Special Assets Lawyer Blog

Please join me at the California Bankers Association's 23rd Annual Lenders Conference on March 22nd and 23rd. I'll be presenting a practical program that I call "Illuminating the Dark Side of the Bank During Challenging Times." My program will cover many of the problems that California bankers are facing in these difficult economic times.

My program will be aimed at an experienced audience of chief lending officers, chief credit officers and loan administrators. We'll touch on issues involving bankruptcy, foreclosure, workouts and forbearance agreements.

I will be speaking on Monday, March 22nd at 1:05-2:30 p.m. and Tuesday, March 23rd at 1:30 p.m. to 2:30 p.m. The Conference will be held at the Renaissance Esmeralda in Indian Wells, California and will run from Sunday, March 21 to Wednesday, March 24. Hope to see you there.

For more information about the Lenders Conference please visit: http://www.calbankers.com/content/event_detail.asp?EventID=1012

In the last post, we discussed the newly expanded net operating loss (NOL) carry back period, and explained how for some borrowers, the new law could generate "found money" that could be put to good use - such as paying down bank debt (one of my favorite uses!!). As with all gift horses, however, it is necessary to carefully examine this one so that the cash ends up where it ought to go.

First, it is necessary to understand that a creditor cannot take a security interest in a taxpayer's right to a tax refund. We've seen unwary lenders naively assume that the IRS is going to honor a security agreement and a UCC-1 financing statement. The usual result is the tax refund lands in an account at another bank and is used to pay "more pressing" obligations. Because a secured creditor cannot take a security interest in the right to a tax refund before the refund is issued, the lender must take steps to channel the tax refund so that once paid out by the Government, it goes to pay down bank debt.

The JMBM Special Assets Team has developed a technique that minimizes the substantial risk that a borrower will divert the tax refund and put it to other uses. This technique requires the taxpayer/borrower to elect direct deposit of the refund into a bank-controlled blocked account, which is subject to the bank's perfected security interest. While not foolproof, the use of a direct deposit into a blocked account reduces the risk of diversion and increases visibility to the bank.

Continue reading "Amend the Borrower's Tax Return and Help Pay Back A Loan (Part 2) - Directing the Borrower's Tax Refund" »

One of our most-viewed pages on SpecialAssetsLawyer.com is the Receivership 101 slideshow presentation. I've given this program several times, often with my long-time close friend and colleague, Bruce Cornelius. Bruce and I serve together on the Board of Directors of the Bay Area Chapter of the California Receivers Forum, and given the sharp rise in the number of receiverships, the Forum has once again decided to present Receivership 101 live and in person.

This is a great program for those workout professionals who know how to use receivers and would like to stay current, as well as for those who are new to workouts and would like to learn the basics. Bruce and I have lots of amusing anecdotes and practical tips to share along the way.

Bruce and I will be giving the program on February 10, 2010, and all of you are cordially invited to join us.

To download a copy of the registration form below, click here.

Continue reading "Dick Rogan to Present Receivership 101 for California Receivers Forum" »

The JMBM Special Assets Team is looking for a 2-3 year junior litigation associate for our commercial creditors rights practice based in San Francisco's Financial District. The successful candidate will have excellent law school credentials, some courtroom and deposition experience and be capable of preparing pleadings and motions. Bankruptcy experience is desirable but not required. Salary is commensurate with experience.

I'm asking our readers to help us find the right young lawyer to fill this spot. We have found that it works out well to hire lawyers who come recommended by our clients and friends. This is a great opportunity for a lawyer in the first few years of his or her practice who is interested in financial and credit matters. Our new lawyer will have a chance to work on some of the most interesting and challenging matters around with experienced practitioners who know the ropes.

JMBM is an AmLaw Top 200 firm with offices located in San Francisco, Los Angeles and Orange County. The JMBM Special Assets Team is composed of lawyers in all three offices who specialize in representing commercial and real estate lenders in bankruptcy, litigation, receivership, foreclosure, workouts, documentation and negotiation.

Recently, a potentially significant change was made to the tax law that could be used by once-successful businesses to generate cash to pay down debt. Under the new law, a business is now able to carry back a net operating loss (NOL) sustained in 2008 or 2009 for five years. This is a major change from the previous law, which limited the NOL carry back period to two years. Workout professionals should be aware of this tool, as it may prove to be a valuable source of cash that can be used to deleverage a business.

The JMBM Special Assets Team has used NOL carry back provisions to help pay off troubled loans, but the new law potentially increases the chances of reeling in some serious found money. The additional three years of carry back losses makes it possible for a company to get a refund from the IRS for taxes paid up to five years ago. Why is that critical? Many companies were making a lot of money three, four and five years ago, and they were paying taxes on that money.

This is first of two articles where we will discuss the newly expanded NOL carry back period, show how it can generate significant cash and explain how bankers can help their troubled borrowers apply the unexpected cash windfall to pay down debt.

Continue reading "Amend the Borrower's Tax Return and Help Pay Back A Loan - How NOLs Can Generate Cash That Can Be Used to Retire Debt" »

Almost all loan documents that we enforce on behalf of our lender clients contain an attorneys' fees clause that requires the borrower to pay the bank's attorneys' fees, whether or not litigation or bankruptcy is required to enforce the loan. In California, Civil Code Section 1717 makes such clauses reciprocal. In other words, if a bank brings a lawsuit against the borrower and loses, the bank may be obligated to pay the borrower's attorneys' fees. Usually, because there is little doubt that the borrower does owe the money to the bank, the bank prevails and the borrower has to pay the bank's fees on top of the loan balances.

In bankruptcy court, secured lenders take the position that under Bankruptcy Code § 506(b), they are entitled to attorneys' fees if the loan agreements provide for them. Prior to 2007, the prevailing view in the Ninth Circuit, which includes California, was that unsecured creditors could not be awarded attorneys' fees. However, in 2007, the United States Supreme Court held that attorneys' fees should not be denied in bankruptcy, whether or not the lender was secured. Travelers Cas. & Sur. Co. of America v. Pacific Gas & Elec. Co. (In re Travelers), 549 U.S. 442 (2007).

The Travelers opinion has created uncertainty for creditors seeking relief from the automatic stay. On the one hand, a stay relief motion is not an action by itself, but rather simply a motion that is part of a larger case, usually a Chapter 7 or Chapter 11 bankruptcy case. On the other hand, stay relief can be the determining factor as to whether or not the lender or the debtor prevails. My partner, Bob Kaplan, notes that the Travelers decision has now been held to affect motions for stay relief and cautions lenders to consider this factor:

Continue reading "Bankruptcy News--CAUTION: Attorneys' Fees Awarded To Debtor" »