Real Estate Mezzanine Lending: Lessons From Recent Foreclosures for Documenting and Closing the Transaction

Avoiding Pitfalls With Duplicative and Lost Security Certificates, Qualified Transferee Issues, Art. 8 Opt-Ins, and More

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


Conducted on Thursday, October 2, 2014

Recorded event now available

Program Materials

This CLE webinar will provide real estate finance counsel with a briefing on the pitfalls that repeatedly arose during the foreclosure crisis in upfront mezzanine loan documentation and back-end foreclosures. The panel will outline key considerations and preparation necessary for practitioners to document and structure mezzanine loans now.

Description

Mezzanine lending for real property financing continues to grow and remain a strong financing structure to avoid encumbering equity in real estate after the mortgage tranche. Mezz lending puts both equity and debt into play and allows for streamlined exit strategies as compared to preferred equity, other common classes of common equity, an A/B note or a subordinate mortgage (with agreement of senior mortgagee).

To minimize risk, properly document and close new deals, practitioners must prepare to respond to the myriad documentation and structuring pitfalls experienced by real estate finance practitioners throughout the recent flood of foreclosures.

Our panel will outline key steps for legally structuring real estate mezzanine loan transactions within the confines of UCC Articles 8 and 9 and explain the documentation issues for which practitioners must be prepared. Following these best practices will not only provide the lender with a valid and perfected security interest under UCC Article 9, it can also put the lender in the position of an Article 8 “protected purchaser.”

Listen as our experienced panel reviews critical deal elements for secured lenders, including requiring the issuer of pledged equity collateral to opt in to Article 8, filing UCC financing statements, requiring certification of pledged equity by the issuer, perfecting control of the equity, obtaining UCC insurance, and drafting other provisions, including for organizational agreements, to protect the lender's interests.

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Outline

  1. Mezz financing common pitfalls and best practices
    1. Duplicative and lost original security certificates
    2. Qualified transferee issues
      1. Standard form of intercreditor agreement
      2. Typical pledge agreement
    3. Special UCC Article 8 and 9 considerations
      1. Article 8 “protected purchaser”
      2. Defective opt-in to UCC Article 8 by pledge equity issuer
      3. UCC insurance
  2. Post-disposition transfer procedures involving pledgor-related parties
  3. Selecting the appropriate pledge agreement

Benefits

Our panel will review these and other key issues:

  • Understanding and pre-planning for common pitfalls in mezzanine financing
  • Structuring mezz loans under UCC Articles 8 and 9 to ensure interests are perfected
  • Gathering and preparing the extensive documentation required to minimize deal and client risk
  • Drafting and negotiating organization agreement provisions to ensure lender protection going forward

Faculty

Prendergast, James
James D. Prendergast

SVP, Legal Counsel-UCC Division
First American Title Insurance Company

Mr. Prendergast is General Counsel of the Uniform Commercial Code Division of First American Title Insurance...  |  Read More

Cochran, James S.
James Cochran

Partner
O'Connor Cochran

Mr. Cochran has extensive experience advising clients in workouts and restructurings involving complex collateral...  |  Read More