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Monthly Archives: October 2013

10 THINGS EVERY BUYER NEEDS TO CLOSE A COMMERCIAL REAL ESTATE LOAN

Commercial Real Estate Closings

Since 1978, I have represented borrowers and lenders in commercial real estate transactions. Throughout the process of negotiating the sale contract, all parties must keep their eye on what the Buyer’s lender will reasonably require as a condition to financing the purchase. This may not be what the parties want to focus on, but if this aspect of the transaction is ignored, the deal may not close at all.

RSP_LogoFull_2PMSSellers and their agents often express the attitude that the Buyer’s financing is the Buyer’s problem, not theirs. Perhaps, but facilitating Buyer’s financing should certainly be of interest to Sellers.  How many sale transactions will close if the Buyer cannot get financing?

This is not to suggest that Sellers should intrude upon the relationship between the Buyer and its lender, or become actively involved in obtaining Buyer’s financing. It does mean, however, that the Seller should understand what information concerning the property the Buyer will need to produce to its lender to obtain financing, and that Seller should be prepared to fully cooperate with the Buyer in all reasonable respects to produce that information.

Basic Lending Criteria

Lenders actively involved in making loans secured by commercial real estate typically have the same or similar documentation requirements.  Unless these requirements can be satisfied, the loan will not be funded.  If the loan is not funded, the sale transaction will not likely close.

 For Lenders, the object, always, is to establish two basic lending criteria:

 1.         The ability of the borrower to repay the loan; and

 2.         The ability of the lender to recover the full amount of the loan, including outstanding principal, accrued and unpaid interest, and all reasonable costs of collection, in the event the borrower fails to repay the loan.

In nearly every loan of every type, these two lending criteria form the basis of the lender’s willingness to make the loan. Virtually all documentation in the loan closing process points to satisfying these two criteria.  There are other legal requirements and regulations requiring lender compliance, but these two basic lending criteria represent, for the lender, what the loan closing process seeks to establish.  They are also (more…)

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Land Patent Defense is Frivolous, Sanctionable, and a Class 4 Felony in Illinois

The law is clear.  The so-called “Land Patent” defense does NOT work.

This is not earth shattering news, but it is a reminder that defenses to mortgage foreclosure actions must be well grounded in fact and warranted by existing law or a good faith argument for the extension, modification or reversal of existing law. In simple terms – defenses must at least be legally plausible.

One of the more bizarre defenses raised by a small group of defendants who refer to themselves as “sovereign citizens” is a so-called “land patent” defense. It does not work – at least not in Illinois.

In a long, unusual, and fairly cumbersome opinion filed by the Illinois Appellate Court on September 23, 2013, in the case of Parkway Bank and Trust Company v. Victor Korzen and Tomas Zanzola, 2013 IL App (1st) 130380, the First District Appellate Court addressed “a number of tactics a small number of debtors use to both delay the ultimate resolution of cases against them and to use the legal system for improper purposes. Some people might classify those who engage in these tactics as “sovereign citizens”, but regardless of nomenclature, their methods are not only counterproductive, but detrimental to the efficient and fair administration of justice. A recent New York Times article noted the FBI has labeled the strategy as “paper terrorism”.

I am a strong proponent of raising every viable defense to a mortgage foreclosure when representing a defendant. There are many defects in mortgage loan files, and many more defects arising from faulty loan administration, defective securitization of syndicated loans, and breaches of public policy and black letter law by lenders. Some lenders have fraudulently manufactured and forged missing assignment documents and other documents to fill material document gaps. There are legitimate defenses that can be raised and valid lender liability claims that can be pursued in many circumstances if the situation warrants and the resources are available to mount a strong defense and counter-attack.

That said, not every so-called “defense” is legitimate, and some are just plain goofy.

Among the illegitimate “defenses” is the claimed “land patent” defense. It simply does not work. It is not well grounded in law, and there is no good faith argument for the extension, modification or reversal of existing law that courts in Illinois – or probably anywhere in the United States – are likely to recognize as having been pursued in “good faith”. As a consequence, if you raise the “land patent” defense in defense of an Illinois mortgage foreclosure action, you are going to lose, be sanctioned, and perhaps be prosecuted for committing a Class 4 Felony.

In this short post, I do not intend to give an in-depth description of the (faulty) theory behind the land patent defense, but I will direct your attention to paragraph 72 et seq. of the Parkway Bank v. Korzen case, referred to above. Read this case if you are thinking about using the land patent contrivance as a “defense”, particularly in an Illinois mortgage foreclosure action. It does not work.

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