New Jersey Real Estate Lawyer Blog

According to Russell Bershad's article, "Acquire Distressed Debt: Anatomy of a Mortgage Acquisition" in the New Jersey Law Journal, loan purchase agreements (LPA) are not drafted in a standard form, yet they mostly contain or should contain the same provisions. Purchaser's counsel should be aware of certain issues while drafting or reviewing an LPA, such as:

Issue 1: Accounting for borrower funds being held by the seller, such as taxes, insurance, and repairs.

Issue 2: Creating a provision to prevent the seller from taking an action that would adversely affect the debt amount, such a settlement with the borrower.

Issue 3: Drafting seller representations related to:

(a) The amount due on the loan;

(b) The seller's loan ownership to insure that it is freely marketable;

(c) Non-conveyance of an interest in the loan to a third party;

(d) No litigation pending related to the loan or the underlying real estate or if pending litigation exists, the status of such litigation;

(e) No offsets, counterclaims or defenses to payment of the loan asserted by borrower;

(f) The material loan documents;

(g) The loan title insurance policy and certification that it is in effect for its full amount;

(h) The solvency or bankruptcy of the seller;

(i) Preventing the seller from entering into a forbearance, settlement, release or similar agreement with the borrower or any guarantor prior to closing.

Continue reading "Loan Purchase Agreements For New Jersey Distressed Commercial Mortgage Debt: Part 2" »

According to Russell Bershad's article, "Acquire Distressed Debt: Anatomy of a Mortgage Acquisition" in the New Jersey Law Journal, commercial real estate investors who have been waiting on the sidelines for the commercial real estate crash should take note of the legal steps and timing required in the acquisition of distressed mortgage debt. All we read about today is the residential real estate bust that has been occurring for the previous twelve to eighteen months. It is not a question of if, but when will commercial lenders start divesting themselves of their distressed commercial mortgage debt. Many believe that the flood gates are about to open due to the large amount of commercial mortgage debt coming due in 2010 through 2012 and the inability of many borrowers to refinance. The acquisition process for commercial mortgage debt purchasers is straight forward yet complicated due to the distressed nature of the asset being purchased. The steps in such an acquisition are usually as follows:

Step 1: Lenders make it known that they are willing to dispose of certain commercial mortgage debt.

Step 2: Potential purchasers who indicate interest will more than likely be required to sign a confidentiality agreement in order to review the loan files and to speak with lender's counsel.

Step 3: Lenders may select to sell to one particular purchaser or place their debt up for auction as a means to obtain the highest bid. Bidding may take place in one round or a series of rounds.

Step 4: The successful bidder will be required to sign what is usually a non-binding letter of intent (LOI). This LOI often times requires a refundable deposit to be escrowed by the bidder with a third party. The successful bidder should require the LOI to be binding on the seller so that the seller is prevented from marketing the loan to others while the deal with the successful bidder is ongoing.

Continue reading "New Jersey Distressed Commercial Mortgage Debt Acquisitions Procedure: Part 1" »