Chapter 11

About Timothy McCandless Esq.

Posted on January 11, 2011 by timothymccandless

I am merely an attorney who like so many others is overwhelmed by the onslaught of millions of defaults, modifications, foreclosures, trustees sales, notices to vacate ,unlawful detainers and sheriff’s lockouts.

In California a nonjudicial state a foreclosure can occur on the mere word of a lender without the original note or assignment of the original deed of trust. A then former homeowner can then be evicted by giving notice to vacate constructively (without notice) have a summons “Posted and Mailed” (again no actual notice) a default judgment taken (no trial) and a writ issued and the Sheriff’s instruction to evict issued and enforced.

There are several reasons why it makes sense to hire an experienced loan workout specialist attorney firm such as the Birch Law Group when problems occur. Firstly, by virtue of our 29-year history as an active and well-respected player in the commercial mortgage finance industry,  the Birch Law Group enjoys long-term relationships with both national and regional portfolio lenders as well as with most major CMBS servicing agents. As a result, our good name and relationships can help effect a positive outcome when we negotiate a loan workout.

Secondly, a loan default can understandably create a strain on even the strongest borrower / lender relationship, often causing an emotionally charged backdrop which can prevent a direct resolution between the parties. As experienced Chapter 11 Bankruptcy attorneys and lender liability litigators and our network of real estate professionals and accountants , the Birch Law group understands the micro and macro issues affecting the cash flow and value of all types of commercial properties. As former bankers, we can effectively and unemotionally articulate these issues in a language that lenders understand and appreciate.

Due to our extensive commercial mortgage financing experience and our real-time knowledge of the capital markets, we have the advantages of knowing the right time and the right lender to refinance your existing troubled loan. Under a default scenario, we may then decide to take the property to the debt marketplace to explore a refinance. After thoroughly surveying the debt market and determining that a refinance is not feasible, we will share our results with the existing lender to compel them to entertain loan workout discussions.

Our members have successfully restructured over $2 billion in distressed real estate debt on all property types.

The Great Unknown: CMBS Loan Modifications.

With the proliferation of securitized lending over the past decade, commercial real estate financing has evolved largely from a relationship business to a transactional business. CMBS lenders have placed greater emphasis on underwriting cash flow than to getting to know their borrower. Even if you have a relationship with the loan officer at your CMBS lender, that individual cannot help you when problems arise after closing

The unfortunate and unintended consequence of a CMBS securitized loan is that most borrowers today have no relationship with, let alone know the names of, those individuals empowered to administer loan workouts on behalf of the bondholders who hold their mortgage: the Special Servicers. We know that you can often feel like a stranger in a strange land when dealing with these servicing agents. Furthermore, most borrowers have little understanding as to the complicated fiduciary responsibilities that these servicers have with the multiple classes of bondholders that comprise a REMIC. More importantly, borrowers are not aware of the latitude that servicers have in terms of a restructure. It is understandable that borrowers are left feeling alienated, frustrated, and confused when negociating a loan modification with Special Servicers.

We have both the insight and experience to help you navigate through the maze of bureaucracy that typifies a loan modification with a Special Servicer.

Even in the unlikely event that a loan restructuring cannot be achieved; we will proactively expose your property to our vast sources of private and institutional joint venture equity investors, buyers and lenders. Altman Warwick will make every effort to help you avoid a foreclosure and to achieve the best possible sale, refinance or recapitalization for your property.

Whether your lender is a local bank or a securitized CMBS lender, when loan workout discussions break down, the parties often find the property proceeding down the costly and painful path to foreclosure. Our goal is to avoid foreclosure at all costs. The unfortunate reality of a foreclosure sale is that the borrower rarely receives the full value of his property due to one fundamental reason: loss of control. Firstly, during the foreclosure process, the owner may lose operational control to a court-appointed receiver. Receiver-managed properties typically under-perform those managed by experienced owner/operators. Receivers commonly do not implement strict cost controls with regard to operating expenses nor do they attempt to achieve the highest rental rates for your property. Under the watch of a receiver, properties can also suffer greater physical neglect. All of these factors contribute to a diminished net operating income and thus a lower price that a buyer might pay. Secondly, the interests of borrower and lender are not typically aligned in a foreclosure proceeding. During the foreclosure process, lenders are focused first on seizing control of the property and then on recouping their investment as quickly as possible. They rarely act in the borrower’s best interest by trying to maximize the sales price so that the borrower may also recoup their investment. Lenders generally do a poor job in terms of pre-marketing a property to the brokerage community or through private channels prior to a foreclosure sale, therefore potentially depriving the borrower of the chance to receive the highest price for their property. As compared to a private sale, a foreclosure involves a court-administered sale with more onerous and less flexible terms, thereby limiting the universe of potential buyers. Lastly, lenders rarely consider the state of the commercial real estate markets when scheduling a foreclosure sale. As a result, foreclosures often occur at inopportune times when the real estate markets are depressed, thus further reducing the chances of the borrower receiving any proceeds from the sale. The monetary costs associated with foreclosure and/or bankruptcy, in addition to the profound cost of a long-lasting stain on one’s credit, are far greater than the costs of restructuring a loan. The implications of a personal bankruptcy are serious and remain on one’s credit report for up to 10 years. Moreover, lenders tend to have long-term memories for those borrowers who do not act in good faith to try to work out their loans. Avoiding Foreclosures… Foreclosure Does Not Have to be Inevitable We recommend to our client’s that it is always best to contact their lender before a serious loan default occurs. It is critical to begin a constructive dialog with the lender to prevent the lender from commencing a foreclosure action. However, even if your mortgage is far along in the foreclosure process, it may not be too late for us to negotiate a Standstill Agreement, which puts the legal process on hold while we negotiate a loan workout plan. With limited options of refinancing properties in today’s constrictive lending market, a loan workout is becoming commonplace. We have found that banks, already under considerable pressure to limit their non-performing assets, are increasingly willing to offer a loan modification and significant concessions. Contact us today and we’ll help you avoid foreclosure.