Can i industry sign banking maine document now
well thank you everyone for joining us today for this presentation this is the first of three presentations that we're going to be given over the next three weeks regarding commercial loan workouts as you can see from our theme we've titled this in the nature of a storm we envision the pandemic as a storm that's battered the country and indeed the world which will have and is having obviously tremendous economic effect on everyone in every business and that to keep with the theme we believe and I'm sure you are fearing that there will be a flood of defaults and workouts to come as the next part of this storm rolls through the first presentation that we're giving today is on storm preparation and that is preparing for the upcoming defaults and workouts that we know are coming we can't see you we can't hear you you can obviously I hope hear us and see us we do have a question and answer I con if you are free to submit questions during the presentation which we will see some of those those questions we will choose to answer depending upon the question during the presentation and if we don't address those questions during the presentation we will be sure to answer them directly to you or to the group after the presentation so no questions will be left unresolved at a certain point I want to make introduction so I'll go with my myself first my name is Christopher courier I'm a partner at the firm and I have spent approximately 25 years representing banks and commercial transactions and workouts I have been through a number of downturns and recessions where I have had to represent banks in connection with all kinds of problem loans involving you know closure bankruptcy you name it those lessons that we've learned from those other recessions will come around again and we are prepared to deal with those problems Rick hi i'm i'm rick novak i'm also a partner in pearce Atwoods boston office I have the dubious honor of having work done with workouts and foreclosures since actually the early 1980s so all of the last four recessions I had the benefit of learning some new lessons and while they're all a little bit different they're all the same and one theme of all of them is best prepared lenders are the ones who do the best and so that's what this morning is about this afternoon is about getting prepared for what can be some rough seas so the next recession is here before we put this presentation for today we were working on a presentation in early January anticipating that the next recession was around the corner there were a lot of warning signs out there not least of which was the fact that we've had the longest recovery in history and it was you know given that our economy is cyclical we knew that the next recession was likely to occur relatively soon we just didn't know what the trigger would be all of the recessions that have come before this one have been triggered by something and I don't think anyone saw this one coming in in such a dramatic fashion as you know because everyone's been paying attention the unemployment rate is significantly significantly high significant in the sense of 30 plus million Americans are out of work and that's increasing every day it's the highest unemployment rate we've seen since records have been kept in 1948 and just to keep in mind and to put it in perspective in February we had an unemployment rate of 3.5% and the most recent tally and it's it varies a bit by who you include in the metrics but it's above 20% and increasing so there is no doubt that we are facing major economic problem which will trickle down into your borrowers their loans in their businesses we have levels of household debt we've not seen since the financial crisis of 2007 commercial loans are in default if they're not now they will be not every loan dove not every commercial loan but many many of them will be some businesses may not survive this recession we know that we know that there are sectors of the economy that are especially hard-hit in connection with what's happening now restaurants being one of them the hotel industry to name just a few and there are many many others there are very very few businesses that are not being impacted by this this extreme downturn as you all know because you've been spending a lot of time I'm sure over the past month or so working on PPP loans that the government has stepped in to try and blunt the impact on businesses but it's really going to be viewed as a band-aid for those that have even been able to take advantage of these loans it's short-term it's of limited impact and once it goes away it's not good it's clearly will not be enough to sustain businesses it may help some businesses provide a bridge to reopening but what really depends upon when things reopen and Rick and I were discussing before we got on line here that neither one of us view the recovery is v-shaped it's very unlikely that things are going to come back online like a light switch it's going to take some time so a PPP loan that's providing some relief for you know eight weeks or so it's simply not going to be enough so we need to take some time you need to take some time now to do what you can to get ready for what's happening next I think everyone's like I said been buried recently in you know understanding the PPP loan process processing the PPP loans and making the advances under those loans to your borrowers but at last look I believe this morning the second round of the PPP tranche is nearly gone so there may be another one there there may not be that probably will be something but again it's as you can see it will not be enough and you know the time to recover who knows it'll it'll definitely be a long period of time certain industries will take longer than others some industries will never be the same it's pretty clear Rick any any comments there no I mean from the real estate side it's the oldest joke in the real estate industry but it's because it's true the real estate industry is all about 10-year cycles in 70 year memories and you know 7 years ago was 2013 when we were wrapping up the the piles of workouts from the 2008 crash and and now there are a whole lot of people in the real estate business who've never seen a downturn and there's nothing wrong with that it just means we need to wrap up and get everybody ready right so we view this time now after the PPP loans have been made as an opportunity and it's sort of a collective you know deep breath that everyone's taking it's what will happen next and we know there's one as I said a flood of defaults and workouts coming so now is the time while this deep breath is taken to prepare for that inevitable next step so what steps and you take immediately there are some decisions and choices that you probably have already had to have made that is when stay at home orders were issued and businesses closed I know anecdotally personally and elsewhere that many borrowers reached out and tapped into their lines of credit and so you've had to face those questions already in many cases but that may not be over any kind of discretionary lines of credit you have to decide whether or not you want to make those advances knowing that the constant of making them or not making them rather could be the death of the company because because of the impact it will have on them but the ultimate question for a bank is will it get repaid once it makes that discretionary advance there are other issues with respect to committed lines of credit such as construction loans where there's a discrete set of criteria for making those advances and you have to examine your loan documents and conditions very carefully to determine whether or not not only you have the ability to decline making it advanced under those committed facilities but also whether it makes sense to to not to not make in advance given what the money may be used for that Rick and I were discussing the fact that some some construction projects it may be appropriate to make in advance - you know button up a project for example just to mothball it for a period of time it really depends upon the circumstances of each loan and each you know construction project what-have-you right yeah it's a really good exercise and critical thinking starting taking every loan you're looking at and saying how does it look today what's what's wise from the standpoint of protecting the bank shareholders in terms of this loan it's it's very easy to fall into the trap of well we have to put out more money other otherwise that the project will die maybe that's in the best interest of the bank it's often isn't and it's definitely premature today in early May to be making those sorts of decisions but that ought to be part of the thought process for every single long what's in the best interest of the bank that's right and your I'm sure you're also dealing with a lot of requests for deferred payment agreements so a lot of your borrowers were contacting you and saying for example our tenants are not making payments and we are not able to make payments on the loan so we're looking for a deferral for the next three months it's important that you agree to those things because it's probably appropriate in many cases to agree to that deferral but it's equally important to document it appropriately so an email a paragraph is generally not sufficient it has to be very clearly drafted the terms have to be articulated very clearly in terms of how and when the deferred payments will be repaid either on maturity whether interest is made up when payments resume over some period of time whether you have escrow payments are going to be required to continue to be made during the deferral period etc in addition to those terms there also should be some we know what I would call or attorneys would call boilerplate language that's designed to protect the bank such as you know we wrestled initially with whether or not it was appropriate to request a waiver and a release of claims in connection with the deferral agreements and the answer is yes it is you were you the bank are giving something to the borrowers your forbearing or referring these payments and in return for acting in that manner you should get something back and return for the borrower's so it's not only the release of claims but it's also things like electronic signature provisions etc so again very carefully drafted agreements are important go ahead drink sorry well I was just gonna say there's been a lot of talk in the post 2008 air about know your customer and you've all spent a lot of time on know your customer documentation well recession is when you really get to know that customer and you'll find that your borrowers will separate out into two groups the good borrowers these are people who they're in trouble because their tenants aren't paying them it's a good project but and they're turning over all the cash they're doing everything they should they're giving them reporting you know those borrowers you definitely want to work with there are other borrowers they may have taken you on 15 golf trips in the last 15 years but as soon as things turned bad they're gonna start hiding the money and and you'll find out they are not your friends and that that's not evil there's nothing wrong with that but you need to deal with the two different types of borrowers differently yes and the so that the point the overall point here is to develop a plan to deal with the problem loans so you should be thinking about the ones that are keeping you up at night now just because of the nature of the collateral or the borrower for the loan itself the exposure etc but also by category as I said with respect to the businesses that are especially hard-hit at these times such as restaurants I've had you know worked on many many restaurant loans and when times are good they're great and when times like this they're obviously a real problem so considering examining your portfolio by you know quote-unquote they've already some credits because of the nature individually of those credits and also by category so we should probably develop a list of categories and questions about what the problems may be going forward with respect to collecting loans by by category develop a plan of action how are you going to collect your loans and understanding that many of your your borrowers will be in default whether by covenant or by payment you're going to have to deal with it so consider now what you might do what your exit strategy might be and identify as we'll talk about in a few slides coming up what to do with your loan documentation in the meantime you're going documentation that is a question that someone may raise is do we make demand now if we have a loan in default it's a question there are you know I look at it on a case-by-case basis but you're not really going to be able to take collection efforts foreclosure or commercial properties right now in Massachusetts there's no legal moratorium on foreclosures but there's the de facto moratorium because they you know there's a there's a stay-at-home order in place so it's considered commercially unreasonable at least most people are viewing it as commercially and reasonable to hold an option who's going to show up even if they social distance and to put a fine point on that title insurance companies have taken the position that they will not insure those titles out of foreclosure because they considered that they're not commercially reasonable set off as another question that you'll face in terms of whether or not to set off accounts in connection with a default in credit presently you have to look to your loan documents to see whether or not you have that right that's a whole another presentation in and of itself but that's something you're probably grappling with and also into whether you're not enter into a forbearance agreement now or wait my quick analysis of that is wait because you need to as we'll see in the coming slides you need to know what you want and what you need and those things should be built into your forbearance agreement and you probably don't know those answers right now so you have to take the time to figure out what those questions are how to answer them and then deal with the forbearance of arrangement I agree with Chris completely that now is not the time to make demand it's not effective it's premature to the extent that the borrower is going to come up with a a credible plan you need to give them a chance to do that the one exception being you know the known bad borrower who you know is diverting cash flow you always need to move quickly on those people but anyone else you need to think it through first and even if you did a foreclosure tomorrow you'd get the property back that's no prize so as Rick said initially that there's a famous quote attributed to Mark Twain which is history doesn't repeat itself but it often rhymes as we said at the beginning of this that these problems that we faced in the last recession with respect to our problem loans and how they were worked out well we'll likely see you know very similar issues this time around so nobody should be surprised when they encounter them and again that's the reason why to start looking at what those problems might be in your existing loan portfolio and use the opportunity to develop a strategy and you know obviously look at your your borrowers business its management operations etc now as we just said we would like to use this opportunity to fix any problems that you're going to encounter in your loan portfolio and that would probably be most appropriate in a forbearance agreement or any other agreement that the borrower may be asking you to enter it into so what are common what are some common issues that we've seen in the past and we'll likely see again we're titling loan documentation issues as the self-inflicted injuries those are the ones that are you know lurking in your loan documents for one reason or another that we've seen time and time again when faced with a workout and before you you know pull the trigger make demands start foreclosure etc you have to know what you have so that you're not surprised and you can deal with the problem by correcting it if the opportunity presents itself some of those problems are you kno
incorrect or inconsistent use of the names of the debtor in the loan documents themselves I've encountered a situation where I've seen a note in a mortgage you know be different that the the individual makes the note and the company who owns the property grants the mortgage and the mortgage secures the note of the more good you know the mortgage or the company it just you have to be careful for things would be like that Dolf default should be consistent in all the loan documents we've seen situations of you know demand loan with you know a credit agreement which has enumerated defaults and you think you can make demand but you may not be able to unless there's a obviously a default triggered under the terms of the loan agreement incorrect specification of obligations secured by the collateral documents again that kind of speaks to what I've just talked about we've seen situations of lenders using Fannie Mae mortgages to secure a commercial debt which you want to avoid because Fannie Mae mortgages contain provisions which are inconsistent with a commercial loan such as the right to reinstate the right to cure over periods of time and particularly where you have a demand facility how do you how do you cure a demand obligation once you've made demand so avoid those problems and we see a lot of those problems when lenders typically it may be a smaller credit where a loan officer himself or her self documents the loan and you know you know for one reason or another believes Fannie Mae mortgages the appropriate mortgage to use so got to avoid that incorrect names of debtors on UCC filings again we could spend an entire presentation on the an article nine and how to correctly identify and name these the debtor in a UCC filing so that it's correct the danger I'll remind everyone is that if using the the the office where the UCC is filed using their social search logic if you type in the quote-unquote correct legal name of the entity or borrower or does not show up you're not perfected so there there's a lot of issues we see with UCC filings where you think you're perfected but you may not be right the practical realities that in each of the last three recessions they were preceded by a period of extremely high transaction velocity lots of people doing lots of deals human beings when they're going too fast make mistakes and so while today is not the day to be starting the foreclosure today is the day to be reviewing your documents as if you are starting a foreclosure find out all those problems now so that you see them coming and get a chance to fix them exactly mm-hmm couple other examples of mistakes we've seen that will likely reappear this time is the description of the collateral in security agreement does not match the UCC filing incorrect description of real estate in your mortgage versus what's contained in your title insurance policy your title your mortgage should match the legal description and your title insurance policy so that you have adequate coverage where situations we've seen where there's for example a golf course as collateral yeah like a mortgage on the entire golf course right but turns out there's a strip of land in the middle of the course that's owned by somebody else and now you want to switch from a golf course to a development of some kind and it doesn't work because you're going to have the title to the entire property mortgage does not contain a power of sale that's not a death knell but it's pretty bad you can still foreclose using alternative methods but power of sale is the best and easiest notary provisions just a word of caution again it with respect to these defaults everyone will be examining your loan documents very carefully to find problems whether in bankruptcy or otherwise so that they can either have negotiating power or just because they're trying to Trump your position and improve theirs notary provisions if they're not properly drafted can invalidate a mortgage I'll leave it at that that's scary enough guarantees when you have a guarantee avoid avoid modifying guarantees if you're making new loans guarantees are typically drafted to reflect decades of case law and surety law and you should not willy nilly just change provisions of a guarantee and we talked about clear rights of set-off already so if you have questions about set-off we can deal with that separately great Chris on the subject guarantees do you want to talk here about going for springing guarantees or pick that up later yeah please do well one one thing you may wish to examine and guarantees is upgrading the guaranteed you eight a true springing guarantee CMBS pipe because if the loan becomes in trouble later you may have a dance about whether or not the borrower entity is going to go into bankruptcy and if a credit worthy guarantor is on the hook for a full springing guarantee ie a guarantee in which they become liable for the entire debt if someone interferes with the foreclosure you'll have a lot more leverage because that control party will cause the entity to stay out of bankruptcy that's why this curettage world insists on unspring guarantees because they work and if you can get it now as part of the workout it doesn't actually cost the debtor any money right now on that point that you want to do we mention the lockbox as an example of something else lender may ask for right we haven't talked about it yet again you know part of the problem in doing a workout with a a cash-strapped borrower is in point of fact they may not have any more cash to give you they may not have any cash I mean I have any other assets but there are things you can get in the forbearance or in the early workout that don't actually cost the money but are very important upgraded financial reporting upgraded guarantees and as Chris said a lockbox if it's a type of collateral that involves a lot of money handling a lot of borrowers have resisted lock boxes because they are they are difficult and but lock boxes are what you need during a recession particularly in a in a cash handling type of debtor because they may divert that cash and use it as a war chest and of upcoming bankruptcy right so now the next slide I want to talk about some perfection and priority issues with respect to personal property and again these are issues that we've seen in connection with other recessions and workouts and to be you know mindful of them when you're examining your loan documents in determining how to proceed with a problem loan again the the overall comment here is that a UCC filing covering all assets of a debtor may not be sufficient for the collateral that you believe you have I'm sure many of you are experienced lenders and and and know this but it's it's I think it's useful to quickly review certain perfection methods that are required in order to obtain certain types of collateral and have a security interest in them deposit accounts at other financial institutions are an example the deposit account at another lenders office or brokerage account etc misery is perfected by control that is a control with the party who's holding the account an agreement rather with the party holding the account giving you the lender secured party control over that account in the event of the occurrence of a default titled vehicles in yellow metal's so picture a contractor with a backhoe those pieces of equipment generally are capable of being titled and the general rule is that if if a vehicle is capable of being titled then you may you may want to insist that it be titled and that you the lender take the title and have be added as a lien holder to the title the danger is this if it's you go to closing and they're not titled your UCC filing will cover them problem being that they could then subsequently get a title to the vehicle and add someone else as a lien holder the party that's added as a lien holders that a title would trump your UCC filing so something to be wary of patents and trademarks require you know their unique collateral requiring unique perfection with the US Patent and Trademark Office liquor licenses I'm sure many of you have dealt with them in terms of the perfection going through the alcoholic beverages control Commission and the local boards are to obtain approval you're not perfected unless you obtain those approvals taxi medallions some lenders may still be making them but there's special perfection message methods depending upon the location in the jurisdiction that have issued the medallions stock in a corporation requires a pledge and if there's a stock certificate the stock power form and taking possession of the stock is the way to perfect investment accounts again investment accounts would be very similar to the deposit accounts above membership interests in a little bit of liability company you have to determine whether or not that interest that limited liability company interest is certificated or not if it's certificated it would be certificated under article 8 and it would be akin to a stock in a corporation requiring that you actually take the certificate otherwise it's considered something that you could file a UCC on there is a danger there as well that it could be certificated after you take it but you can put you know mechanisms in place to prevent me certificated there it tor claims is a different topic not automatically covered unless they exists once they exist you need to take make a proper filing with respect to them and they're only with respect to specific tort claims Eric anything to add to that just that the liquor licenses are a are always a nettlesome problem and they are a specific subset of permits you may have a path build project with a key chapter 91 permit that they put in some other entity and you don't have a and you don't have a hook in that so as you're looking at taking back a property look at do you really have all the property all the permits you need to run it and to finish it right exactly now then I wanted to talk about say some perfection and priority issues with respect to two real estate Rick did you want it yeah we can talk about some of these the it's the construction aspect maybe let's jump ahead one slide sure I think is that is that yeah so any loan but construction loans are the best example where the asset isn't there yet tend to be the most problematic there's a whole lot of things going on you need to make sure that you've got great confidence and not only your borrower but also their contractor there's a lot of opportunity for money to be diverted there if the money gets diverted at the level of general you'll have to deal with the subs and their liens so it's really an area where you need to invest a lot of energy and particularly it I think this is on the next slide have an outside adviser unless you have really outstanding construction staff internally at the bank it's very useful to have external construction experts talking about what you should fund and what you should not fund and when and that person not only brings expertise to the table but that person also brings credibility if there's a fire fight later you can account on the borrower saying the reason you didn't fund X where the construction was the lender was a bad person and didn't like the borrower and what you want is an experienced seasoned professional who can say wait I've built 50 projects like this and continuing ahead on the restaurant portion of this when there was no restaurant coming in is it is it very important to have in litigation the other thing about construction is that you need to look at your exit strategy right right up front I worked on a lot of workouts in Florida in the last recession and they were buildings that came in 300 unit slices and there was really no point in finishing them there was no market and wasn't going to be a market for five years for those for those condominium units and so shutting down the construction buttoning up the building mothballing it it was a tough decision but it was the right thing for the bank shareholders so yeah I know what you want to add there Chris yeah I'll just drill down on some of the some of the other aspects of real estate and construction lending that is you know in a construction scenario these are considered committed lines of credit I'm I'm sorry there there's a distinction rather between committed and discretionary lines of credit they this committed line of credit typically would enjoy with respect to each advance made under that loan the same priority as the first advance made under that loan that's because all of the money is committed at a time that the year you're entering into the facility so you're generally considered for each advance to be enjoy the same priority with respect to discretionary advances that each advance does not enjoy the same priority as the first advance a construction loan is considered to be a discretionary facility that is there are so many conditions for advance where their leaves that could be so many conditions for advance that it's ultimately considered to be discretionary in that case you need to do title insurance rundowns in connection with each advance sometimes lenders might skip one or two just because they know things are going well but they shouldn't as Rick's head nod indicates you should be kidding you really should be getting the title updates each time because that is the built-in feature to determine whether or not things are going off track or there's a problem so not only does it it protects your priority with respect to the advance that's made but it also tells you whether or not problems are developing and those are early warning signals particularly where advances are made on a monthly basis so yeah you should not avoid doing that it happens but you should not do it particularly now and just to put a fine fine point on that so you make advanced on the first day of the closing for a hundred thousand dollars a month later you go to make another $50,000 advance you don't do your run down lo and behold the money goes out and then you find out that someone's filed a lien on the property in in the intervening period your $50,000 is junior to that lien that jumped ahead of you cautionary tale with respect to real estate and hotel receipts we came across this one where you know someone might be tempted to file a collateral assignment of leases and rents and assume that hotel receipts are covered there under they are not they're considered to be a receivable or just a payment so a collateral assignment of leases entrenched would not may not cover you so you should be I would do both as a cautionary approach would be to file a collateral assignment of leases and a UCC filing covering all assets of the hotel MLCs are an interesting topic which we could spend another session on but I've seen where MLCs are relied upon as the end-all be-all in terms of whether or not tax liens exist they do not be very careful because many municipalities sell their tax liens and when they do they sell their tax liens to a third party who will then step into the shoes essentially of the rights of the municipality and foreclose their tax liens and you because the municipality has been paid by the third party they will show a clean MLC but in fact a tax lien still exists and must be done with condominium liens present an interesting problem we know that there are you know other the appropriate circumstances and proper procedures a condominium lien can trump a mortgage if the procedures are followed so be wary of those Rick talked about mechanic's liens and railroad rights-of-way are unique so generally if we see a railroad next to a property it you know is worthy of examination further to determining whether or not statutes that are implicated by such rights impact title we talked about construction loans or Rick did I don't want to disparage contractors but in to having gone through the 2007-2008 workouts more than anything else we experienced situations where developers were using money advanced for one project for another where they were you know financed by different banks I like to think of them as an example or a kind of an illustration that Michael Lewis put in his book boomerang which was consider a table full of money in the middle of a room and no one's looki
g and what what do people do with it well contractors will grab it and use it for whatever project is screaming the loudest and needing the most attention so be wary of that that's again a reason to do your run downs and to closely follow those advances and the project let's see other condominium issues with respect to real estate in general is that be careful what do you have or what you believe you have as collateral I had a situation where lender contacted me and said you know please start foreclosing on the last units and this condominium development and that the the units were nearly built but it turns out that our mortgage the mortgage that issue covered not the units but just the development rights of the developer so foreclosing on development rights versus foreclosing on completed or near completed units is a whole different kettle of fish one other cautionary point I'll make with to condominiums is that there is a little-known law in Massachusetts that's specified here that states in the event of a foreclosure upon a condominium development the where is it the mortgagee foreclosing essentially steps into the shoes of the developer with respect to problems in the project so never never leave before you look with respect to the foreclosure of a condominium development for those issues well and and Chris even even without that statute if if the condo has been converted in Massachusetts and even two or three units have been sold you've got a completely different foreclosure than if you're foreclosing on the box because now you you've just bought into part of a democracy and you are the deep pocketed person who's going to solve all the problems so the the two-thirds built and and personally released condo is one of the worst things to have to take on and it requires an awful lot of care yeah absolutely and also when you look at if you're foreclosing on development rights they're only as good as they're drafted in the underlying condominium documents so if you look at your condo formation documents and development rights are pretty scant it could be an issue no one they want to buy them because you're not sure exactly what you're getting so that's why you have to examine the condominium documents in such a loan initially very carefully before even making the long but particularly where you're about to try and foreclose or work it out you talked a little bit about set-off right so just highlight this very briefly your loan documentation must be very clearly specific with respect to your rights of set-off it doesn't exist generally unless the obligation of the borrower is due so you can only set off without specific rights if the obligation is due meaning that for example if a loan payment is past due but you haven't accelerated you can only set off with respect to that loan payment they they have to be essentially cancelling so lawyers generally put in a very careful language and security documents about the rights of set-off and you should really avoid trying to tinker with those a lot of borrowers do but they can be very important as you've probably seen and will see particularly where if there's a trustee process action where a third party and there will be plenty of lawsuits coming coming up with respect to defaulted obligations between creditors and borrowers where they haven't paid all of their bills a trustee I'm sorry they creditor will try and trustee process the bank accounts of your borrower and if you don't have the right to set off before you report back what's in the account you may find that the other creditor who is now unsecured is secured with respect to your most liquid asset your cache of your borrower so be very careful about those provisions and if necessary tighten them up now or expand them however it works but you want to have the most flexibility with respect to them so I think it's important you know there are arguments with the lockbox right there you just made it perfectly right exactly good point so another example of problems that we've seen in the past is the relationship between affiliates so many construction are just generally real estate and real estate loans we have a property company an entity that's an affiliate that owns the real estate and an operating company that operates the business out of that real estate and there's generally at least between the two but you're you know either you're probably making a loan to both in some cases where you have a real estate loan which would either it's an acquisition loan or a refinance of an exist or a prior acquisition loan and a line of credit for example to the operating company many people and I've seen this time and time again where there there will be a snd a a subordination non disturbance and a torment agreement and that is the bank will agree and this would generally be used for you know third-party leases that a lender would want to keep in place in the event of a foreclosure but keep in mind that in the circumstance of affiliates prop Cohen OpCo if one loan is in default then they should be cross default that in your your foreclosing and collecting on both loans you do not want to be in a position where you are not able to disturb the tenancy of the operating company on a foreclosed property with respect to prop Co sometimes those leases may be under market because they're between affiliates and you could be faced with a situation of foreclosing on the property but leaving OpCo undisturbed paying the extremely low rent and really if you have this agreement there may not be anything you can do about it practically speaking presently as I said early on in this presentation there there may not be an opportunity for you to evict OpCo even if this is set up properly assuming we get back to a situation where foreclosures and they will happen again you foreclose presently right now the the courts are not accepting any kind of eviction actions so even if you were able to foreclose presently you wouldn't be able to bring in a fiction action against OpCo if they were in default under the lease and or otherwise just subordinate to your mortgage at some point that will open back up again after the you know the the economic I'm sorry the shutdown is rescinded but you know only time will tell so options are limited presently but they will be opening up again and again it's time to examine what issues you may have so that they can be addressed now right and this is this OpCo situation is just a specialized version of a problem that you have with every loan where there's a tenant involved which is most of them or multiple tenants you know which tenants do you want which tenants don't you want which tenants must you take which tenants can't you take one thing you can do even an effective diction moratorium is it might be in your interest to terminate that below market lease and while I meant terminate I meant terminate under state law if the lease allows it you won't have possession it would help you out of action at all but if that tenant then goes bankrupt later and you have previously had terminated their lease under state law there will not be at least left for the bankruptcy trustee to assign or assume or give you trouble about so always keep that in mind when you're dealing with a with a weak tenant right thank you Rick so that takes us to the end of our slides and are there any questions we want to address I've been trying to answer them along the way there were some there were a couple questions about Massachusetts municipal liens and maybe I can try to talk about that for a minute and hopefully bring some clarity to it the massachusetts municipal lien statute says that if you get a municipal lien certificate from a municipality and record it within the time period which is I believe 120 days that operates to discharge all Massachusetts real estate tax liens which are not already of record and that last part is the most important part because if there's a tax lien out there from 10 years ago the municipal lien certificate has no impact on that at all and if that prior lien was sold off record to somebody well in theory there should be a indication that that lien was sold off record but but maybe there won't be but the evidence that there is a lien out there for you to deal with will be on the record in Massachusetts and frankly if you fund it behind that tax lien and didn't deal with it that's a loan problem that should have been dealt with before and should be cleaned up now yeah good point yeah there the the the warning there is not to just simply look at your youness building certificate and assume that you're you're fine you need to examine the entire record to determine whether or not there's an issue right something to talk about in Massachusetts is the relative subordination of leases and priority if you foreclose a Massachusetts loan and there's a least that's junior to you so let's say you closed your loan in 2014 and Elise went on in 2015 unless you've got a subordination and a tournament agreement with that tenant the foreclosure of your loan will automatically terminate that lease and if that's a very valuable lease to a deep credit like say Amazon that isn't going to go anywhere you effectively can't foreclose because you'd be killing the income to the property so again this is all part of think ahead look ahead play out all the scenarios and plan carefully because some sometimes you would be all set to work close but you just can't kill that one lease right so all right so any other questions Rick or we I think we've got the there was another one on someone's asking about the duration of condo liens and I think we're talking about again in Massachusetts there are condo liens for unpaid condo fees but I think the liens that Kris and I are trying to warn you about were the ones about being stuck with delivering on a developer promise and my view has always been whether or not there is a statute that says you have to do that as a practical matter they're going to be stuck with it one of the important dynamics of any workout is what we call the weakness of strength and the strength of weakness and that's the foreclosing bank that has the assets to be able to fund the problems with the condominium you will have the weakness of strength everybody will come to you looking to solve and the developer and the or the individual unit owners have the strength of weakness they have no money but they can all call their local represent and the banking commissioner and you're simply going to have to deal with those people it's one of the reasons why people don't like taking over condominium projects and Jack Mannheimer raised his hands jacketing Jack I think you need to send a question on the question list Jack is our bankruptcy partner up in Portland very smart guy a good guy just don't know what he's trying to say yeah he's there I don't know if we can unmute him Julie Biggers can you unmute Jack thank you my co-host can you hear me now yes that's okay good thank you I just wanted to comment on a couple of nuances under maintenances under Maine law that some of our main bankers may be thinking about the first was that unlike Massachusetts liens of condo associations do not Trump mortgages in Maine which i think is an important distinction now that's we're not talking about the situation where you have a partially completed condominium project I'm just talking about the situation where you're foreclosing on a unit in a condominium and the condominium association has a lien that lien is junior to your mortgage assuming that your mortgage is recorded ahead of the condominium lien then on the subject of municipal lien certificates in maine I'm actually not familiar with an active market in the purchase and sale of municipal tax liens and we're pretty confident in Maine that we know from a registry search whether there are tax liens that need to be addressed as part of any workout or restructuring something like that and we can identify those and the only way for them to be discharged is my discharge of record by the by the municipality and if it takes place after 18 months after the lien goes of record it needs to be in the form of a release deed as opposed to simply a discharge on the subject of addictions we also have a an eviction [Music] moratorium in place pursuant to executive order and a Supreme Court order but the the extent to which it applies to commercial evictions and extent to which it applies to writs of possession issued in connection with foreclosure matters as opposed to straightforward lease termination and eviction proceedings is an open question and then lastly with respect to foreclosure of income-producing property with leases where you don't have s/m das with your tenants also not entirely clear that those leases terminate if there's been a valid collateral assignment of leases and rents to the landlord whether the whether the lease in fact gets terminated by the foreclosure or whether the landlord has the right to enforce I'm sorry whether the lender has the right to enforce the lease under that circumstance so just a couple of differences in main law that I wanted to point out mmm good points right and that that can be one of the problems that comes up in in in a high transaction volume environment is people even though they're not supposed to they reach out across state lines and you've got Massachusetts lawyers using Massachusetts nominee trusts in New Hampshire and that's a major nono for people in Massachusetts trying to guess and guess wrong I'm what Jax when he count up in Maine so again like reading your documents carefully make sure that if it's a jurisdiction where your rank doesn't usually work they had everything exactly right if I'm still not on mute there was one other question will will the slides be available after the call and and I the answer to that is yes correct I sent that hope hopefully the entire group saw that okay okay well I think that said it's 1256 and so I think we're good for now you have our contact information here in the last slide if you have any further questions you want to discuss with us please feel free to reach out to any of us and you have our emails and phone numbers and a Jack's cell phone number as well all right thank thank you all very much for your time today and I we all wish you every success and the great challenges coming ahead as they're coming thank you all thanks Jenna
