Last Sunday's Indianapolis Star included a piece by John Russell addressing whether we may see an uptick in commercial loan defaults and corresponding foreclosures: link. The story identifies a handful of local foreclosures and includes a quote from yours truly. From what I understand, banks and financial institutions are returning to commercial real estate lending. My sense is that there will be a wave of refinancing and not a wave of commercial foreclosures. As suggested by the Star's article, however, this is subject to debate. Thanks to Mr. Russell for seeking my input.
The Great Recession, at least as to Central Indiana commercial real estate, seems to be in the rear view mirror: link to article.
To bring this case study full circle, Andrea Davis, in her IBJ blog North of 96th, reported earlier this week that: Hawthorns golf course sells to lender for $5.5M. I followed this Indiana commercial foreclosure case starting with my 6/10/14 post, IBJ.com: Hawthorns Golf & Country Club Bankruptcy/Foreclosure, and then my 10/24/14 post, IBJ.com: Hawthorns Golf Club Foreclosure Update.
The outcome of the Hawthorns matter, which centered around a splendid golf club on the northeast side of Indy, was that the lender/mortgagee (actually, a private investor group) acquired title to the Hawthorns free and clear of all liens. The case is illustrative of how a real estate developer (in this instance, a golf course-based business) can become the owner of a project by first purchasing a distressed, secured loan and then foreclosing on that loan.
If you are interested in pursuing a transaction like this, please give me a call. Our firm has experience with these deals, which encompass real estate, litigation and bankruptcy law.
This follows-up my 6/10/14 post, IBJ.com: Hawthorns Golf & Country Club Bankruptcy/Foreclosure. The IBJ, specifically the North of 96th blog by Andrea Davis, has updated the situation, which continues to trend toward the loan-to-own scenario about which I discussed in June: Hawthorns golf club headed to auction; lender seeks control.
The "North of 96" blog published by IBJ.com's Andrea Davis has a post relating to a commercial foreclosure on an event venue in Fishers: story. Evidently judgment has been entered, and a sheriff's sale is scheduled for July. What's interesting to me is the owner/borrower claims that there has been some mistake on "technical" grounds and that there was no default on the loan. The case, filed in November, is about three weeks from a sheriff's sale. I'm curious as to what alleged "technical problem" exists and how the case progressed this far despite it. Normally "technical problems" would be raised before the entry of judgment, unless perhaps this is an instance where a default judgment should be set aside. If Ms. Davis continues to follow the case on her blog, I will update this post.
Greg Andrews of the Indianapolis Business Journal has a behind-the-scenes piece about a "a duel for one of the biggest prizes in Indianapolis golf—ownership of the Hawthorns Golf & Country Club." Here is a link to the article: Lender to bankrupt country club puts on suitor’s cap. This appears to be a so-called "loan-to-own" matter in which a developer may have purchased the commercial mortgage loan from the original lender for the primary purpose of foreclosing and ultimately owning the subject real estate, in this case a country club.
The Indianapolis Star and the Indianapolis Business Journal recently reported on the March 6th sheriff's sale of Tim Durham's $5.5MM, 10,700 sq. ft. mansion in Hamilton County. The mortgaged debt appears to be about $4.5MM. Mr. Durham is serving a 50-year prison sentence for a $200MM Ponzi scheme.
The Indianapolis Business Journal and other local media outlets have published the following commercial real estate report/forecast generated by Cassidy Turley: Industrial/Office/Retail/Multifamily/Investment.
Last week, Indiana lawyers received the following notice from Laura A. Briggs, Clerk of the United States District Court for the Southern District of Indiana:
COURT OPERATIONS AFTER "SHUTDOWN"
The Federal Judiciary is likely to exhaust all available sources of funding some time during the week of October 14, 2013, unless a continuing resolution or other source of funding is passed by Congress and signed by the President before then.
Once all funds have been exhausted, the Judiciary enters a "shutdown" phase. However, even in this phase, the normal processing of all criminal and civil cases will continue. New cases can be filed. Criminal and civil hearings and conferences will take place. Jury and bench trials will proceed. CM/ECF will be operational, and Orders will be processed. The Courthouses of the Southern District will be open.
Customers should experience minimal disruption - unless they are involved in a civil case in which the United States Attorney's office has appeared. Some of these cases are stayed pursuant to the Court's Order of October 7, 2013 (available on our website: www.insd.uscourts.gov). The civil case docket should be reviewed to determine if the stay is in effect in a particular case. Questions about the presence or absence of a stay in a particular case should be directed to the Clerk's Office.
Any further information on this topic will be posted on the Court's website.
Distressed loans secured by commercial property often involve delinquent sewer fee liens, which I discussed in my 10/24/08 post. These liens typically go hand-in-hand with delinquent real estate taxes. Workout professionals should remain mindful of this possibility as they analyze their collateral and make decisions concerning the enforcement of the loan. Questions I’m frequently asked are whether the lender should pay the real sewer fees liens and, if so, when.
Prior procedure. Indiana law historically required the plaintiff/lender, assuming it was the winning bidder at the sheriff’s sale, to pay any delinquent sewer fees, along with real estate taxes, immediately after the sale. In the case of a cash bidder (third party), sewer liens would be paid off the top or, in other words, the county treasurer got the first cut of the sale proceeds.
2011. We then noticed that some county sheriff’s offices started to require the plaintiff/lender to pay delinquent real estate taxes and sewer fee liens before the sale. In 2011, prepayment of delinquent real estate taxes became a statutory requirement by virtue of Ind. Code § 32-29-7-8.5 “Requirements for Payment of Property Taxes and Real Estate Costs Before Sheriff’s Sale.” See my 1/21/11 post for more.
2013. In this year’s session, Indiana’s General Assembly enacted HB 1132, which added delinquent sewer fee liens to the mix. HB 1132 amends Ind. Code Sec. 32-29-7-8.5 and will be effective July 1, 2013. The statute will now state, in pertinent part, that “the party that filed the praecipe for the sheriff’s sale shall pay . . . all delinquent property taxes, sewer liens described in IC 36-9-23-32, special assessments, penalties, and interest that are due and owing on the property on the date of the sheriff’s sale.” A failure to pay will result in the cancellation of the sale.
Policing the issue? Beginning in January 2011 in Marion County (Indianapolis), the Treasurer, in conjunction with the Sheriff, required that a Tax Clearance Form be (a) completed by the party requesting the sale, (b) stamped by the Treasurer’s Office and (c) then submitted to the Sheriff’s Office with the written bid. I’ve seen other counties utilizing forms like this. I suspect any such forms will be amended to include a statement about sewer fee liens. Please remember to confer with the particular county sheriff’s office in advance because rules and procedures may vary by county.
Build into judgment. Since I.C. § 32-29-7-8.5 will require sewer fee liens to be satisfied before the sale, the amount of any such lien that either has been or will be paid by the lender should be an item of damages identified in the judgment. Before the statutory change, borrowers theoretically could attack that damage figure as being speculative. Some borrowers claimed that, because the lender had not actually incurred the loss at the time of the entry of judgment, courts could not award the damages. Hypothetically, the borrower might later pay the fees or a third-party buyer might pay them Now, because the foreclosing lender is compelled to advance payment of the sewer fee liens, courts in turn should be compelled to include such losses in the calculation of damages.
Sewer connection penalties? On 8/1/12, I wrote about liens arising out of sewer connection penalties, which are similar to sewer fee liens. The 2013 amendment to Ind. Code Sec. 32-29-7-8.5 does not appear to require connection liens to be paid before the sheriff’s sale.
Plan ahead. Lenders and their foreclosure counsel should make it their routine practice, when calculating the debt, to verify with the county treasurer the status of both the real estate taxes and sewer fee liens. Indeed a sewer fee lien should be identified in a title commitment. As a practical matter, these liens will be a component of the amount owed by the borrower (and guarantor).
Last year, the Indiana General Assembly amended Ind. Code 32-29-8-3. For more, please read my 3-29-12 post. But the Court of Appeals' 2011 opinion in CitiMortgage v. Barabas and 2012 statutory amendment left open the question of whether Indiana had a limited post-sheriff's sale right of redemption.
When the Indiana Supreme Court issued its 2012 opinion on transfer in the CitiMortgage v. Barabas case, the Justices answered some important questions about Indiana mortgage law, including the role of MERS, but as I wrote on 10-12-12 the post-sale redemption question was not one of them. Some confusion remained. (Note: federal tax liens give the IRS a post-sale right of redemption, which is the only such right of which I'm aware in Indiana.)
In this year's session, the General Assembly in Senate Bill 279 finally axed the statutory language that purported to grant a one-year post-sale right of redemption to certain parties. Ind. Code 32-29-8-3 has been amended, effective July 1, 2013, as follows:
Sec. 3. A person who:
(1) purchases a mortgaged premises or any part of a mortgaged premises under the court's judgment or decree at a judicial sale or who claims title to the mortgaged premises under the judgment or decree; and
(2) buys the mortgaged premises or any part of the mortgaged premises without actual notice of
(A) an assignment that is not of record; or
(B) the transfer of a note, the holder of which is not a party to the action;
holds the premises free and discharged of the lien. However, any assignee or transferee may redeem the premises, like any other creditor, during the period of one (1) year after the sale or during another period ordered by the court in an action brought under section 4 of this chapter, but not exceeding ninety (90) days after the date of the court's decree in the action.
For parties involved in Indiana foreclosure actions, the bottom line is this: a foreclosure sale cuts off a the right of redemption. Parties can redeem right up to the sheriff's sale, but the game ends there. End of discussion.
Today's Wall Street Journal contains an interesting opinion that "housing prices stabilize when lenders can enforce contracts" (in other words, foreclose). Click here for the piece. Although the article focuses upon residential real estate, its theme and theory apply with equal vigor to commercial properties. As you read the opinion, you should remain mindful that Indiana is one of the country's 23 judicial foreclosure states. Click here for a prior post about what that means. The nature of Indiana foreclosure law rests, in part, upon the notion that Indiana follows the "lien theory" of mortgages.
With the Thanksgiving holiday, the press of my day job and a trip to Georgia last week for my dad's 70th birthday, I have been unable to post anything of late. I apologize.
After over 300 posts and 6+ years of purely business-related features, I thought I'd take a moment to post something personal and recognize my dad, pictured below on the left, who turned 70 in October. Dad is a retired attorney from Washington, Indiana, where I grew up, and is very dear to me. My little brother Matt, pictured on the right - with me in between - had the privilege of playing Augusta National this past Wednesday. Matt, who works in the golf industry in Atlanta, was able to get us on the course through his contact, Danny Yates, pictured in the center.
For those who may be a fans of The Masters, you'll recognize #12 green in the background, as we stand on Hogan Bridge over Rae's Creek. My dad, a life-long average golfer at best, birdied this hole. Needless to say, it was a special day. Kudos to Matt and Mr. Yates for making this dream come true.
Happy holidays, and thanks to all who read my blog. Back to work next week.....
I recently worked with reporter Jenny Montgomery in connection with her piece in the April 27th edition of the Indiana Lawyer. Here is a link to the story, which quotes me: 2 Cases Prompt New Real Estate Law. Ms. Montgomery tackled complicated topics in a relatively short space, and in my view she helped make the "big picture" understandable.
As a reminder, for a more in-depth assessment of the statutory amendments and how they might affect secured lenders and other parties involved in the foreclosure of commercial mortgage loans, please click on one or more of my four recent posts on the issues: Abandonment, Redemption, Strict Foreclosure, Citimortgage Transfer.
Indiana Legislation, 2012: Part 3 Of 3 – Sheriff’s Sale Buyers And Omitted Junior Lien Holders Impacted By Creation Of Strict Foreclosure Statute
Senate Bill 298, which amends Ind. Code § 32-29-8, creates a new section: 4. The legislation responds to the Indiana Supreme Court’s opinion in Citizens State Bank of New Castle v. Countrywide Home Loans, Inc. and the Court of Appeals’ holding in Deutche Bank v. Mark Dill Plumbing. The amendments hit on technical subjects related to Indiana’s strict foreclosure remedy and doctrine of merger. The practical effect is a solution to problems associated with junior liens missed during the foreclosure process.
Citizens and Deutche revised. These are dense topics tough to cover in a single post. For background, please read my 10-07-11 and 07-20-09 posts on Citizens and Deutche, respectively. In Citizens, the Supreme Court applied the doctrine of merger and permitted the omitted junior lien holder to leap frog into a senior priority position. In Deutche, the Court of Appeals concluded there was no merger (leap frog) and discussed remedies for the post-sale title defect. With the new Section 4, it appears that the Citizens merger (and leap frog) would not have occurred. The result in Deutche also would have been different because courts now have a statutory road map for dealing with the aftermath of a foreclosure suit that improperly excluded a junior lien holder.
Section 4. The new statute appears to be effective immediately and can be found at this link: Section 4. Here are the highlights as I read them:
A. Applicable parties: Section 4 applies to two groups, defined as “interested persons” and “omitted parties.” An “interested person,” which I’ll label a “Buyer,” basically includes (1) plaintiff mortgagees, (2) purchasers at a sheriff’s sale or (3) assignees of (1) or (2). An “omitted party,” which I’ll call a “Junior Lienor,” essentially is a junior lien holder improperly omitted from foreclosure proceedings .
B. New cause of action: “At any time” after the entry of a foreclosure judgment, either the Buyer or the Junior Lienor can file an action, the purposes of which are (1) to determine the extent of a Junior Lienor’s lien and (2) to terminate such lien on the mortgaged property sold at a sheriff’s sale. Generally, the action – a lawsuit – is a statutory strict foreclosure case, though the statute does not use that terminology.
C. Junior Lienor’s right to payment: If a Junior Lienor had a right to receive any proceeds from the sheriff’s sale, its lien cannot be terminated until the Junior Lienor is paid for such losses. (The statute does not spell out who must pay. For now, I’ll simply note that sheriff’s sale surpluses are incredibly rare due to the absence of equity in most foreclosed-upon real estate.)
D. Junior Lienor’s right to purchase: There are three key factors a court must consider when determining a Junior Lienor’s right of redemption in the strict foreclosure action. (The “redemption” language used in Section 4 refers to a Junior Lienor’s right to pay off the Buyer and thus acquire title to the property.) Here are the factors: (1) whether the Junior Lienor had actual knowledge of the foreclosure proceedings and an opportunity to intervene, (2) the value of any post-sale improvements made by the Buyer to the property and (3) the amount of the post-sale taxes and interest paid by the Buyer. Factor (1) seems to provide a basis for the right of redemption to be terminated outright, and factors (2) and (3) help make the Buyer whole for any ownership-related carrying costs incurred.
E. Junior lien terminated: If the court concludes the Junior Lienor was entitled to redeem, then the amount the Junior Lienor must pay for redemption cannot be less than the sheriff’s sale price plus statutory interest (8%). (The court also must consider the factors in (D) when determining the amount the Junior Lienor must pay.) The Junior Lienor has ninety days to submit the payoff. If the Junior Lienor does not submit such payment, then the Junior Lienor’s rights will be terminated without compensation, just as they would have been in the foreclosure process.
F. Anti-merger statute: Section 4 specifically provides that there is no merger of the senior lien and title to the property until a Junior Lienor’s interest is terminated. This new legislation appears to resolve many uncertainties surrounding Indiana’s common law doctrine of merger. Thus the Buyer, which presumes that it’s acquiring title free and clear, has protections it did not previously have.
G. Other Buyer safeguards: Section 4 also states that the Buyer’s senior interest in the property cannot be denied even if the Buyer had (1) had actual or constructive notice of the Junior Lienor’s interest, (2) been negligent in examining county title records, (3) been engaged in the business of lending or (4) obtained a title insurance policy commitment. This language constitutes a preemptive strike against any defenses to the strict foreclosure action, and without these carve outs Section 4 would be meaningless.
I’m planning a follow-up post to identify some holes in SB 298. For today, it’s important for secured lenders and other lien holders to know that Indiana now has a statutory method to clear up title when a buyer learns that a junior lien survived a sheriff’s sale. While Section 4 is not perfect, I agree with my partner Tom Dinwiddie that this was a necessary and fair bill that protects both buyers and junior lien holders.
The second noteworthy issue arising out of the General Assembly’s 2012 session surrounds Senate Bill 298, which amends Indiana Code § 32-29-8 “Parties to Foreclosure Suit; Redemption,” including Section 3. This post revisits CitiMortgage v. Barabas, including the mystery that is I.C. § 32-29-8-3, about which I wrote last year: Post 1, Post 2 and Post 3. Unfortunately, even though the legislature amended Section 3, the 2012 session didn’t directly tackle Section 3’s obscure redemption provision. Questions arising out of CitiMorgage linger.
New Section 3. Here is Section 3 of I.C. § 32-29-8, as amended by the italicized language, effective July 1, 2012:
A person who:
(1) purchases a mortgaged premises or any part of a mortgaged premises under the court’s judgment or decree at a judicial sale or who claims title to the mortgaged premises under the judgment or decree; and
(2) buys the mortgaged premises or any part of the mortgaged premises without actual notice of:
(A) an assignment that is not of record; or
(B) the transfer of a note, the holder of which is not a party to the action;
holds the premises free and discharged of the lien. However, any assignee or transferee may redeem the premises, like any other creditor, during the period of one (1) year after the sale or during another period ordered by the court in an action brought under section 4 of this chapter, but not exceeding ninety (90) days after the date of the court’s decree in the action.
Redemption/strict foreclosure tweak. The underlined portion above is the source of some uncertainty and was not modified by the General Assembly this year. The critical purpose of the amendment to I.C. § 32-29-8 surrounds section 4 and what amounts to a brand new statutory strict foreclosure action. I.C. § 32-29-7-13 has been amended to state “there may not be a redemption from the foreclosure of a mortgage executed after June 30, 1931, on real estate except as provided in this chapter and in IC 32-29-8.” The new “and in IC 32-29-8” language refers to Section 4, which is momentous legislation related to Indiana mortgage foreclosure law that I will discuss in my next post.
Status. One interpretation of Section 3 and CitiMortgage, which dealt with a rare set of facts, is that a buyer at a sheriff’s sale could acquire the property, only to learn within a year after the sale that a senior mortgagee, by virtue of a previously-unrecorded assignment, could surface and assert an interest in the property. I do not believe that the 2012 statutory amendments directly impact, or help clarify, the CitiMortgage holding. Even with the new Section 4, I.C. § 32-29-8, Section 3, needs a little more attention from the General Assembly. I’m afraid Section 3 unwittingly opens the door to litigation concerning post-sale rights of redemption in Indiana. (Note: On 4-10-12, the Supreme Court granted transfer in CitiMortgage.)
Borrowers unaffected. The General Assembly’s amendments do not (should not) affect a mortgagor’s (owner’s) right of redemption. Such parties still need to redeem before the sheriff’s sale. If not, Indiana law provides that a mortgagor’s right to or interest in the subject real estate will be fully and finally terminated – even though, interestingly, there is no specific statute stating as much. The rule is inferred from the totality of I.C. § 32-29-7 and confirmed by case law.
The Indiana General Assembly’s 2012 session addressed three noteworthy issues related to Indiana Commercial Foreclosure Law. Today’s post is about House Bill 1238 and its amendment to Indiana Code § 32-29-7-3.
Three-month waiting period. Indiana has a post-complaint, three-month waiting period before sheriff’s sales can be requested. My July 30, 2010 post noted the exception to the three-month rule, which exception did not at the time apply to commercial properties – only residential.
The new I.C. § 32-29-7-3(a)(2). The amended statute, which becomes effective July 1, 2012, revises the exception to the three-month rule to read: “If the Court finds under I.C. 32-30-10.6 that the mortgaged real estate has been abandoned, a judgment or decree of sale may be executed on the date the judgment of foreclosure or decree of sale is entered, regardless of the date the mortgage is executed.” The new statute deletes the “residential” qualification and thus applies to commercial foreclosures now too. Moreover, the statute incorporates a brand new statute – I.C. § 32-30-10.6 – that creates a test and a procedure to determine whether the real estate has been abandoned.
I.C. § 32-30-10.6. This brand new statute is entitled “Determination of Abandonment for Property Subject to a Mortgage Foreclosure Action” and is quite lengthy. If foreclosing lenders or their counsel believe the subject real estate may be abandoned, then this new statute should be studied and followed, assuming there is interest in rushing to a sheriff’s sale. My partner Tom Dinwiddie, who helped draft the legislation, pointed out to me that, in practice, a Section 10.6 motion should be filed with the Complaint or, at the latest, with the Motion for Default Judgment in order to take advantage of the exception to the three-month rule.
Commercial application. As noted by one of my 2006 posts, Indiana’s judicial foreclosure process takes time. In my experience, the three-month waiting period rarely comes into play in commercial actions. Nevertheless, in instances where the commercial property is abandoned, this new legislation establishes a process that, in theory, permits lenders to get the property to a sheriff’s sale faster.
On October 19th, Forbes contributor Peter J. Reilly wrote a column about the potential hardships on Indiana property owners under the State's delinquent real estate tax redemption scheme. He titled his piece How To Sell Your Home To A Stranger For A Fraction Of Its Value. The September 28th Indiana Court of Appeals opinion in M Jewell, LLC v. Powell formed the basis of Mr. Reilly's column. Here is his conclusion:
I find that when I talk to a lot of people about different issues, many of them will reflexively indicate that either government or greedy business is the problem, depending on their ideological perspective. Other times people will trumpet the virtues of public/private partnerships. The collection of real estate taxes by auctioning off liens and tax deeds appears to have the potential of being a toxic mixture of the worst aspects of government and business. Clearly it helps local governments keep overhead down, which is a good thing, but at least in Indiana, it appears that there needs to be some greater protection for hapless homeowners.
Jewell is an interesting and educational case for mortgagees, mortgagors, tax sale purchasers and real estate lawyers. For more background on the law and related issues regarding Indiana tax sales, and how they affect secured lenders, please review my two posts on the subject from last November.
USA Today has a telling piece regarding short sales on line: Short sales, long waits: Buyers and sellers find process frustrating. The article focuses on the residential side, but does provide some insight into the process as it might apply to commercial transactions. The main difference I see is the role that mortgage insurance evidently plays in a consumer short sale.
I'll be speaking briefly about short sales at an Indianapolis continuing legal education seminar on October 10, 2011. Here's a link to the program. I touched upon short sales, in the UCC context, on December 7, 2010.
A July 7th article from Bloomberg Businessweek concluded that the Indiana Toll Road, which had been "held up as an example of public-private partnerships, shows no signs of breaking even for its conglomerate." LINK. Given the political backrop, it's hard to imagine that it would ever come to this - but the article suggests the possibility of a foreclosure action involving the project:
The private investors haven’t made out so well. Had the road been profitable, they stood to make millions per year over the life of the 75-year project. As it is, they have not been able to get past the debt they incurred winning the bid. They have met their annual debt payments only by borrowing money and may default before loans mature in 2015, according to disclosure documents from Macquarie Atlas Roads, one of the investors. The project’s 2010 prospectus said that revenue from the highway is “expected to remain insufficient to cover debt service obligations over the medium term.” The document cautions that “any default under the loan documents may lead to lender actions which may include foreclosure of the project assets or bankruptcy.”
The "project assets" upon which the lenders would foreclose are not detailed in the article. From what little I know about the deal, the lenders would not be able to repossess (own, via a sheriff's sale) the interstate itself because the State of Indiana maintains ownership of the roadway. The investors' (borrowers') rights to the Toll Road arise out of a long-term lease arrangement.
If and when additional details unfold about the project's problems and/or the lenders' remedies upon default, I'll post the information here. It could be a very interesting and unique case, particularly from a secured lender's perspective, if the matter were ever litigated.
I was on vacation last week and have been catching up this week. I hope that next week I'm able to post about the Indiana Supreme Court's recent opinion in Gibraltar Financial, which opinion reversed the Court of Appeals decision about which I discussed this past February.
Meanwhile, I thought I'd provide links to two pretty good websites that regularly supply foreclosure news. Most foreclosure news relates directly to residential issues, but both of these sites deal at times (and in places) with commercial matters:
The Topix site is what regularly feeds the news on the right side of my home page.
IBJ.com's Cory Schouten writes real estate blog Property Lines, which is a cool little site that provides local news and insight into the Indianapolis real estate market, with an emphasis on commercial matters. Shouten's blog also is permanently linked along the right side of my home page.
Thanks for reading, and please never hesitate to email me or post comments about Indiana commercial foreclosure issues. I love this stuff.
Following-up my April 26th post regarding pending Indiana legislation, here is a listing of banking/foreclosure-related laws that were enacted in the 2011 session of the General Assembly:
- SB582 - Settlement conferences in residential foreclosures: Digest and Enrolled Act
- SB155 - Tax liens: Digest and Enrolled Act
- SB59 - Credit agreements: Digest and Enrolled Act
- HB1321 - Secured transactions: Digest and Enrolled Act
HB1244 (Payment plan to remove property from tax sale) and HB1024 (Notice of foreclosure to property insurers) were not enacted.
IBJ.com's Tom Harton wrote a piece entitled "New laws affect commercial property owners" on May 17th, and here's a link to that article: IBJ.com.
It does not appear that anything terribly significant occurred in this year's session. If you feel differently, please post a comment or send me an email.
Today's Indianapolis Star reports on a $13.3MM commercial foreclosure action filed by PNC in which Assistant Commerce Secretary John R. Fernandez is a defendant. Click here for the story.
The Indiana General Assembly is in session, and there are a handful of bills related to foreclosures and real estate. The links below provide some of the details:
Tom Harton, of IBJ.com, has an informative piece today entitled Real estate-related bills still alive in Legislature.
As always, the Indiana Bankers Association provides great links/summaries of various banking-related bills through capwiz.com. There appear to be six bills that could have varying degrees of impact on the Indiana foreclosure and loan enforcement process. The links below not only summarize the bills but also take you to the actual, proposed legislative changes:
- SB582 Settlement conferences in residential foreclosures.
- SB155 Tax liens.
- SB59 Credit agreements.
- HB1321 Secured transactions.
- HB1244 Payment plan to remove property from tax sale.
- HB1024 Notice of foreclosure to property insurers.
My TTD (things to do) list includes a follow-up post about which bills passed this year. More to come....
5-19-11: The bill links no longer work. See my May 19th post for updated links and what was enacted.
Estridge Group has fallen victim to the real estate-centered recession. Here are links to recent stories in the Indianapolis Business Journal and The Indianapolis Star:
My experience in representing the largest secured creditor in the Hansen & Horn situation suggests to me that one or more foreclosure cases may be right around the corner. But, I could be wrong. I don’t have any first-hand knowledge of the nature and extent of Estridge’s loans or collateral.
From a commercial foreclosure/creditor’s rights perspective, I thought this quote by Mr. Estridge was particularly interesting:
'I continued making interest payments on all the land we owned at a level of $400,000 a month for three or four years,'Estridge said. 'That depleted all of our capital. I should have just given the land back to the bank. As I look back, there’s the tactical versus the moral and the ethical.'
Again, I'm not familiar with the case, but in basic terms the quote implies the possibility that Mr. Estridge may have been presented with the choice between a deed-in-lieu of foreclosure and a loan extension/modification. Experience has taught me that some borrowers simply don’t want to give up (or settle) when perhaps they should….
As mentioned in my September 30 post, there is a residential/consumer foreclosure process-related controversy developing that has caught fire with politicians and the media. The Indianapolis Star reports today that the State of Indiana will be looking into the issues. Here's the story.
While the problems with affidavit preparation, if true, certainly do not reflect well on the residential mortgage industry, in the end one of the key issues will be whether the facts in those affidavits were true and accurate. I could be wrong, but none of the media reports (that I've seen, at least) claim that the court-filed affidavits were false. In other words, the underlying documents and facts still may have supported the loan default and/or the damages claimed. We'll have to see how that matter unfolds in these governmental probes.
Yesterday's MarketWatch.com had an article concerning "the growing controversy about so-called 'robo-signers' in the foreclosure process, during which staffers sign thousands of mortgage-related documents a month." Here's a link to the story: "Robo-signer" controversy spreads .
One lesson here for secured lenders and their lawyers is to follow the rules of procedure and ensure, among other things, that those who sign affidavits in support of motions for summary judgment have the requisite personal knowledge of the facts and/or that they have reviewed and, as needed, attached records of regularly-conducted business activities in support of the facts. See, Indiana Rules of Evidence 602 and 803(6).
From yesterday's online Wall Street Journal: Since WaMu fell, 279 lenders have collapsed; lost jobs, curtailed lending and the big get bigger.
From today's Indianapolis Star, an article about how tight the lending environment still is:
Developers buying and rehabbing properties with those federal dollars, called the Neighborhood Stabilization Program, face the same conundrum in dozens of projects across Indianapolis. They're struggling to secure the funds to supplement NSP, which typically covers the price of buying a property and a sliver of its renovations.
Last November, I wrote that, in Indiana, appraisals are important, but not required, in foreclosures. At the end of my post, I kidded that, knowing the present value of loan collateral, particularly real estate, may not be possible given current market conditions. In today's IBJ.com, Tom Harton has a nice article entitled "Appraisers Have Little To Go On In Tough Deal Market," which supports the notion that there may be an absence of reliable data that, in turn, can make an appraiser's job difficult these days. Secured lenders should remain mindful of this problem as they decide what to do with their distressed loans collateralized by commercial real estate.
The Indianapolis Star has an article today entitled "Area Hotels Facing Foreclosure Hit By Downturn, Bad Reviews":
The economic downturn of the past three years has dealt harshly with many hotels, lowering their occupancies, forcing constant cost-cutting, and making foreclosures and bank takeovers common.
Not surprisingly, hotels are yet another industry that has been hit with commercial foreclosure actions of late.
Unlike last year, Indiana's General Assembly was relatively inactive with regard to debating and enacting mortgage foreclosure-related laws. It's my understanding that the only bill with any real significance that passed was HB 1122 - Abatement of Vacant or Abandoned Structures. Here's a .pdf of the House Enrolled Act, signed by Governor Daniels on 3-17-10, that will be effective 7-1-10: House Enrolled Act No. 1122.
The legislation, which amends Ind. Code Sections 24-5.5-1-1, 32-29-7-3 and 36-7-9-12, deals mainly with residential/consumer matters. For more detail, the Indiana Bankers Association provides a nice Bill Summary for your review. The one development that appears to have some potential impact on commercial matters involves a governmental enforcement authority's ability to praecipe for a sheriff's sale if a judgment creditor has not done so for 180 days after the entry of judgment. In such a case, the sheriff must then conduct a foreclosure sale within 120 days of the date of the praecipe.
The primary purpose of this legislation was to combat problems associated with vacant or abandoned houses. Although technically the rules appear to apply to non-residential cases, given the law's design, coupled with a commercial lender's inherent desire to push foreclosures to sale, as a practical matter the legislation should rarely if ever impact commercial foreclosures. Please email or post a comment if you have a different take on the new law, thanks.
Here's an article of some interest from today's on-line Wall Street Journal: some Friday reading . My follow-up post on the Wells Fargo case should be up early next week.
Today's Washington Post discusses the potential for more commercial foreclosures in 2010: click here. Although the article mainly is about D.C., the overall story is a national one:
Unlike residential mortgages, which often can be paid over 30 years, commercial real estate mortgages typically must be paid off or refinanced within five years. Commercial properties mortgaged in 2005, 2006 and 2007, at the height of the boom, are reaching their maturity date. "Do the math on this," Warren said. "This is a significant problem."
Here is a recent news article regarding defaults on commercial real estate loans and their possible role in a looming economic crisis: click here for the 2-11-10 story.
Today's Indianapolis Star has a story about how the mortgagee for the local Keystone Towers complex is auctioning off its defaulted-upon loan as opposed to pursuing a foreclosure suit. Click here for the article. A lender's sale of a distressed loan (the assignment of the loan documents for a price) is not unusual, but doing so via an on-line auction is. If you have experience or insight into this process, please email me or post a comment. I'd like to learn a little more about the transaction, thanks.
WASHINGTON (AP) — Banks must accurately identify their potential losses when modifying troubled commercial real estate loans under federal guidelines issued Friday.
Time.com has this article that begins as follows:
The commercial real estate market seems headed for trouble, the next potential victim of the speculative frenzy that has already devastated the residential housing market. That prospect apparently hasn't scared investors. Shares of real estate investment trusts (REITs, which buy and manage buildings and mortgages) have been on a tear for the past seven months, almost doubling in value on average. REITs now trade at a double-digit premium to the value of their underlying properties.
The story ends with this quote: "The vultures are circling, waiting for commercial real estate corpses."
The Indianapolis Business Journal has a piece from Friday dealing with the current commercial real estate/foreclosure environment. Click here for the article.
A thorough report from today's msnbc.com explores the status of the commercial real estate development market and its impact on lenders. Click on the story: Developers face huge crunch as downturn hits office buildings, malls, hotels.
An AP-MSNBC story from yesterday suggests that "the most prominent area of risk for banks" is commercial real estate. Click here for the article.
Today's Indianapolis Star is reporting:
Salin Bank charges that the owners of the former Davis Homes committed fraud by taking money and other assets from their Indianapolis homebuilding company after it sank into insolvency last year.
Click here for the story. I haven't read the Complaint, but this appears to be a fraudulent transfer case. I have four prior posts, which touch upon these issues, if you're interested in learning a little more about the legal issues.
From yesterday's Wall Street Journal:
Federal Reserve and Treasury officials are scrambling to prevent the commercial-real-estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat. Their efforts could be undermined by a surge in foreclosures of commercial property carrying mortgages that were packaged and sold by Wall Street as bonds. Similar mortgage-backed securities created out of home loans played a big role in undoing that sector and triggering the global economic recession. Now the $700 billion of commercial-mortgage-backed securities outstanding are being tested for the first time by a massive downturn, and the outcome so far hasn't been pretty.
According to today's story, the commercial real estate downturn is deepening and may severely affect some smaller banks. For the entire piece, click here.
It's been over a year since I posted about the demise of local real estate developer Chris White. Since then, Mr. White has filed a Chapter 7 bankrupcty case, and this week he's on trial for check kiting. The alleged victim is locally-owned National Bank of Indianapolis. Click here for a link to today's story in The Indianapolis Star, and click here for the article from the IBJ.
The Washington Post has an article today debunking the notion that it's better for lenders to modify distressed loans than to foreclose: Numbers Work Against Governmental Efforts To Help Homeowners. I'm not sure I agree, but the detailed story provides some interesting insights. Even though the article focuses on residential/consumer cases, the principles and analysis have at least some application to the commercial arena.
"Owners of shopping malls, hotels and offices are defaulting on their loans at an alarming rate, and the commercial real estate market is not expected to hit bottom for three more years, industry experts warned Thursday." Click here for the rest of the article dated July 9.
The June edition of Hoosier Banker, published by the Indiana Bankers Association, has a really good article entitled "Wrap-up of 2009 Legislative Session" written by Amber Van Til, VP-Governmental Relations, and Dax Denton, AVP-Governmental Relations. In the article, they address the Indiana General Assembly's 2009 banking-related bills, and Indiana's passage of three bills dealing with depositories. Despite all the recent negative publicity involving lenders and several legislators' efforts to pass multiple mortgage and foreclosure-related bills in 2009 (click for example), only one bill passed that directly affects mortgage foreclosures, Senate Bill 492: click here for a digest of the bill and click here for a .pdf of the enacted statutory changes.
SB 492 will be effective June 30, 2009. The legislation is not unlike the mediation-related procedural rules recently adopted by the Marion County (Indianapolis) court system, about which I wrote on March 15, 2009. SB 492 creates the opportunity for non-binding settlement conferences between lenders and borrowers, and various notices must be sent and filed before the lender can proceed with the foreclosure suit. Significant to the primary readers of this site, lenders/plaintiffs are not required to send the notices mandated by the bill if "the loan is secured by a dwelling that is not the debtor's primary residence...." In other words, like the Marion County scheme, commercial foreclosures are excluded from the new statute.
Candidly, I'm not entirely clear at this time the full extent of the similarities and differences between the new Marion County procedural rules and the state-wide legislation. For now, lawyers and parties involved in Marion County residential foreclosures, filed after June 30th, should study and remain mindful of the new rules/laws from both governing bodies. If anyone reading this can shed light on the matter for us, please comment here or email me, thanks.
I was out last week with the family and will post on a recent Indiana commercial foreclosure case shortly. In the meantime, though a bit off topic, I thought my readers might find this story from MSNBC interesting: Strapped Owners Behind On Association Dues Face Losing Their Homes. Incidentally, it's my understanding that, in Indiana, a lien generated out of delinquent HOA dues generally will be subordinate to a mortgage lien.