Introduction
The commercial real estate market is in distress. While residential foreclosures have received the bulk of media coverage, owners of commercial real estate are defaulting on their mortgages at an unprecedented pace. If your business leases commercial space, the likelihood that your landlord will file for bankruptcy is higher now than it has been in recent history. Because a landlord bankruptcy may occur without warning, tenants need to be aware of their rights and responsibilities in the event a filing does occur.
Today, the FDIC announced that Colony Capital Acquisitions, LLC paid a total of approximately $90.5 million (net of working capital) in cash for a 40% equity stake in a limited liability company (LLC) created by the FDIC to hold a portfolio of approximately 1,200 distressed commercial real estate loans with an aggregate unpaid principal balance of $1.02 billion arising out of 22 failed bank receiverships.
Recently, various national title insurance companies, such as First American Title Insurance Company and the entire Fidelity National Title Group—which includes Chicago Title Insurance Company, Fidelity National Title, Ticor Title, Lawyers Title, Commonwealth Land Title, Security Union Title and Alamo Title—officially announced that, effective immediately, creditors' rights coverage will no longer be available by endorsement, affirmative coverage, issuance of the American Land Title Association (ALTA) 1970 policies or otherwise. This change affects both owner's and loan policies.
Anyone who obtains title insurance, whether as an owner or a lender, should be aware of a recent abrupt and significant change in title insurance practices across the country. Title companies have recently stated that they will no longer delete creditors’ rights exclusions from, or add affirmative creditors’ rights coverage as an endorsement to, any of their issued title policies.
Over the next two years, billions of dollars in commercial real estate loans are expected to mature — loans that many property owners and landlords will not be able to pay off or refinance. As a result, a number of landlords that have purchased, built, renovated and/or refinanced their properties with short-term debt during the previous five years will find themselves in a precarious position. Market forces, combined with the tightening of credit markets, leave landlords holding over-leveraged property, unable to refinance their shortterm debt because of a lack of equity.
A recent decision by the U.S. District Court for the
Southern District of New York concluded that a landlord
who obtains a judgment of possession and warrant of
eviction prepetition, yet is stayed from executing on the
warrant due to the debtor’s bankruptcy filing, may not be
entitled to post-petition rent as an administrative expense.
In In re Association of Graphic Communications, Inc., No. 07-
10278 (Bankr. S.D.N.Y. July 13, 2010), the court decided
that, under New York law, the prepetition warrant of
In its recent decision, Continental Cas. Co. v. Sycamore Springs Homeowners Association, 2011 U.S. App. LEXIS 15005 (July 22, 2011), the United States Court of Appeals for the Seventh Circuit, applying Indiana law, had occasion to consider whether an underlying suit demanding that the insured undertake measures to prevent future “property damage” triggered coverage under a general liability policy.
First, the not-so-great news in figures:
First, the not-so-great news in figures: