TOP TEN ISSUES WHEN BUYING DISTRESSED COMMERCIAL REAL ESTATE

1
TOP TEN ISSUES WHEN BUYING DISTRESSED COMMERCIAL
REAL ESTATE

• David W. Kelley
• Leonard, Street and Deinard
• Professional Association
• Minneapolis

2
Client Expectations

• Manage your clients expectations.
• Buyers lawyer should explain the process to
  client and discuss likely scenarios.

3
Recognizing Distressed Property

• How do you know a property is distressed?
• Asking price below apparent market value.
• Property is serious disrepair.
• Property taxes delinquent.
• Tenants are complaining about property or owner.
• Mechanics liens filed.
• Seller has judgments or tax liens filed against
  it.

4
Determining Status of Sellers Mortgage Loan

• How to know seller is in default.
• What do you want to know?
• Two threshold questions
• Will sale price pay entire mortgage debt?
• Will sale close before foreclosure concluded?
• Proceeding with seller.

5
Special Purchase Agreement Provisions When
Purchasing from Owner (Not Lender)

• What if buyer wants to terminate or renegotiate
  agreement?
• What transaction costs will be incurred by buyer
  and when?
• What if seller does not or cannot perform?

6
Due Diligence

• Items deserving special attention
• Physical condition of property.
• Tenant concerns.

7
Buying from Sellers Lender Buying What?

• Lenders interest what stage is foreclosure in?
• Buyers options.
• Due diligence.

8
Negotiating with Lenders

• How to contact lenders?
• Lenders outlook on distressed property buyers
  BFF?
• How does lender determine its price?

9
Title Insurance

• If buyer from seller, title policy can insure
  that sellers mortgage, mechanics liens and
  other liens have been satisfied.
• Title companies can insure any interest held by
  lender.

10
Fraudulent Transfers

• Key questions to determine fraudulent transfer
  risk
• Is purchase price less than fair market value?
• If so, is seller insolvent before or after the
  sale, or left with unreasonable small capital? If
  yes, sale is likely fraudulent as to sellers
  other creditors and could be voided.
• Does seller have other creditors who are likely
  to attack sale, or is seller likely to file
  bankruptcy?

11
Sellers Bankruptcy

• Key bankruptcy principles to keep in mind
• Seller/debtor may reject executory contracts.
  11 U.S.C.  365.
• Filing operates as automatic stay of commencement
  or continuation of collection efforts. 11 U.S.C.
   362.
• Foreclosing lenders options in bankruptcy.
• Unperfected or improperly perfected mortgage may
  be avoided by trustee or debtor in possession. 11
  U.S.C.  544(a).
• Mortgage may be voidable preference or fraudulent
  conveyance. See 11 U.S.C.  548(a) and 547(b).

12
Questions Answers

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  visit the Lecture Series section of the NCS
  website at www.firstam.com/ncs.
• An audio / video replay of this presentation will
  also be posted to our website at
  www.firstam.com/ncs.
• CLE credits are not available in all 50 states
  to find out if credits for this webinar are
  available in your state, please contact your
  local NCS account representative.

The views and opinions expressed within this
presentation are those of David Kelley (and/or
the law firm of Leonard, Street and Deinard) and
not necessarily those of First American Title
Insurance Company / National Commercial Services.