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Portfolio Loan Defaults:
Issues Impacting Recovery Strategy
Nelwyn W. Inman
Shareholder
Chattanooga
423.752.4405
Jaime L. DeRensis
Associate
Nashville
615.726.5724
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Commercial Portfolio Loans
• Single loan secured by multiple properties
• Multiple cross-collateralized loans
• Single borrower or multiple, related borrowers
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Portfolio Loans
• Similar property type
• Real and personal property collateral
• Multiple locations
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Multi-Jurisdictional Loans
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When a Portfolio Loan Defaults –
What Rules Apply?
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Contractual Choice of Law Provisions
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Statutory Remedies for Each State Where
Property Located
• May impose additional requirements
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Receiverships for Multi-Jurisdictional
Portfolios
• Federal court jurisdiction based on diversity of
citizenship
• Amount in controversy > $75,000
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Federal Court Diversity Jurisdiction
• What is the “citizenship” of a party?
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Federal Court Jurisdiction – Citizenship
• Individuals
• Corporations
• Limited Liability Companies
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Federal Court Jurisdiction – Citizenship (continued)
• Partnerships
• National Banks
• Trusts
• REITs
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Federal Courts – Forum Selection
• Which federal district court?
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Order Appointing Receiver
• Receiver for Collateral vs. Receiver for Borrower
• Authority of receiver is defined in court order
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Order Appointing Receiver
• Rights of plaintiff creditor may be limited by order
appointing receiver
− Right to receive distributions of revenues
− Limited approval of certain actions of receiver
− Right to exercise foreclosure remedy
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Federal Court Receivership
• Domesticate order in each federal district where
collateral located
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Disposition of Collateral in Defaulted
Portfolio Loans
• Foreclosure vs. Receiver Sale
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Foreclosures in Portfolio Loans
• Judicial foreclosure states (state vs. federal court)
• Non-judicial foreclosure states
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Exercise of Foreclosure Remedies in
Judicial Foreclosure States
• State courts versus federal court
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Exercise of Foreclosure Remedies in
Judicial Foreclosure States (continued)
• Pleading the debt
• Hazards of estoppel arguments
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Non-judicial (Power of Sale) Foreclosure
States
• Special notice requirements
• Timing issues
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Defaulted Portfolio Loans – Election of
Remedies Laws
• If election of remedies laws are applicable, consider
impact on timing of:
− Pursuit of recourse liability/guarantor suits
− Order of foreclosures
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Defaulted Portfolio Loans – Sequence of
Disposition
• Legal constraints vs. business considerations
• Redemption rights
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Foreclosures of Collateral Securing
Portfolio Loans
• Credit bid considerations
• Origination debt allocations
• Single loan versus multiple cross-collateralized loans
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Defaulted Portfolio Loan Recovery
• Receiver sales
− Options under federal law
Public sales versus private sales
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Defaulted Portfolio Loan Recovery (continued)
• Receiver sales
− Disposition is to a single purchaser
− Marketing flexibility
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Defaulted Portfolio Loan Recovery (continued)
• Use combination of state law foreclosures and receiver
sales to expedite liquidation
− Could be quicker option in some judicial foreclosure states
− Consider if environmental issues
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Defaulted Portfolio Loans
• Preservation of deficiency rights
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Defaulted Portfolio Loan Recovery (continued)
• Lender liability issues
• Franchise rights
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Defaulted Portfolio Loans
• Tools for maximizing recovery
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