DS News

56 COUNSEL'S CORNER Oversight Brings Elevation to the Default Industry Richard Ormond is a shareholder for Buchalter Nemer based out of Los Angeles, California. Or- mond has a background that includes business, banking, receivership law, commercial litigation and work-out experience. He has particular experience with disputes involving Preferred Equity Structures, Bridge Lending, CMBS and other debt facilities. Additionally, he was recognized as one of "L.A.'s Top 100 Lawyers" by the Los Angeles Business Journal and has been selected as a "Super Lawyer Rising Star" or a "Super Lawyer" every year from 2002 to 2016. Ormond spoke with DS News about what the options for upcoming defaults entail from a state to state perspective. From a technical standpoint what are the options for upcoming defaults? It depends on a lot of factors. We are dealing with a national audience, but in es- sence you have varied, different responses you can have to a default. It depends if you are a CMBS servicer, a traditional lender, or a hard money lender. ere are different approaches you can take, but there are protocols that you have to follow that are pretty consistent across the country. In essence, you have to ensure that you've maintained as well as kept all communications so that you do not have more than one point of contact with your borrower. Also, the person who is that point of contact must be well-versed in lender liability issues so that they don't communicate extensions or modifications that somehow confuse the borrower in respect to their rights in a default situation. If it's a profit generating property, you have to consider whether you need to lock box rents or income or if you need to do something more extreme, such as seeking the appointment of a receiver to collect those rents and profits while the property issue is in dispute. You also have to be cognitive of the fact that if you get a receiver, you will end up in an enforcement environment with the court involved. ere is a cost to that and consider- ation to take with regards to that situation. You also have foreclosure options, and de- pending on the state, some have what's called the judicial foreclosure process which you have to file an enforcement action in court. You can also have what's called a non-judicial foreclosure action that some states provide where you can actually go and do a foreclosure without having the court involved. Each state is different and has its own rules and param- eters as to how to execute under both schemes. e other issues in some states that you have to deal with are like California, for ex- ample, where you have something called "e One Action Rule." You have to be very cogni- tive of what actions you take either through foreclosure or through judicial enforcement to make sure that you don't compromise any rights you might have with efficiency collec- tions etc. Have you had any issues with judicial foreclosures from a state to state per- spective? I have a practice that spans through most of the continental United States and I've dealt properties across the country. It does vary state to state and it is something that if you are not familiar with, or you don't have local feet on the ground advising you, you could be in big trouble. What I usually recommend in any state is to work hand in hand with the title companies that will make sure you follow the protocols necessary to preserve your rights. Title com- panies are very good at protecting themselves and in doing so they also protect those who they have insured including the lenders and the servicers. at's part of the approach to having good guidance on the ground from a local title companies or one that has a local presence. e other thing is to simply map out through counsel or through your own internal experts what is going to be economically the best process and what is going to preserve most of your collateral in that situation. For example, if you have an apartment building with 20 units you may want a very basic "rents and profits" receiver to go in there and babysit the property until you are able to foreclose. In a broken condo situation, you may want a re- ceiver to actually go in there and complete the work, which is a much costlier venture that you will have to fund. If you have a partially completed project that is worth much less collateral-wise than if it's a completed project, each case is going to be different and you are going to want to have someone there to guide you through all those different mechanisms. RICHARD ORMOND: Shareholder for Buchalter Nemer "We are dealing with a national audience, so you have various different responses to a default on a state by state basis. If you are a CMBS servicer, a traditional lender, or a hard money lender, there are different approaches you can take, but there are protocols that you have to follow that are fairly consistent across the country."

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