I originally wrote this post in 2008 as I saw, for quite some time, the coming commercial foreclosures. It is now almost spring of 2012, nearly 4 years after the original post and we are still dealing with a huge amount of commercial foreclosures and I do not see any significant and sustained abatement for at least another 12 months or more. The following is the text from my post in 2008, without changes.
As the current economic recession deepens, commercial landlord's are beginning to feel the pinch from defaulting tenants. This will likely cause a ripple down effect, likely putting many commercial landlords at risk of default with their lenders and possible further lender/bank failures. Prudent landlords should take a pro-active approach and educate themselves on the many intricacies of commercial foreclosure practice and law. This will be the first in a series of short articles/posts regarding commercial foreclosure law in California. While there may be many similarities between California law and that of other states, these articles and posts are only intended to educate on California law.
- DISTINCTION BETWEEN COMMERCIAL AND RESIDENTIAL FORECLOSURES IN CALIFORNIA
The vast majority of the foreclosures in California are conducted by "Private Sale," also referred to as "Non-Judicial Foreclosures" or "NJF". An NJF is a legal procedure specifically provided for in the loan and trust deed documentation signed by and agreed to by the borrower. In rare instances, the loan documentation may not include a lenders right to proceed by NJF, in which case, if the loan goes into default, the only option that a lender has to foreclose on its security is by a "Judicial Foreclosure" action. There are benefits and detriments to each process. For reasons explained in a later post, the vast majority of foreclosures in California are done, non-judicially.
Because commercial property has a main purpose and potential attribute of producing income, commercial real estate lenders seek to secure their loan, not only from the market value of the property, but from the income produced by the property, (rents). Accordingly, nearly all commercial loan documentation contain provisions for the assignment of the rents produced by the property to the lender. Therein lies the key distinction between commercial foreclosures and residential foreclosures. Commercial foreclosures usually include an additional process whereby the landlord can, through the judicial appointment of an independant receiver, take charge of the property, manage it and collect the rents produced by the property. They typical process includes both an NJF and a judicial foreclosure. The lender will typically file a "Notice of Default," or "NOD", commencing the NJF process and then quickly file a lawsuit commencing the judicial foreclosure process and immediatly file a motion with the court to have a receiver appointed to manage the property and collect the rents, pending the sale of the property by the NJF process.
Future posts will include:
- Benefits of non-judicial foreclosure versus judicial foreclosure
- Anti-deficiency statuts
- Personal guarantees and carve out provisions
- Borrower Fraud Liability
- Receivers
- Bankruptcy
Thank you for posting this updates to us. I will take a note for this. Hope you can post more updates.
Posted by: property sale in usa | March 05, 2012 at 05:02 AM