Definitive Commercial Real Estate Appraisals A Challenge Of Late

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, 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.    

IndyStar: Central Indiana Hotel Foreclosures

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. 

2010 Indiana State Foreclosure-Related Legislation: HB 1122

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. 

Washington Post: More Evidence That Commercial Real Estate Headed For Foreclosure Crisis

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."

IndyStar - On the block: Mortgage for Keystone Towers

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.

Time: REITs and Commercial Real Estate's Victims 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."

IndyStar: Salin Bank Suing Former Owner Of Davis Homes

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. 

WSJ: Commercial Real Estate Lurks As Next Potential Mortgage Crisis

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.

Click here for the rest of the article.

White Goes On Trial In Fraud Case

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.

Guilty:  Star - IBJ.

Washington Post: (Residential) Foreclosures May Be In Lender's Best Interests

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.  

2009 Indiana State Legislation - One Foreclosure Bill

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.    

Homeowner's Associations, Like Lenders, Can Foreclose Too

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.  

As Predicted, Cleveland Suit Over Foreclosures Dismissed

On January 11, 2008, I wrote about the City of Cleveland's lawsuit against several residential lenders, and I suggested that the case would not survive a pre-trial motion to dismiss.  It appears from this media report that the "public nuisance" civil case was dismissed on Friday, although the City is appealing the trial court's decision. 

Indy Star: Subdivision Foreclosures

The Indianapolis Star has a couple stories today that touch upon commercial foreclosure issues arising out of the demise of residential builders and developers.  These cases do not involve loan defaults by homeowners.  Rather, they deal with loans to the subdivision developers and the builders secured by the real estate they develop.  Here are the links:

Vacant lots fill subdivisions as builders go bust

Subdivision is stopped short

As noted, these cases are challenging for all involved and affect many parties and entities.  The second link deals with a Gunstra condo development.  I know from experience - serving as counsel for a receiver in a similar case - that the developer's default triggers a variety of problems for, not only the developers and the lenders, but the homeowners and even the municipalities.

One of the many difficulties in getting these cases worked out is the considerable lack of demand for new houses or condos, as well as the inability to determine the value (if any) of the ground - the loan collateral.  From what I'm hearing, nobody really knows what these subdivisions are worth in today's market, and nobody really knows when the market will turn around.  Traditional lenders can't wait indefinitely, and they ultimately must foreclose in order to collect something on their loans.   

Time and WSJ - "Commercial Real Estate: The Banks' Next Big Problem"

Here's a link to a story on Time magazine's on line site from yesterday:  Commercial Real Estate: The Banks' Next Big Problem.  Not long ago, most commercial lenders were telling me that default rates were under 1%.  As many of you know, things have changed dramatically, and quickly.  

3-27-09 Update - Here's a similar report from The Wall Street Journal:  Commercial Property Faces Crisis.

MSNBC: Potential Foreclosure Tactic

MSNBC picked up an AP story on February 17th - New Foreclosure Defense:  Prove I Owe You, which is similar my 2007 post From The New York Times: "Foreclosures Hit A Snag For Lenders".  The issue surrounds borrowers' challenges to the evidence, or lack thereof, submitted by lenders in support of their residential foreclosure cases. 

In commercial suits, the documentation hurdle addressed in the MSNBC article should rarely be an issue, but there can be lessons learned from the story.  As mentioned in my post The Commercial Lender's 8-Item Care Package For Its Foreclosure Attorney, all loan documents must be provided to counsel for submission to court:

   Loan documents.  Each and every piece of paper documenting the loan needs to be forwarded.  This would include all promissory notes, mortgages, security agreements, amendments, modifications, assignments, etc.  Not only will the law firm need these materials to analyze the case, but Indiana Trial Rule 9.2(A) requires written instruments, upon which a cause of action is based, to be filed as exhibits to the Complaint.

The MSNBC story seems to suggest that plaintiff/lenders need the original loan documents to proceed with foreclosure.  That's not my experience, but the MSNBC piece doesn't dig too deep into the legal technicalities or provide examples of the court filings being utilized by borrowers in these cases.  It's my understanding that true and accurate copies of loan documents will suffice.  See, Indiana Evidence Rule 1003, which generally permits duplicate documents in lieu of originals.  Also, Trial Rule 9.2(A), noted above, points out when copies are allowed. 

If you're familiar with the details of the strategies identified in the MSNBC article, please give me a call or email.  I'd be interested in learning about the techniques.  If I'm able to uncover more about the issue, I'll supplement this post.  Thanks to my colleague Jamie Young for steering me to the story.

IBJ: Indiana Foreclosure Bill "Stirring Controversy"

Chip Cutter of IBJ's "Real Estate Weekly" writes today:

Real estate industry interests are concerned about a bill making its way through the Indiana General Assembly that would give tenants of residential and commercial property the right to terminate their leases without penalty if a property goes into foreclosure.

The two bills referenced in the IBJ article Foreclosure Bill Stirring Controversy are Senate Bill 225, the source of much consternation for lenders and commercial real estate developers, and House Bill 1081, which may have less of an impact on the industry.  We'll see what happens....    

Next Up For A Bailout - Real Estate Developers?

The Wall Street Journal and Reuters, among others, are reporting today that the commercial real estate industry is angling for governmental assistance.  Here are the links:

WSJ:  Developers Ask U.S. for Bailout as Massive Debt Looms

Reuters:  Commercial property industry seeks bailout aid 

Certain sources forecast the potential for a high volume of foreclosures over the next couple years as commercial real estate loans mature.  But, is a bailout warranted ... or even workable?  I'm scratching my head. 

I'll keep an eye out for further news stories and commentary on this developing situation.  

The Wall Street Journal On Premier/Chris White and Mezzanine Lending

Over the course of this year, I've been posting about the demise of Premier Properties and its owner Christopher White.  Click here for post and links to all the prior media reports.

Today, The Indianapolis Star, courtesy of a report by The Wall Street Journal, has an insightful article entitled "Premier's Collapse Ruffles Lender."  The piece focuses on the Premier/White saga from the perspective of mezzanine lender Dominion Capital. 

As some of you know, borrowers such as White's real estate development company use mezzanine loans to secure supplementary financing for projects, which financing may be required by the primary construction mortgage lender.  Mezz loans often are collateralized by the stock in the development company rather than the developed property itself.  They're borderline unsecured loans and thus have high interest rates (20+%).  It's my understanding that mezz lenders like Dominion are feeling the pain from the current credit crisis.  The WSJ article supports this.     

IBJ: No Word On Payton Wells Buyer

The Indianapolis Business Journal continues to keep tabs on the status of the Payton Wells foreclosure case:  No word yet on buyer for Payton Wells property

I posted about this matter on January 28, 2007, Payton Wells Auto Dealerships Are The Subject Of A Commercial Foreclosure Action, and again on February 27, 2007, Payton Wells Update:  Status Quo

One thing secured lenders can learn from this case is how long the commercial foreclosure and liquidation process can take in Indiana.  Soon, it will be two years in the Wells matter.  


IBJ Article On Charter Homes-Related Mortgage Scheme

Cory Schouten's 10-18-08 in-depth account of foreclosures upon twenty Charter Homes properties is worth the read, especially if you're interested in residential mortgage-related fraud.  Here is a link to the IBJ report:  Mortgage Scheme Unravels.  A client of ours, an electrical contractor, is one of many firms that have been harmed by this case. 

Marion County (Indianapolis), Indiana Tax Sales

Today's Indianapolis Star has an interesting article about Marion County's annual tax sale, which was held yesterday:  It's A Land Rush -- In Indianapolis.  FYI - tax sales are held once a year by the County Treasurer; foreclosure sales are held once a month by the County Sheriff.  If you would like to learn more about Indiana sheriff's sales, including those in Marion County, please click on my 4-14-08 post, Indiana Sheriff's Sales - Local Rules, Customs and Practices Control.     

Indiana's Democratic Gubernatorial Candidate Long Thompson Proposes Questionable Foreclosure Plan

This is not a political blog, and I generally do not write about residential or consumer issues.  From time to time, however, there is political news targeted mainly to the consumer that I feel may be of interest to secured lenders who deal with business debts.  Today's Indianapolis Star article "Long Thompson Offers Plan To Reduce Foreclosures" is one of those news stories.

Ms. Long Thompson's proposal includes items that could adversely affect a business lender's efforts to foreclose on commercial properties in a timely and cost-effective manner.  It first bears mentioning that, as noted in last week's post, Indiana is a judicial foreclosure state.  Relatively speaking, Indiana foreclosures already involve court-based delays and litigation-related costs that cut against lenders and in favor of borrowers. 

Nevertheless, Ms. Long Thompson wants to require borrowers and lenders to mediate before the Court can enter a judgment and order a sheriff's sale.  In Indiana, mediation is a non-binding settlement conference that brings the parties and lawyers face-to-face and involves an independent intermediary.  Mediators (and Courts) can't force parties to settle, however.  Moreover, in my experience, filing a suit to foreclose usually is the lender's last resort.  Contrary to popular opinion, in the vast majority of cases, lenders don't want to foreclose.  They prefer to work something out (settle).  My point is that efforts will have been made to settle the case before the foreclosure proceedings have even begun, and indeed such efforts can continue after suit is filed.  To mandate that lenders, against their will, incur additional delays and expense to formally mediate would, in all due respect to Ms. Long Thompson, seemingly be a waste of time and money.          

The proposal also seeks to extend the grace period, from three months to four months, between when a plaintiff/lender/mortgagee files the lawsuit and when the plaintiff can request a sheriff's sale (post-judgment).  This isn't a big deal, especially in commercial cases where it's often difficult to get a judgment within that time frame anyway.  Having said that, there's plenty of time to resolve the problem, if it can be, before a borrower loses the property.  See my prior post on Basic Foreclosure Process/Timing In Indiana.  For a multitude of other reasons I won't detail here, it's highly unlikely that the additional thirty days sought by the gubernatorial candidate would bring about any reduction in home foreclosures.

Much, much more could be written about these issues, but these are my two cents for now.  I understand that home foreclosures are a problem in Indiana, and I respect the fact that Ms. Long Thompson is thinking about the issue.  At the end of the day, however, these Democratic plans simply create costs for lenders that exceed the corresponding benefits, if any, to borrowers.  

Off Topic: Appraisers' Role In The Residential Mortgage Meltdown

On August 18, the IBJ's online editor, Norm Heikens, posted on his blog the following:   

Some of the people most familiar with the mortgage foreclosure explosion in the Indianapolis area in recent years have privately pointed fingers at appraisers.

Appraisers too often were in cahoots with lenders to illegally inflate prices of houses, the insiders complained, usually off the record.

Most appraisers are honest, ethical people, of course. But now an Associated Press investigation says the system failed miserably.

What do you think? Have you seen evidence of appraisers’ inflating prices?

Click here for a link to the AP investigation, entitled "Weak Rules Cripple Appraiser Oversight," which telling and a good read even for commercial lenders.  While I completely agree that inflated appraisals contributed to the problem, I respectfully disagree with Mr. Heikens that appraisers were in cahoots with lenders.  It seems to me that there was little incentive for lenders to overvalue their loan collateral and leave themselves undersecured.  I concur with the comment posted by "Don" on Mr. Heikens' blog that independent, third-party mortgage brokers were the ones who stood to profit from the scheme. 

For example, My partner Dale Eikenberry has handled a number of mortgage fraud recovery cases, and I assisted him with one of his larger suits for an Indiana-based mortgage lender against an Indianapolis-based mortgage broker.  The theory of the case centered upon the broker's breach of its contractual representations and warranties concerning the truth and accuracy of the appraisals it ordered and supplied to the lender.  In our opinion, there was strong evidence that certain appraisers may have been in cahoots with the defendant broker to improperly inflate prices of houses.  We contended that our lender client had been damaged, to the tune of seven figures, by the bad appraisals, upon which the lender relied in underwriting about three dozen loans that never should've been made and ultimately went into default.   

Admittedly, the appraisal problem addressed in the AP investigation doesn't have much applicability to commercial mortgage loans, mainly because there really aren't independent, third-party brokers selling loans to commercial property owners or developers.  In the commercial setting, the lenders themselves (the funders of the loans) usually originate the loans and order the appraisals, not an independent third party who simply earns a commission if he or she closes the deal and suffers no harm if the customer (borrower) defaults on the loan. 

Certainly inflated appraisals can be a problem for commercial lenders, who are advised to scrutinize appraisal reports and utilize only trusted, experienced appraisers.  But, in my view, unlike the meltdown in the consumer industry, losses associated with commercial defaults really don't stem from appraisal-based fraud.  If others have had different experiences, please post a comment or email me, thanks.   

Media Reports: It's "Game Over" For Premier Properties - Is Chris White Next?

As my regular readers are aware, I've been following the fascinating story of the fall of Indianapolis-based real estate developer Premier Properties USA since the Indianapolis Business Journal first started covering it earlier this year.  Today - May 30 - as noted below is a significant day.  I will continue to update this post, and I ask you to email me links to other media reports, which I'll post here.  A friend and business associate of mine mentioned yesterday that someone should write a book about the rise and fall of Chris White's real estate empire.  I wish I had the time ... perhaps a local journalist will do it some day.

March 10:    Click here for an article about the continued financial struggles of local real estate developer Premier Properties and its owner, Chris White.  Embedded in the article are links to two prior stories regarding the matter.

Bridgewater Falls put in receivership - story from March 11.

April 7 update from IBJclick here .  Mr. White is keeping many lender workout departments and creditor's rights lawyers busy (including me, by the way). 

April 9's breaking news:  click here for latest IBJ story.

April 10 story from The Indianapolis Starclick here.

April 12 article on front page of StarLawsuits show free-spending CEO in grip of soaring debt.

April 17, post-auction to mezz lender Dominion reports:  IBJ and Star.

April 24, post-bankruptcy (Chapter 11) filing by Premier Properties:  IBJ and Star.  It does not appear Mr. White, personally, has filed for bankruptcy protection to this point.  Click - .pdf - for a copy of the April 23 bankruptcy petition in Case No. 08-04607-BHL-11.

April 25, IBJ: Emergency hearing scheduled in bankruptcy court.

April 26, IBJ:  Criminal charges possible in Premier blowup - Bankruptcy puts slew of creditors' lawsuits on hold

May 7, Star:  Judge orders "exam" of Premier books

May 12, IBJ:  Trustee to intervene in Premier bankruptcy

May 15, Star:  Colts want Premier Properties decision on stadium suite - looks like there will be another suite available for the new Lucas Oil Stadium....

May 19, IBJ:  DeBartolo to buy Premier Properties' Metropolis from Dominion Capital 

May 28, Star:  Metropolis may have a buyer.

May 29Star columnist John Ketzenberger's two cents:  Defaulted debt by Premier goes on and on.

May 30:  The fat lady is singing:  (1) StarPremier Properties throws in the towel - (2) IBJPremier Properties to be liquidated

I've heard rumors that a personal filing by Chris White is on the horizon - a Chapter 7 liquidation.  My contact's opinion is that we'll see a bankruptcy petition in two weeks.  I'll keep you posted on any such developments. 

June 2, IBJ:  Boberschmidt appointed Premier trustee.

June 11, IBJ:  Trustee working to determine Premier assets.

June 16, IBJ:  Chris White charged with three felonies.  Star:  Developer charged with check fraud, $100,00 theft.

June 18, Star:  Arrest warrant issued on June 17.

June 23, IBJ:  Authorities can't find Premier's White.  Star:  Premier Properties founder hasn't reported to jail yet .

June 26, IBJ:  White taken into custody, posts bond.  Star:  Mall developer booked on fraud charges

July 24, Star:  As noted several days ago by a reader in the Comments, the Assets of Premier Founder to be Auctioned .

Nat City Calls Loan On Frank E. Irish Co.

From today's Indianapolis Star:  Prices were pinching Frank E. Irish Co. when loan was called.

From yesterday's IBJ.comStadium contractor ends operations.

As to the credit issue, here's a telling quote: 

Irish Chief Executive Officer Patrick Dooley said the company was working to extend its line of credit with National City when the bank changed some calculations associated with the loan that eliminated the types of inventory that could be used for collateral.

It would be interesting to hear Nat City's side of the story and to learn more about the collateral calculations.  Evidently, Nat City's reps wouldn't comment.

May 22 Ketzenberger column:  Star columnist John Ketzenberger provides further insight into the Irish default and blames, in part, the subprime lending crisis:  "[Mr. Irish] won't be the last business owner to cry as the subprime lending debacle reverberates through the economy."  Click, Bank's woes put end to Irish's luck.  I'm not sure how much the lender is to blame, but it's a sad story nonetheless.

May 25 Star editor Dennis Ryerson, on the Ketzenberger column:  More to story behind the Irish Co. story.  Ryerson quotes a Nat City rep, who appears to question Ketzenberger's theory that the subprime lending crisis caused the bank to call Irish's loan. 


In other news, today's Cincinnati Enquirer is reporting that one of the city's downtown hotels - The Hyatt Regency Cincinnati - is headed for a receivership:  Lender seeking foreclosure on downtown hotel.  Midland Loan Services is the plaintiff in the suit. 

Signs Of The Times

I'm providing links to a couple news stories from today that reflect the current economic/commercial loan default climate and the continued problems arising out of the subprime lending crisis:

"Subprime Lawsuits Already Outpacing S&L Litigation" and "Sharper Image files for Chapter 11 Bankruptcy".

My follow-up post on the Bank of America case and the mortgage termination issue is coming soon.

Off Topic: Residential Lenders Continue To Take a Beating

As my regular readers are aware, this blog is not dedicated to residential mortgage or consumer lending matters, in part because those issues are not the focus of my practice.  However, my Firm represents lenders in all sorts of legal disputes, and the sub-prime mortgage crisis may have far-reaching consequences that could ultimately affect commercial lenders.  Plus, the political climate surrounding the problem is compelling, so I can't resist periodically posting news stories about the subject. 

Here are links to two national articles from today that address the City of Cleveland's "public nuisance" lawsuit against several banks:  CNN and MSNBC.  The case represents an interesting combination of politics and law.  I have not read the court filings, and at this time know nothing about the case other than what these two stories say.  I will be curious to see whether the case can survive a pre-trial motion to dismiss.  I would agree with one of the quotes:  this indeed is a "one-of-a-kind" case.  From purely a legal perspective, I have difficulty believing the case has much merit.  But, I've been wrong before....   

Media Reports On Health Of Central Indiana Commercial Real Estate Market

Pieces from today's Indianapolis Star and Indianapolis Business Journal discuss the status and future of Central Indiana's commercial real estate market, including the impact of the lending crisis.  Click for the stories:  IndyStar1, IndyStar2 and IBJ.  Once again, the theme seems to be that, while development may be down, there are few if any signs of substantial increases in commercial loan defaults, foreclosures or bankruptcies in deals tied to commercial real estate.  Relative to the rest of the country, Indiana appears to be in decent shape in the commercial real estate and commercial lending sectors.  Please e-mail me if you feel otherwise or are aware of contrary media reports, thanks.   

Indiana Legislation, 2008

According to my sources, it appears the only state legislation in the hopper that may affect commercial foreclosures is Senate Bill No. 62.  Here's the bill:  (SenateBill62.pdf).  Here's the fiscal impact statement:  (FiscalImpactStatement.pdf).  The proposed change - a minor one to say the least - "eliminates the requirement that a sheriff post notice of a foreclosure sale in at least three public places in each township where the real estate is located."  The bill really affects civil sheriff's offices, not lenders or borrowers. 

As an aside, it's my understanding that some other states are exploring the enactment of more dramatic changes to foreclosures, including ways to expedite the sometimes lengthy process.  I was studying Florida law for a case last month and learned that, unlike Indiana, counterclaims filed against the foreclosing lender will be severed (bifurcated/split) from the original foreclosure claim filed against the borrower.  In Indiana, counterclaims filed by the mortgagor, even claims without merit, can result in substantial delays of the process.  I'm involved in a contested residential foreclosure case right now that has been around for almost three years, primarily due to the tactics of borrower's counsel and also court-related delays.  We finally tried the case in September and successfully obtained a judgment and decree of foreclosure.  Alas, the defendant borrower is pursuing an appeal....   

From The New York Times: "Foreclosures Hit A Snag For Lenders"

If you deal with mortgage security pools, and in particular the foreclosure of mortgages within such a pool, you should read today's interesting article from The New York Times:  "Foreclosures Hit a Snag For Lenders".  The article addresses federal court foreclosure litigation in Ohio and specifically an opinion by Judge Boyko dismissing fourteen cases because the plaintiff (foreclosing entity) failed to prove it had standing to pursue the cases.  I located the Judge's October 1 order referenced in the article: .pdf.  My colleague Chris Jacobson helped find the October 31 opinion: BoykoOpinion.pdf.

The moral of the story is that the institution filing the foreclosure suit, if pressed by the Court or the defendant borrower, must have proof that it owned the note and held the mortgage on the date of the filing of the foreclosure complaint.  As demonstrated by the Ohio ruling, with respect to mortgage security pools this seemingly simple requirement may be burdensome or perhaps even impossible under certain structuring. 

Corrective action probably can be taken during the proceedings in most cases to ensure that the named plaintiff actually holds the mortgage and owns the note.  For example, depending upon the circumstances, the pleadings can be amended to name the proper party or, on the other hand, assignments can be executed to place the note/mortgage into the hands of the plaintiff.  Lenders/investors and their counsel should be advised of the Ohio ruling and prepare themselves accordingly.  I will post updates to this story as the situation warrants.   

Residential/Subprime Mortgage Crisis Does Not Appear To Be Materially Affecting Commercial Loans - At Least Not Yet

From time to time over the past several months, people have asked me how the sub-prime mortgage crisis and the record number of residential mortgage foreclosures have affected my practice and the industry that I target - commercial, secured lending.  For some context, here's an article from today from MSNBC - "Want A Second Mortgage?  Good Luck!".

People outside of the industry are surprised to learn that commercial loans continue to be in pretty good shape.  The clients and prospects I've spoken to over the past year have conveyed that their default rates remain very low.  As I understand it, there's really no comparison between the rates of residential/consumer mortgage defaults and those of commercial/secured loan defaults.  Although I gather that commercial credit may me tightening, the sub-prime mortgage crisis simply hasn't translated to a commercial loan problem, at least not to this point.  Here's a story today from the Cincinnati Enquirer entitled "Commercial Building Booms" that supports what I've been hearing. 

This is not to say that an increase in commerical defaults, workouts, foreclosures or bankruptcies may not be on the horizon.  I'm no economist, but there certainly are signs for the potential of an up tick in such matters.  Here are links to a couple stories from today's New York Times that speak to these issues:  Fed Chief Warns of Worse Times in the Economy and Wachovia Sets $1.1 Billion in October Losses.  If your impressions are different than mine, I would appreciate learning more about what you're experiencing and invite you to call or email me.         

AP: Indiana Bank Sues Vick Over Business Loan

It's raining and pouring on Michael Vick.  I never imagined blogging about his demise, but this news report from today actually is relevant to the commercial foreclosure area, not to mention interesting on a number of levels.  It would appear Vick received a $2.0 million loan secured by 130 vehicles.  To the extent there are any follow-up stories on this matter, I'll update this post. 

10-1-07 Update:  Here's a .pdf of the Complaint filed in the South Bend division of the USDC for the Northern District of Indiana - .pdf.  Vick is alleged to be a guarantor of borrower Divine Seven, LLC's loan.  Vick also is alleged to be a member of the LLC.  If you're wondering how Vick, apparently a resident of Virginia, can be sued in South Bend, look for my post this week about Indiana jurisdiction over out-of-state guarantors.

AP: Beazer Homes Receives Notice of Default on Senior Notes

Admittedly, I haven't worked on a $1.38 billion commercial foreclosure case.  (I suspect not many Indiana lawyers have.)  Click here for the AP story.  I hope someday to be involved in some capacity with a case so large and complex.  One of the interesting things about the Beazer matter is that, apparently, the default may not relate to non-payment, which triggers foreclosure in the vast majority of cases.  The Beazer story illustrates that there can be a multitude of circumstances that give lenders the right to accelerate and foreclose on loan collateral.