Alert

Foreclosing on a Real Estate Mezzanine Loan: UCC Article 9, Mortgage and Intercreditor Constraints, Threshold Issues

Recording of a 90-minute premium CLE webinar with Q&A

Conducted on Tuesday, October 8, 2019

Recorded event now available

or call 1-800-926-7926
Program Materials

This CLE webinar will examine the mezzanine foreclosure process, including notice, publication, and the commercial reasonableness standard under UCC Article 9. The panel will discuss threshold issues such as property due diligence, certificated interests and UCC policies, and intercreditor agreement and mortgage loan provisions which may impact the mezzanine lender's rights and remedies.

Description

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 equity interests in the mortgage borrower. Counsel should have a thorough understanding of how the foreclosure remedy is exercised under Article 9, and the ramifications of mezzanine foreclosure 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 share certificate. Counsel must understand the rights of the mortgage lender, any senior mezzanine lenders, ground lessors, or other parties with an 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 under Sections 9-611 and 9-612 to the debtor, any secondary obligor, and certain additional parties. 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.

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.

Listen as our authoritative panel analyzes these and other issues associated with mezzanine foreclosure under the UCC.

READ MORE

Outline

  1. Structure of a mezzanine loan: UCC security interest in borrower
  2. Steps to take pre-foreclosure
  3. Due diligence: understanding terms of underlying mortgage debt, intercreditor, Article 8 opt-in
  4. Collateral besides partnership interests
  5. UCC Foreclosure under Article 9: commercial reasonableness standard
  6. Strict foreclosure
  7. Transfer restrictions: "qualified transferee"

Benefits

The panel will review these and other critical issues:

  • What level of property due diligence and title review should the mezzanine lender conduct before foreclosure?
  • What provisions in the mortgage documents and the intercreditor agreement should the mezzanine lender consider before foreclosure?
  • How is the commercial reasonableness standard articulated in Article 9, and what does it say about conducting a public sale?
  • What additional steps must the mezzanine lender take if the borrower has opted into Article 8?

Faculty

Puleo, Grant
Grant Puleo
Partner
Duane Morris

Mr. Puleo focuses his practice on a wide variety of real estate, finance and business transactions. He has extensive...  |  Read More

Zimmerman, Gary
Gary Zimmerman
Senior VP UCC Division
Fidelity National Financial

Mr. Zimmerman supervises and coordinates the underwriting, policy and production personnel and functions for the...  |  Read More

Other Formats
— Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. All formats include program handouts. To find out which recorded format will provide the best CLE option, select your state:

CLE On-Demand Video

$347

Download

$347