• The Commercially Reasonable Real Estate Mezzanine Loan Foreclosure - Lessons from the Front Lines
  • March 26, 2010 | Author: Malcolm K. Montgomery
  • Law Firm: Shearman & Sterling LLP - New York Office
  • More and more real estate mezzanine loans go into default every day. It is inevitable that some mezzanine lenders, after considering possible restructuring options, conclude that foreclosure presents the only viable solution. Numerous articles have been written recently on the mechanics of foreclosing mezzanine loans under Article 9 of the Uniform Commercial Code (“UCC”), but little practical advice has come back from the front lines as borrowers and lenders vie for control of complex real estate assets. The UCC was not drafted with membership interests in limited liability companies owning real estate assets specifically in mind and provides scant guidance for lenders looking to convert mezzanine debt into equity ownership. It is clear, however, that public sale foreclosures must be conducted in a “commercially reasonable” manner. Meeting that standard, of course, is easier said than done. This article focuses on the real world strategic and tactical issues a mezzanine lender may encounter when conducting a mezzanine loan foreclosure involving a multi-faceted real estate asset.