenders with shopping center and… Continue Reading

Special Purpose Vehicle (SPE): Comment in Recent US Supreme Court Case Encourages Bankruptcy Risk

Posted in Good Times for Lenders, Market Trends, Single Purpose Entity, Workout Issues

Recently, Professor Joshua P. Fershee posted a very interesting observation on the Business Law Prof Blog.   Professor Fershee comments on a legal concept called the "single enterprise" theory, and on references to this concept by the US Supreme Court in a decision published by it this past summer (Goodyear Dunlop Tires Operations, S.A. v…. Continue Reading

Defaulted Hotel (California) Loans: Nice Story in Bloomberg; Here are some practical tips

Posted in Market Trends, Remedies, Tough Times for Lenders, Workout Issues

Nadja Brandt and Kara Wetzel with Bloomberg have a nice piece on the scope of and challenges in dealing with defaulted hotel loans in CMBS pools.  It is a good read.  And it has been picked up or syndicated in other news media. As I’ve noted before, with a hotel or motel securing the loan,… Continue Reading

The Collection Plate: Don’t Overlook the Marital Status of the Loan Guarantor or Indmenitor

Posted in Workout Issues

Collecting on a judgment against a commercial loan guarantor or indemnitor brings into focus one bedrock question for a commercial loan guaranty or an indemnity: in collecting on the judgment, does the marital status of the guarantor or the indemnitor come into play? does this status take some assets beyond the reach of the judgment?… Continue Reading

Navigating Distressed Co-Lender Loans: Just Another (Dysfunctional) Modern (Finance) Family?

Posted in Market Trends, Tough Times for Lenders, Workout Issues

Earlier, I offered up some advice that in a workout, you really can’t take it personally. If that didn’t work for you, then here’s another approach that should resonate (I can’t get it out of my head):  if you’re in a loan with other lenders, the co-lender structure probably has some real, real, real dysfunctional aspects to it … Continue Reading

Leases, Lenders & Letters of Credit: Lenders Taking New Approaches With Tenant Letters of Credit (lessons learned)

Posted in Good Times for Lenders, Tough Times for Lenders, Training, Workout Issues

We know commercial real estate is all about the rents – and the credit of the tenant, which some times is enhanced by the tenant giving the landlord a letter of credit. David Staas and Michael Thomas recently clued me in on several lessons learned by commercial mortgage lenders, on the topic of letters of… Continue Reading