By Christopher Gorman and John Muldoon (January 17, 2024)
In the current climate in the commercial real estate world, one frequently hears about owners and borrowers, faced with distress, handing back the keys to the lender or loan servicer.
Undoubtedly, there are situations where this may be the best strategy available to the borrower. For instance, in some circumstances, the lender will agree to take back the property in exchange for releasing personal guaranties of the principals of the owner, which may be a wise decision in some circumstances.
One size, however, does not fit all. With some degree of frequency,commercial borrowers, faced with a loan default or other distress related to their property for which they cannot devise an out-of-court resolution — e.g., refinancing the loan, selling the property, etc.will rely upon the litigation process to try to retain the property or otherwise extract better settlement terms from a foreclosing lender. The litigation process, of course, could be lengthy and cause all sides in the end to come to a resolution that does not involve handing back the keys.
The standing of a foreclosing lender is an issue that has garnered much attention in the 16 years since the 2008 financial crisis. That attention, however, was largely focused on the residential mortgage foreclosure context, with few considering how potential standing issues could arise in the context of commercial mortgage foreclosure
actions.
