The second day of seminars, at the annual meeting of the American College of Mortgage Attorneys, had two key take-aways for me.  The first nugget focuses on the Dodd-Frank financial law.

The second nugget (below) is much more practical.  Inspired by comments made by Jim Allen during a panel presentation (he’s with the Miller Canfield law firm), I take his list, enhance it (slightly), throw in some links to TT4L (for more details), and give you a short list of key topics for use in working out a distressed commercial loan.  And I also attach our "dealno deal" decision tree for your use.

Remember, this is a short list – it is NOT an all-inclusive "end all for all."  But, it will get you going quickly.

  1. Using Rent for X, Y or Z: for example, no funds from property will be used to pay B’s legal fees, except for work related to the property (such as new leases, etc.).  Diversion of rent is a hot topic.
  2. Trap Rent: put cash management or a lock box into place – control the cash
  3. Property Operations: in time, replace the property manager with a third party
  4. Title and Taxes:
    review the existing title policy
    –  check to see if it covers mechanics’ liens
    – will the title policy run to the benefit of a note buyer?
    – order an up-date (checking for new liens, etc.)
    – what taxes remain unpaid? is there money to pay them? (pay taxes BEFORE you foreclose)
  5. Send default letter
    – give notice about default interest?
    – what is the default?
  6. Send negotiation letter – Issues include:
    – will Borrower waive all claims v Lender?
    – only waive specified claims v. Lender?
    – drop this requirement? (Choices: if no letter, then no workout discussions; but beware that if this letter is heavily negotiated, then the entire process could be a failure – or at least very, very slow and painful)
  7. Agree to a forbearance if there is a "real" risk of a decent Lender liability case; time can “solve” many lender liability claims
  8. Focus on sources of “new” funds available to borrower; or through a mezz lender; or via a tax refund
    – know the tax position of the sponsor
  9. Get a receiver appointed; and with the appropriate judicial order, the receiver could obtain a loan for funds needed for new tenant improvements and leasing commissions
  10. Look for non-recourse liability events (in the absence of a full guaranty agreement)
  11. Appoint a new leasing agent, with contractual terms giving the Lender permission to talk with tenants or prospects

For the "bigger" picture, attached is our "dealno deal" decision tree.

One final thought: as I took Jim’s list and elaborated on it, I realized that TT4L has become a powerful knowledge base.  Next time that you have a question, do what I did as I prepared this: take your key phrase, and use the "keyword" search function. 

If you have other resources, links or materials, please post a comment below.