If you are a lender specializing in UCC property, you may find that the Covid-19 pandemic has changed the landscape of how these types of loans are managed and foreclosed upon. During the peak of the pandemic, many UCC borrowers challenged commercial reasonableness on the basis of their new normal. Now, lenders have dozens of questions about how to enact a commercially reasonable mezzanine loan foreclosure and how to stay compliant to a rule that is purposefully vague.
The team at Total Lender Solutions has handled commercial real estate foreclosures and UCC-9 sales for over fifteen years. We understand that UCC-9 foreclosures can be complicated and confusing, especially for lenders who find themselves enacting their first foreclosure. If you are a lender, a foreclosure expert is your best chance at completing a commercially reasonable mezzanine loan foreclosure.
What is a Mezzanine Foreclosure?
In relation to finances, a commercial mezzanine loan is one that is secured by any property that is not real estate, including contract rights, equipment, furniture, or inventory among others. This loan is secured below mortgage loans but above equity financing (consider the root mezza in the word, which means “intermediate”). When a borrower defaults on a mezzanine loan, the lender has a right to recover their assets, known as a mezzanine foreclosure.
Related Article: How to Conduct a UCC-9 Sale
Why are Commercially Reasonable Mezzanine Loan Foreclosures so Complicated?
Mezzanine loans are some of the most difficult to foreclose due categorically to two reasons: commercial reasonableness and additional lienholders.
In order for a foreclosure to be valid, it must be considered a commercially reasonable foreclosure. Mezzanine loans are regulated by the Uniform Commercial Code, which fails to define in any certain terms what commercial reasonableness is. This is done largely on purpose, putting the power of determining commercial reasonableness in the hands of the court, who may make the judgment on a case by case basis.
Adding to this difficulty is the fact that lenders may not necessarily mitigate this problem by setting some terms of reasonableness in their initial contract, because legally, a foreclosure cannot be intrinsically seen as commercially reasonable simply because the borrower agreed that it was at the onset.
This process is complicated further because lenders must do due diligence to all lien holders involved. Because mezzanine lenders sit between mortgage lenders and equity finance lenders, this often creates a complicated network of lending entities that must all be included in the foreclosure process.
Total Lender Solutions: The Right Foreclosure Partner for Lenders
If you are looking to foreclose on a mezzanine loan, a foreclosure expert is your best chance at handling the complex process while protecting your assets. At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. Contact us for more information about your UCC sale.
