ALI-ABA Course of Study Commercial Real Estate Defaults ...

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74 3.2.1 Confirm computation of actual amount owing; 3.2.2 Determine extent of defaults - monetary and nonmonetary - 3.2.3 What cure or notice periods are applicable. Have default notices been given 3.2.4 Review prepayment and other premium provisions and yield maintenance provisions, if any. Consider possible treatment of yield maintenance provisions as unenforceable liquidated damage provisions. 34 Will prepayment premiums be collectable under applicable law if debt is accelerated 35 3.2.5 Review default provisions; specifically consider interrelationship of default provisions among various loan documents. Any inconsistencies of terminology: are terms such as "breach", "default" and "event of default" adequately defined Do notice and opportunity to cure provisions dovetail 3.2.6 Check signature and effectiveness of execution; if powers of attorney are used, are they effective 3.2.7 Consider any usury issues. 3.2.8 If provision is made for interest accruals consider possible applicability of §502(b)(2) of the Bankruptcy Code regarding "unmatured interest." 36 3.2.9 Defenses, offsets - was the loan fully disbursed 3.2.10 Review nonwaiver provisions of the note and mortgage. 37 3.3 Guarantees and Surety Documents 34 See Fisher, Make-Whole Prepayment Premiums Under Attack, 45 Bus. Lawyer 15 (Nov. 1989); In re Skyler Ridge, 80 Bankr. 500 (Bankr. C.D. Cal. 1987); In re Kroh Bros. Dev. Co., 88 Bankr. 997 (Bankr. W.D. Mo. 1988). In McCae Management Corporation v. Merchants National Bank and Trust Company of Indianapolis, 553 N.E.2d 884 (Ind.Ct. App. 1990) the Mid-America court sustained a yield maintenance fee required by the lender without any authority in the loan documents as a condition to permitting prepayment of a note that specifically prohibited prepayment. 35 See Matter of LHD Realty Corp., 726 F.2d 327 (7th Cir 1984); American Fed. Sav. & Loan Assn of Madison v. Mid- America Service Corp. 329 N.W. 2d 124 (S.D. 1983). 36 See item 8.9 below. 37 See discussion at item 5.14. 10 DSC:767996.2 4/4/2006 3:55 PM Copyright 1996 - 2002 Marvin Garfinkel All Rights Reserved
75 3.3.1 Are guarantor's liabilities primary or secondary 3.3.2 What notice must be given to guarantors 3.3.3 Are there any time limits on guarantor's liability. 38 3.3.4 If only part of debt is guaranteed is there any problem in regard to application of collateral For instance, if only interest is guaranteed, should proceeds be applied against principal or interest 39 Does the guarantor's obligation under an "interest only" guarantee continue after realization on collateral 40 Is the guarantor entitled to a credit for the value of the mortgaged property See §5.2.3 below. 3.3.5 Are there any "upstream" or "sidestream" guarantee or collateral problems A typical "upstream" guarantee is a guarantee by a subsidiary of an obligation of a parent. A variation is a guarantee by a corporation or partnership of an obligation of a shareholder or partner. A "sidestream" guarantee is in guarantee by in entity of an obligation of other entity under common control. A further variation is the upstreaming or sidestreaming of collateral. That is the use of an entity's assets to collateralize the obligations of the shareholder, partner or entity under common control. This devise is often used to collateralize the acquisition obligation, especially where it is sought to avoid transfer tax or other taxes or transfer limitations in leases or mortgages by transferring a real estate owning entity rather than the real estate asset itself. 41 3.3.6 Consider any applicable deficiency judgment law - statutory or common law 42 38 In Phoenix Acquisition Corp. v. Campcore, Inc., 81 N.Y.2d 138 (1993), the court rejected the guarantor's assertion that lender's claim was time-barred, holding that the six-year statute of limitations for breach of contract actions accrued on the date that the lender elected to exercise the acceleration clause under the note (which was payable in installments, as opposed to a demand note) and not on the date upon which the election to accelerate was based (i.e., the date the first installment payment was missed). The Phoenix case was followed by Breeden v. Erie Island Resort & Marina (In re Bennett Funding Group), No. 03-MC-06 (N.D.N.Y. Apr. 28, 2003) where the borrower asserted that the statute of limitations had run on the lender's claim. 39 See discussion at item 0.4 above. See Barnett, Limited Guarantees: Variations, Limitations and Lamentations; Banking L.J. 244 (May 1987). 40 If so, is the interest base reduced by the amount of the realization or might the realization be applied first against interest if, under the loan documents, payments are to be so applied 41 See the discussion of fraudulent conveyances at item 8.6 below. 42 See discussion at item 5.2 below. See Chapter 14 of Dunaway Text “Confirmation of Sale and Deficiency Judgments” . 11 DSC:767996.2 4/4/2006 3:55 PM Copyright 1996 - 2002 Marvin Garfinkel All Rights Reserved
Page 1 and 2: 57 ALI-ABA Course of Study Commerci
Page 3 and 4: 59 1.5 Other Lenders and Participan
Page 5 and 6: 61 5.0.............................
Page 7 and 8: 63 8.0 Relevant Bankruptcy Consider
Page 9 and 10: 65 REAL ESTATE DEFAULTS INVESTIGATI
Page 11 and 12: 67 available Is it feasible in cont
Page 13 and 14: 69 both for payment on demand and a
Page 15 and 16: 71 1.6 Title Insurer Consider possi
Page 17: 73 3.1 Mortgages, Deeds of Trust an
Page 21 and 22: 77 those jurisdictions that permit
Page 23 and 24: 79 3.5 Closing Attorneys Summary of
Page 25 and 26: 81 3.8.3 Rights of Parties in Posse
Page 27 and 28: 83 Will the purpose of the proposed
Page 29 and 30: 85 the issuer must honor the draft
Page 31 and 32: 87 full disclosure to the borrower
Page 33 and 34: 89 4.2.3 Security Deposits - Determ
Page 35 and 36: 91 4.7.1 Contamination - Hazardous
Page 37 and 38: 93 to cure or mitigate and construc
Page 39 and 40: 95 5.3.3 Determine whether under th
Page 41 and 42: 97 5.10 Right to Financial Privacy
Page 43 and 44: 99 5.13.3 D'Oench has been held not
Page 45 and 46: 101 5.17 Choice of Forum and of Law
Page 47 and 48: 103 5.22 Amount Due Issues. 5.22.1
Page 49 and 50: 105 further a corporate purpose or
Page 51 and 52: 107 of substantial punitive damages
Page 53 and 54: 109 (3) The trend of the cases may
Page 55 and 56: 111 (1) Equal Credit Opportunity Ac
Page 57 and 58: 113 also establish that the lender
Page 59 and 60: 115 7.1.16 Loan Prohibited by Borro
Page 61 and 62: 117 7.11.1 If the dispute involves
Page 63 and 64: 119 See 9.0 below on effect of assi
Page 65 and 66: 121 362(b)(4) exempt from the stay.
Page 67 and 68: 123 8.6.5 Although foreclosures 283
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125 whether partial interest deferr
Page 71 and 72:
127 8.9.2. §506(b) Fees and Costs
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129 8.11.4 Successive Chapter 11 fi
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131 8.13.7 New Value Rule. 332 8.14
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133 false representation or actual
Page 79 and 80:
135 (2) Compensate non-debtor party
Page 81 and 82:
137 8.26 Ipso Facto Clauses. Under
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139 mortgage that has obtained an a
Page 85 and 86:
141 10.2 Mortgagee Provisions. Desc
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