Texas Commercial Law Firm
Commercial Foreclosures
Simply put, a commercial foreclosure is a foreclosure against a business. Commercial foreclosures can be quite complex and involve, for example, the rights of tenants, assignments of rents, UCC liens on equipment, furniture, goods and other items of personal property not connected to real estate. Separate UCC sales of collateral pledged to secure the commercial loan or collection of rents directly from tenants is fairly typical. Collection of guaranties and recovery of other forms of collateral are also usually involved. Frequently, these matters are subject to commercial litigation in state court and/or in Chapter 11 bankruptcy proceedings. The topic of commercial foreclosures is discussed in more detail below.
Commercial, or “business foreclosures” can involve, for example, loans secured by apartment complexes, commercial office buildings, retail stores, churches, restaurants, golf courses, strip malls, partially completed subdivisions, partially completed office buildings, vacation resorts, campgrounds and environmentally sensitive raw land purchased for development. We have foreclosed against each of these kinds of businesses, many on multiple occasions.
In handling a variety of commercial foreclosures you learn that, like the businesses involved, each is unique in its own way. There are no “cookie cutter” commercial foreclosures. Each commercial foreclosure must be approached with an open mind, “out of the box” thinking and creative problem solving. Some examples of the variety of issues faced follow.
Examples of Commercial Foreclosure issues: Foreclosure against a low income housing project subject to condemnation proceedings is, for many reasons, very different from foreclosing against a high rise office building with first class space. Clearly there are differences in value and differences in use. On the other hand, there may be similarities in valuation in that both properties probably rely on cash flow derived from rents. The method of valuation of collateral is typically an important element in a commercial foreclosure. In both examples, depending on occupancy, the cash flow value of the enterprise could be the chief determinant of value. In both cases, therefore, (assuming cash flow is important), then the proper handling of tenant relations would be exceedingly important in maintaining the value of the collateral. The successful management of tenant relations for each property, however, will probably require different strategies.
By way of further example of the differences to be expected in each commercial foreclosure, consider foreclosures against factories, restaurants and law firms. Although most aspects of these businesses are unique from the others, foreclosure in each case is likely to require one to successfully deal with UCC security interests in equipment, furniture and fixtures. In each instance, the value of the personal property collateral may represent a considerable proportion of the overall value pledged to secure the loan. Care must be taken, therefore, that foreclosure of the personal property is carried out properly with respect to the type of personal property involved. Issues as to how notice of the foreclosure sale is provided to the public, the manner in which the personal property is made available for inspection by the public and how the public foreclosure sale is conducted all will factor into whether the personal property is foreclosed in a manner which brings the best price and minimizes the potential for the foreclosure sale to be challenged by a debtor as being unfair.
Attempted Work-Outs, Commercial Litigation and Chapter 11: It is important to bear in mind that many, if not most commercial foreclosures are the subject of commercial litigation, extensive settlement negotiations, attempted work outs and Chapter 11 bankruptcy proceedings before the foreclosure stage is ever reached. Loan modifications possibly involving a reworking of the loan terms, a pledge of additional collateral, subordinate lending and one or more forbearance agreements are typical. When and if work-out arrangements fail, debtors usually resort to Chapter 11 bankruptcy protection as a last resort to stop the foreclosure from proceeding.
Once in Chapter 11 bankruptcy, battles over “cash collateral”, “adequate protection” and plan confirmation generally ensue. Finally, after all work out attempts, commercial litigation and resort to the bankruptcy courts fails, the commercial foreclosure, (including the foreclosure under the UCC) proceeds.
In summary, a commercial foreclosure is typically a long, complex process. Balcom Law has substantial experience guiding our clients through this process, in foreclosing on most kinds of businesses and in navigating the several phases of commercial litigation and chapter 11 creditor representation a commercial foreclosure typically follows. Please contact our Houston, Texas office for more information concerning how we can assist you with commercial foreclosures.
Balcom Law is very experienced in the entire process and will proceed aggressively to recover the collateral or obtain payment or restructuring of the loan. Our Houston, Texas firm is also experienced with maximizing recovery through various forms of creative workout.
Contact us today for an evaluation of your case.
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