1. Send notice to mortgage lender – Send to the mortgage lender written notice of the default(s) under the mezzanine loan that would permit the mezzanine lender to foreclose on the equity interests in the mortgage borrower.
2. Send notice of default and acceleration – Send a notice of default and acceleration to the mezzanine borrower and other required notice parties with a copy to the mortgage lender.
3. Identify notice parties under UCC – Identify the persons required to be sent a notification of disposition, or UCC notification, under Article 9 of the UCC.
4. Develop marketing plan – Develop a “commercially reasonable” plan to market the pledged equity interests and other collateral for sale. As part of that process, the mezzanine lender should (a) identify qualified prospective purchasers of the collateral, (b) create a package of materials (including, if available, information regarding the financial position of the mortgage borrower) to be given to prospective purchasers upon request, (c) take initial steps to arrange for advertisements in one or more newspapers that are widely circulated in the county where the underlying real property is located and in other appropriate publications (e.g., The Wall Street Journal), (d) select the time and place for the sale and (e) engage a reputable auctioneer to conduct the sale.
5. Prepare notices – Prepare the UCC notification as well as a more detailed notice of public sale to be sent to prospective purchasers. At the same time, prepare a shortened version of the public notice to be used in the advertisements.
6. Prepare terms and conditions of sale – In consultation with the auctioneer, prepare the terms and conditions of sale that will govern the procedures for selling at auction the pledged equity interests and other collateral.
7. Prepare sale documents – Prepare a purchase and sale agreement, a secured party bill of sale, a standard investment letter and any other necessary closing documents.
8. Cure or purchase mortgage loan – If necessary or advisable, take required steps to cure or purchase the mortgage loan.
1. Send UCC notification – At least 10 days prior to the sale date, send the UCC notification to the mezzanine borrower and other persons specified in Article 9 of the UCC with a copy to the mortgage lender.
2. Send public notice – Simultaneously, send the public notice to prospective purchasers.
3. Run advertisements – For at least 7 consecutive business days prior to the auction date, run advertisements for the auction and sale in the appropriate publications.
4. Provide information and documents – Upon request, provide the bid package and other information in the mezzanine lender’s possession to prospective purchasers. At the same time, provide prospective purchasers with copies of the terms and conditions of sale and the relevant sale documents (e.g., the purchase and sale agreement, the bill of sale and the investment letter).
5. Deliver security certificates – If the pledged equity interests are represented by one or more certificates, arrange for originals of the certificates duly indorsed by the registered owner thereof (presumably, the mezzanine borrower) to be delivered to the attorneys handling the closing for the mezzanine lender.
6. Confirm deposits – If the terms and conditions of sale provide that prospective bidders must make earnest money deposits to participate in the auction, confirm with the escrow agent which prospective bidders have made the necessary deposits by the specified deadline.
7. Review qualifications of bidders – If the terms and conditions of sale require that bidders satisfy certain financial or other requirements, review financial statements and other submitted materials to determine whether prospective bidders are qualified.
Sale of Collateral:
1. Conduct auction – Have the auctioneer conduct the auction to sell the pledged equity interests and other collateral, as a single block, to the highest qualified bidder. Upon selection of the successful bidder (which may be the mezzanine lender), arrange for immediate execution of the purchase and sale agreement.
2. Close sale – Within the time period specified in the purchase and sale agreement, close the sale by, among other things, (a) delivering to the successful bidder the certificates representing the pledged equity interests and the bill of sale signed by the mezzanine lender and (b) obtaining from the successful bidder payment of the purchase price (or, if the mezzanine lender is the successful bidder, credit of the purchase price against the outstanding debt) and delivery of the investment letter signed by the successful bidder.
1. Immediate post-closing actions – As soon as the sale has closed, take or cause to be taken whatever steps are required under the mortgage borrower’s organizational documents to ensure that (a) the successful bidder is admitted as a member or a partner of the mortgage borrower (typically, the mortgage borrower is a limited liability company or a limited partnership), (b) the persons previously managing the business and affairs of the mortgage borrower are removed and replaced and (c) the mortgage borrower registers on its books the transfer of the pledged equity interests to the successful bidder.
2. Hire new property manager – Promptly following the sale, ensure that a “qualified manager” (as defined in the intercreditor agreement) is appointed to manage the underlying real property.
3. Implement hard cash management and adequate reserves – If necessary, promptly following the sale, ensure that hard cash management and adequate reserves for taxes, insurance and other expenditures are implemented under the mortgage loan
4. Deliver notice of transfer and officer’s certificate – Promptly following the sale, deliver to the mortgage lender and the applicable rating agencies (a) a notice of the transfer of title to the pledged equity interests and (b) an officer’s certificate from an officer of the mezzanine lender stating that all sale-related conditions set forth in the intercreditor agreement have been satisfied.
5. Deliver new non-consolidation opinion – Within the time period specified in the intercreditor agreement, ensure that the successful bidder delivers to the mortgage lender a new non-consolidation opinion acceptable to the applicable rating agencies.
Mezzanine Loan: Unlike a mortgage loan, which is made directly to the owner of a real estate project and is secured by a mortgage or deed of trust on the project itself, a mezzanine loan is typically made to the entity that owns the project owner and is secured by a pledge of the entity’s equity interest (i.e., its membership interest, partnership interest or other ownership interest) in the project owner. In the capital stack for a typical commercial real estate deal, mezzanine debt occupies a position between the senior debt provided by the mortgage lender and the equity capital contributed by the principals – hence the term “mezzanine.”
UCC: Uniform Commercial Code.
The receivership of a 94 room hotel in Kissimmee, FL closed on July 28, 2008.
Trigild was hired by the bankruptcy trustee to secure 37 Bennigan Steak and Ale restaurants located throughout 13 states.
Trigild was appointed receiver of two mobile home parks in Wisconsin – one park with 143 pads and the other with 540. The default loan amount totaled $4.4 million.