While residential short sales and foreclosures have been getting most of the headlines for the past three years, in the backgroud was the increasing difficulties faced by commercial property owners trying to hold-on while facing large vacancies and increasing demands for rent reductions to keep tenants.  In 2011 we saw a rise in the short sales and foreclosures affecting commercial properties.  At the same time, we have also seen commercial lending begin to rebound and have been active in assisting our clients in both areas.

With commercial borrowers, the stakes are higher and resolutions are important as borrowers are trying to keep businesses afloat. Looking at current mortgage liabilities, there are three issues that commonly arise: (1) recourse loans in judicial foreclosure; (2) personal guaranties; and (3) cross-collateralization of loans.

Keith Dunnagan

Attorney Keith Dunnagan of our law firm has been especially effective in advising commercial owners and working with them to avoid deficiency liability on these issues.  He has represented multiple commercial borrowers in judicial foreclosures and helped them avoid liability on recourse loans. Lenders often pursue both a judicial foreclosure to gain control of the property through receivership and a non-judicial foreclosure to dispose of the property through a sale. He has been able to help commercial borrowers minimize exposure if not, entirely eliminate their liability through our representation in the litigation process.  For example:

*  Keith was able negotiate a settlement on a multi-million dollar personal guaranty secured by a now foreclosed 100+ unit apartment building for lump sum payment of less than 2% of the outstanding debt;

*  On several others, lenders had filed judicial foreclosure and were seeking deficiency judgment. Keith was able to get the lenders to complete Trustee Sales instead and avoid any liability for the deficiency.

We’re also seening increased liquidity in the commercial market which is enabling us to promote resolution through new opening lending possibilities. For example: 

*  Keith recently represented a commercial borrower and closed a $4.65M loan with an interest rate under 4% with a limited carve-out guaranty;

*  Keith is completing several commercial short sales by working closely with the real estate agents, lenders, and principals to effect a win-win transfer with no residual liability.

Many of these transactions require both creativity and perserverance such as using disposition of cross-collateralized property as a method to limit personal liability and guarantor liability. Others require plain old-fashioned hammering away in the negotiations while focusing on the numbers both of the borrower and the lender.  Bigger loans have bigger negative impact on lenders as well. That may mean leverage. Overall, we’re working hard to create the best possible ability for businesses to survive the recession.

With 2012, we anticipate that the commercial foreclosure rate will continue to rise and the commercial clients with conventional financing and with SBA loans will need creative solutions to resolve these mortgage issues. Whether it is navigating through work-out or restructuring programs or mitigating liabilities on guaranties and recourse loans, commercial borrowers will need the creative solutions to help protect them in these uncertain economic times. For that, you need Keith Dunnagan and BPE Law Group.

If you are upside-down on a commercial property and want to know more, contact our office at 916 966-2260 to schedule a one-hour initial consultation with Keith.  You can reach us by e-mail at kbdunnagan@bpelaw.com.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.