Commercial Property Herald

Geithner confident that Economy has Stabilized

DSNNEWS.COM quotes Timothy Geithner as saying that the financial system is stabilized in their article, Banks can Handle Commercial Real Estate Losses Geithner Says. Sounds a little like Prime Minister Chamberlain stating that "Peace in our Time," after meeting with Hitler just before Germany attacked Poland to start World War II.

I get it that part of Mr. Geithner's job is to instill confidence in our financial system.  The less confidence, the more instability.  But lets get real.  I just don't see how he can be so confident.  No, I don't think that our banking system will collapse, but I do see many, many more bank failures and while we don't have the RTC taking over banks and Savings & Loans as they did in the 90's, I see us doing the same thing by having the government give money to the big banks so they can survive all of the loan defaults and so that they can buy out the smaller banks.  Can you spell g o v e r n m e n t  s u p p o r t e d  b a n k  c o n s o l i d a t i o n? And by the way, I am paying for all of this along with the bonuses being paid to the bank executives for doing such a great job.

The only thing that I am confident in at this point is that someway, somehow, we or our children are going to have to pay back all that this is costing and the rich will likely get richer and the middle class and the poor will likley get poorer.

Howard Kline will be Speaking at RIAOC Orange County, April 21, 2009

I will be speaking at the Realty Investment Association of California (RIAOC) on Tuesday morning, April 21, 2009. At the Garden Grove Elk’s Lodge. The address is 11551 Trask Avenue, at the corner of Newhope.

I will be speaking on Hot Topics relevant to commercial brokers and property managers in a down economy, which I expect to worsen over the next year, that is the economy, not my speaking. A little sneak peak on the topics that I have chosen will include:

1. Subordination, Attornment and Non-Disturbance Agreement in leases - Now becoming more relevant to tenants in an age for commercial foreclosures
2. Guarantor liability on commercial loans, even in the event of non-judicial foreclosures. We see more of them then in the 90's due to the prevalence of property being held in LLC's.
3. Negotiating requirements of some deep pocket and/or recession proof retail tenants.
4. Effect of Landlord Bankruptcy

Commercial Foreclosure Basics, Part 2 - Anti-Deficiency Difference between Judicial and Non-judicial Foreclosure

I am often asked by borrowers whether of not a lender can sue the borrower for any amount that is owed on the loan, over and above the sale price received at a private sale.  Well, there are many, "it depends."  However, in very short summary, if the lender proceeds with a NJF and the property is sold as a result, the lender cannot proceed against the borrower if there is any deficiency.  By deficiency, I mean that the property sold for less then what was owing on the secured loan.

There are many exceptions to the above rule, which include loans obtained by fraud, damages and losses incurred by the lender for causes other than a default on the loan and situations in which a 3rd party guaranteed the loan.  In the commercial context an exception might also be where the borrower has used the rents and profits in a manner not allowed by the loan and trust deed documents.

Please take care when using the above information.  As in most cases, the devil is in the details and the exceptions are what keeps lawyers employed.  A thorough analysis by your attorney should be done before you act on any of the advice contained herein.

Commercial Foreclosure Basics, Part 1 - Difference between Commercial and Residential Foreclosures

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