These days, many institutional lenders are selling non-performing loans to financial and strategic buyers. The concept is usually sound because the selling institution can recover at least the amount at which the loan is carried on its books, often together with out-of-pocket fees and costs. The idea is simple: Get the loan off the books of the Bank and move on to other matters that are profitable.
No one pays much attention to preparing a Notice of Trustee's Sale or a Uniform Commercial Code ("UCC") Notice of Intended Disposition. Both are regulated by statute, and a Notice of Trustee's Sale is usually prepared by the foreclosure company here in California (and other states where non-judicial foreclosure of real estate is commonly used). A Notice of Trustee's Sale is also used in California to conduct a "unified" foreclosure sale of both real and personal property collateral.
The concern here is to double check exactly the description of the collateral that is being sold at foreclosure. Where the notice is prepared by an outside vendor, it is critical to make certain that the vendor has all of the necessary information to prepare the notice properly. Even then, costly mistakes can be made, so it is very important to check carefully.
After the Bank forecloses on its collateral, it is important to administer the collateral in a commercially reasonable manner. The collateral is the source of repayment for the Bank. It is important to preserve its value and to liquidate it to pay off the loan to the extent possible. Workout professionals who are charged with caring for Bank-owned or controlled collateral must plan a strategic approach to their task. Once in a while, the collateral is exciting, and tempts the workout officers to cross the ethical line.
A construction lender client of ours got a bit too casual in specifying release prices on one of its projects. Mindful that it is important to "front load" payments against the loan, the lender forgot that opportunistic developers can manipulate their pricing to the disadvantage of the lender - unless the release price language in the loan documents forbids it. In this deal, the lender provided only that the developer had to pay the lender "100% of all net proceeds from the sale of Units 1 through 4." Since the asking price for each Unit was $350,000, the lender felt that net proceeds would easily pay down the loan quickly.
One of our asset-based lender clients made a loan to high-flying frozen fish purveyor located in Nevada. His clientele consisted of restaurants that catered to tourists, and his stock in trade was the frozen fish that one finds cooked up on the buffet table in many Nevada resorts. The customer was not content with the nice business he had. Like so many others, he wanted more, so he began adding a little more ice to his fish deliveries. His customers noticed and did not like it. Let's just say they handled their complaints outside of court.
Some years ago, one of our bank clients called on us to help negotiate and restructure a loan against a boutique hotel in downtown San Francisco. The owner-operator was capable, but he was operating his hotel as if it was a block or two closer to Union Square. The Bank wanted to get tough with him, figuring that if push came to shove, it would file suit and ask for a receiver to be appointed.
Special Assets Lawyer.com: A Place Where Problem Loans and Troubled Debts Are The Topic of Discussion
Welcome to SpecialAssetsLawyer.com, a place where problem loans and troubled debts are the topic of discussion. I am Dick Rogan, bank lawyer and chair of the JMBM Special Assets Team™. Every day, problem loans of all types cross my desk and the desks of my colleagues here at JMBM. That's because we ask for them. Our clients are banks, special servicers, private lenders and others dealing with the fallout from the "Great Lending Bubble." Our clients challenge us to help them find value where all appears to have been lost. They rely on our collective years of experience to develop the right approach for each loan. Let's face it, our task is to work with our clients to make the most out of a bad situation.
Over the years, we've been asked by young people just joining a lender's workout team and by experienced lenders who have crossed over to the "dark side" of the bank to explain the tricks of the trade in dealing with special assets. In response, we created SpecialAssetsLawyer.com - a collection of some of our accumulated wisdom and a place for bank workout professionals to come find out what works when attempting to collect and deal with problem loans.