Mezzanine loans have become the preferred vehicle for subordinate financing in real estate transactions. The repayment obligation is typically secured by a perfected UCC security interest in the mortgage borrower's equity interests. Counsel should have a thorough understanding of how the foreclosure remedy is exercised under Article 9 and the mezzanine foreclosure ramifications for the mortgage borrower, mortgage lender, and other parties to the transaction.
Before commencing foreclosure, the mezzanine lender must review all relevant transaction documents, including UCC insurance policies. If the debtor "opted into" Article 8, the lender must locate the certificate. Counsel must understand the mortgage lender's rights and the rights of any senior mezzanine lenders, ground lessors, or other parties with interest in the underlying property. An intercreditor agreement will likely provide the most significant input into the timing and nature of remedies vis a vis other lenders.
Article 9 provides that a public sale must be conducted in a "commercially reasonable" manner, with advance notice to all relevant parties under Sections 9-611 and 9-612. The public must have a "meaningful opportunity" for competitive bidding, requiring some form of advertisement or public notice preceding the sale. The location and manner of the sale should be appropriate to allow for public access to the disposition. Recent New York case law indicates that "commercially reasonable" may entail more stringent standards in light of foreclosure moratoriums and the continuing impacts of the pandemic on real estate properties.
The mortgage may limit the transfer of ownership interests in the mortgage borrower to a "qualified transferee," generally defined as either the mezzanine lender itself or an institutional investor meeting specific requirements. This significantly restricts the potential universe of purchasers at a foreclosure sale, and the process of "qualifying" the winning bidder may inject uncertainty surrounding the ability of a buyer to close.
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Traditionally, the majority of housing affordable to many families has come through “filtering” – as apartment homes grow older, they gradually become part of the “naturally occurring affordable housing.” Following the Great Recession and Global Financial Crisis, this process reversed as value-add investors rehabbed apartments into higher rent classes to make up for the lack of new construction.
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The goal of every real estate deal attorney is to ensure a timely and smooth closing of the transaction. Title defects are just one of the many hurdles that transaction attorneys must clear, and the newly revised ALTA policies can impact the ability to address those issues.
While many risks can create an encumbrance on a title, some of the common title defects that face real estate practitioners are defects due to liens and judgments, the rights of third parties, and breaks in the chain of title. The new endorsements and addenda can create opportunities and obstructions to resolving those defects.
Armed with the knowledge of curing these common title defects and the changes made to the ALTA policies, practitioners can ensure that they close commercial transactions on time and with little surprises.
Listen as our authoritative panel of real estate practitioners discusses the revised ALTA policies, the best practices for curing title defects arising from judgments and liens, defects arising from the rights of third parties, and defects caused by breaks in the chain of title.
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Our annual end of year round-up looks at some of the key developments in commercial property law over the past 12 months, covering topics including:
Covid-19 and lease renewals:
WH Smith Retail Holdings Limited -v- Commerz Real Investmentgesellschaft mbH [2021]
Poundland Limited v Toplain (2 July 2021)
S. Franses Limited v The Cavendish Hotel (London) Limited [2021]
Covid-19 and rental payments:
Commerzreal Investmentgesellschaft mbh v TFS Stores Limited (2021) EWHC 863 (Ch);
Bank of New York Mellon (International) Limited v Cine-UK Limited;
London Trocadero (2015) LLP v Picturehouse Cinemas Limited [2021] EWHC 2591 (Ch)
Government response to Covid-19:
Commercial Rent (Coronavirus) Bill
Code of Practice
Fixtures and Chattels:
The Royal Parks Ltd and others v Bluebird Boats Ltd [2021] EWHC 2278 (TCC)
Security of tenure
TFS Stores Ltd v. Designer Retail Outlet Centres [2021] EWCA Civ 688
Break clauses:
Capital Park Leeds Plc v Global Radio Services Ltd [2021] EWCA Civ 995
RPI rent reviews and mistake:
Monsolar IQ Limited v Woden Park [2021] EWCA Civ 961
E-signatures, real estate and the Land Registry
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