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CONTENTS

1 President’s Column

4 Executive Director’s Report

5 Editor’s Notes

7 CFIUS—It’s Not Just for M&A Lawyers Anymore

11 Potential Benefits of Accepting Mexico Real Property as Collateral

14 Harnessing the Superpower Priority of PACE Liens

17 Fauci-Mae I? Fannie and Freddie Mac’s Multifamily Attack on COVID-19

20 Health Savings Accounts—A Triple Play

COLLEGE NEWS22 Reflections on Challenging Times

24 ACMA Residential and Regulatory Committee

24 Senior Fellows Task Force

25 Manulik & Nedelman: A Conversation on Transitioning Into Retirement

27 In Memoriam

When I was installed as president at ACMA’s Annual Meeting in beauti-ful Monterey, California, in September 2019, I could not have imagined the events that would unfold and the challenges we would all face over the next 12 months. While many of us had long looked forward to our 2020 Spring Meeting at the Four Seasons Rancho Encantado Resort in Santa Fe, New Mexico, none of us could have anticipated that the meeting would in fact be our first-ever virtual meeting. Nonetheless, due to the outstanding efforts of ACMA’s leader-ship, the Spring Meeting was a highly successful event in which a record number of Fellows participated.

With the pandemic still seriously restricting travel and in-person conferences, our 2020 Annual Meeting, originally scheduled to take place at the Lodge at Torrey Pines in La Jolla, California, will also be virtual. Once again, due to the efforts of many ACMA Fellows and solid support from the staff at MSP, this year’s first-ever virtual Annual Meeting also promises to be highly successful. The meeting will feature a full array of educational, networking, and social activities. Great efforts have been made to ensure that this year’s Annual Meeting will be rich in content and collegiality. In addition to five CLE sessions, there will be the full complement of governance and committee meetings; a New Fellows Induction Ceremony; virtual receptions; and a number of novel special events for Fellows, spouses, and significant others.  ACMA’s acclaimed Corporate Counsel Symposium will also go virtual this year, as will our highly popular mini-golf tournament. Hard-core golfers can also look forward to 2023, when we will return to Torrey Pines and its legendary courses for that year’s ACMA annual golf tournament.

Despite the unique challenges faced this year, the College has managed to remain a vital and active organization committed to the four key components of ACMA’s strategic plan: [1] Relationships—collegiality, camaraderie, and collaboration; [2] Knowledge—advancing professional knowledge and skills through, among other things, high-quality CLE; [3] Thought Leadership—on real estate finance legal, regulatory, and legislative issues; and [4] Sustainability—ensuring ACMA’s long-term financial viability. 

Fall 2020

A B S T R A C TThe

A m e r i c a n C o l l e g e o f M o r t g a g e A t t o r n e y s

President’s ColumnBy Norman H. Roos, Robinson & Cole LLP, Hartford, Connecticut

PRESIDENTNorman H. Roos, Hartford, CT

PRESIDENT ELECTBeth H. Mitchell, Boston, MA

TREASURERJoyce L. Elden, Wellesley, MA

SECRETARYRobert W. Sargeant, Seattle, WA

IMMEDIATE PAST PRESIDENTJacob W. Reby, St. Louis, MO

2019 – 2020 BOARD OF REGENTS

Justin Lischak Earley, Santa Ana, CAJoyce L. Elden, Wellesley, MADean Formanek, Phoenix, AZNed W. Graber, Houston, TXAdrian P. Hartog, Toronto, ONSandra T. Hawley, Kansas City, MORick L. Knuth, Salt Lake City, UTStacy D. Lavin, Nine Mile Falls, WADeanna Lee, Los Angeles, CAElizabeth C. Lee, Washington, DCGregg J. Loubier, Los Angeles, CAStephen H. Malato, Chicago, ILLaura L. McClellan, Dallas, TXBeth H. Mitchell, Boston, MAPaul S. Moe, Minneapolis, MNPedro Morell, San Juan, PRGisela M. Munoz, Coral Gables, FLJohn M. Murphy, Milwaukee, WIJ. Marcus Painter, Boulder, CODiana R. Palecek, Charlotte, NCAndrew F. Palmieri, Washington, DCJames Papadimitriou, Montreal, QCMelissa B. Papke, Grand Rapids, MIJacob W. Reby, St. Louis, MOStephen R. Romine, Virginia Beach, VANorman H. Roos, Hartford, CTRobert W. Sargeant, Seattle, WAJonathan Thalheimer, Dallas, TXJ. Thomas Trent Jr., Nashville, TNJennifer L Wolf, St. Paul, MN

ACMA STAFF

EXECUTIVE DIRECTORCharles W. L. Deale, FASAE, CAE

SENIOR VICE PRESIDENT, MEETINGS AND COMMUNICATIONSGrace L. Jan, CAE, CMP

SENIOR MEMBER SERVICES MANAGERLinda Bernetich, CAE

MEETING PLANNERLynette Randazzo

DIRECTOR OF ACCOUNTING SERVICESDawn Rosenfeld

EDITORLynne G. Agoston

Many Fellows have also been engaged this year in a number of new initiatives. The new Senior Fellows Task Force got off to a good start with Ned Graber’s highly informative Spring Meeting seminar on “Transition to Your Next Phase: Questions to Consider for Retirement.”  The Residential and Regulatory Task Force organized last year recently became ACMA’s newest committee and is poised to make sig-nificant contributions to the College under the leadership of committee chairs Mike Flynn and Justin Earley. The Financial Restructuring and Remedies Committee, led by co-chairs Anthony Carriuolo and Alan Feld, has been particularly active and has con-ducted two highly successful COVID-19 Open Forum webinars. 

Several other ACMA committees have been busy this year as well, including Amicus Brief (Tom Miraglia–Chair), Capital Markets (Gisela Munoz and Jonathan Thalheimer–Co-Chairs), Corporate Counsel (Simon Reeve and Lisa Grimes–Co-Chairs), Legislation (Michael Buck ley and Frank Keldermans–Co-Chairs), Membership Development and Engagement (John McNearney–Chair); Mexico Fellows (Gregg Loubier–Chair), Mortgage Law Summary (Laura McClellan and Dan Gentges–Co-Chairs); Strategic Plan Implementation (John Murphy–Chair),  and Title Insurance (John Hosack and Candace Cunningham–Co-Chairs). A special thanks also to Dena Cruz, the longstanding editor of The Abstract. Dena is always looking for content, so please consider submit-ting an article for the next edition!

 

I also want to thank the Membership Committee, led by Beth Mitchell, for its efforts so far this year in approv-ing 18 new Fellows for admission to the College as ACMA’s Class of 2020.  These new Fellows will be inducted at a special ceremony at our September meeting. Meanwhile, Beth and the committee are also in the pro-cess of reviewing a second round of nominees for the Class of 2020, with action to be taken on those nomina-tions in September.

A special thanks also to Eric Pruitt, Jim Wine, Meagen Leary, Jenna Vick Unell, and the rest of the Program Committee for their efforts in putting together another excellent CLE pro-gram for this year’s Annual Meeting, despite the special logistical challenges of going from a live program in Torrey Pines to a virtual format.

I also want to thank John Murphy and Larry Wolk as state and provin-cial chair coordinators and to all of the state, provincial, and territorial chairs for their efforts on behalf of the College this year. In that regard, a spe-cial shout-out is due to Andy Lubin, Connecticut state chair;  Jonathan Thalheimer, Texas chair; and Norma Williams, California chair  for their efforts in getting the Fellows in their states together for in-state in-person or Zoom-based meetings this year.

I also need to recognize Andrew Palmieri,  chair of the Diversity and Inclusion  Subcommittee, and the entire subcommittee for their efforts in a year that has highlighted the importance of diversity and inclusivity throughout society. I specifically thank

President’s Column

THE ABSTRACT 2 FALL 2020

Alberta, Olivia ColicBritish Columbia, David R. BainOntario, Mario C. PauraQuebec, James PapadimitriouSan Juan, PR, Pedro MorellVirgin Islands, U.S., William S. McConnellAlabama, Scott A. AbneyAlaska, Stephen D. RouthArizona, Timothy W. MoserArkansas, Timothy W. GroomsCalifornia, Norma J. WilliamsColorado, J. Marcus PainterConnecticut, Andrew R. LubinDelaware, Joy A. BarristDistrict of Columbia, Christine Waldmann

CarmodyFlorida, Anthony J. CarriuoloGeorgia, James M. May IIIHawaii, Janel YoshimotoIdaho, Christine E. NicholasIllinois, Michael J. DelrahimIndiana, Madalyn S. KinseyIowa, James C. WineKansas, Mark A. AndersenKentucky, Michael B. VincentiLouisiana, G. Wogan BernardMaine, Christopher J. DevlinMaryland, Anna A. MahaneyMassachusetts, Bruce H. BagdasarianMichigan, Howard B. GoldmanMinnesota, Dean L. BusseyMississippi, P. David AndressMissouri, Cheryl A. KellyMontana, Allan KarellNebraska, Michael F. KivettNevada, Michael E. BuckleyNew Hampshire, Peter F. BurgerNew Jersey, Lydia C. StefanowiczNew Mexico, Debora E. RamirezNew York, Malcolm K. MontgomeryNorth Carolina, Frank E. AradoNorth Dakota, Jeremy D. HolmesOhio, Joanne M. SchreinerOklahoma, Michael S. LairdOregon, Bryan E. PowellPennsylvania, Thomas J. MiragliaRhode Island, Diana M. DucharmeSouth Carolina, W. Lindsay SmithSouth Dakota, Eric R. KerkvlietTennessee, Emily BowmanTexas, Jonathan ThalheimerUtah, Brian D. CunninghamVermont, Andre D. BouffardVirginia, Nancy J. ApplebyWashington, Stacy D. LavinWest Virginia, Joyce F. OfsaWisconsin, Daniel W. GentgesWyoming, Dale W. Cottam

2019–2020STATE AND PROVINCIAL

CHAIRS

the subcommittee for ACMA’s Racial and Social Justice Statement.

My sincere thanks to all of the com-mittee chairs, vice chairs, and com-mittee members for all of their hard work in making ACMA the vibrant, collegial, and engaged College that it is today.

My final thanks go out to Jake Reby, Beth Mitchell, Joyce Elden, Rob Sargeant, and Chip Deale and his team at MSP. It has been a privilege to work with such a talented, conscientious and genial Executive Committee. Despite the rigors we have endured throughout this most unusual year, it has been a rare pleasure to work with you all.

I am pretty confident that 2020 will be a year that we will all remember. For me, my fondest memories will include the opportunity I have had to serve ACMA as its president.

While I certainly will miss seeing you in person at our upcoming Annual Meeting, I look forward to seeing you online in September … and I am eagerly looking forward to connect-ing with you in person at our 2021 Meetings in D.C. in April and St. Louis in September.

Meanwhile, stay healthy, stay safe … and stay active in ACMA.

President’s Column

THE ABSTRACT 3 FALL 2020

It was just four months ago, though it seems almost like a lifetime to me and many others.

When the spring edition of The Abstract was distributed to you in late April, the pandemic’s impact and consequences were being fully realized. What the Washington Post described as “a desperate month” saw nearly 60,000 Americans die and the country’s economy largely grind to a halt. It truly was, in the Post’s words, “the virus that changed America.”

The months since have been a blur, filled with uncertainty and anguish as well as faint glimmers of hope (that the pandemic soon will run its course and that a reliable vaccine can be found).

But in the midst of this turmoil, ACMA as an organization has adapted to the “new normal” and moved forward, as have each of you as Fellows. Adaptation has led to progress—in the way in which the College serves you as members, in the manner in which many of you contribute to its activities, and certainly in how you perform your work.

The adaptation began a week before The Abstract arrived in your email in-box, when ACMA quickly converted what was to have been an in-person Spring Meeting into a well-attended and highly-rated virtual event (materials from which can be found here on the website).

Who knew then that “virtual” would become part of our everyday lexicon and that “Zoom fatigue” would soon set in?!

Adaptation manifested itself in other important ways as well. For example, the Program Committee leadership quickly pivoted and adjusted what had been previously-approved CLE content for the Annual Meeting to fit the modified schedule for the virtual meeting. Kudos to the committee and the session moderators and panelists for their cooperation and flexibility!

But there’s still more.

As President Norm Roos mentions in his column, the Financial Restructuring and Remedies Committee followed up its inaugural COVID-19 Forum at the Spring Meeting with an equally popular (160 registrants!) and successful encore in July. More of these insightful open dialogue sessions are on tap in the coming months.

The Nominating Committee performed its important annual function of vetting candidates and proposing a slate of nominees to serve as ACMA officers and regents, ensuring continuity of leadership. I appreciate their willingness to serve, and also give thanks to the leaders whose terms are concluding.

The Budget Committee worked diligently through the challenges created by an entirely uncertain economic forecast to craft a balanced budget for ACMA’s 2021 operating year

(the recommended budget will be voted on by the Board of Regents during the Annual Meeting).

Eighteen Fellows stepped forward in response to a call for volunteers to mentor ACMA’s newest class of members and share insights on how to get actively involved in the College, gain the most value from their membership, and develop connections with other Fellows.

And, f inally, the culmination of efforts by the Diversity and Inclusion Subcommittee, including its insightful survey on the demographics of the current ACMA membership, has provided a valuable blueprint for ultimately making the College more representative of the broader legal profession that it serves. Be sure to read the article by subcommittee chair Andrew Palmieri in this issue of The Abstract.

The examples of adaptation and progress I have cited here, combined with similar examples referenced in President Roos’ column, speak to the dedication and commitment that so many of you have to ACMA, just as has been the case with those that came before you dating back to the organization’s founding in 1974.

Setting aside the turmoil and tragedy that has been all too frequent in 2020, and the uncertainty that still lies ahead, it has been my privilege to serve as your executive director again this year.

Executive Director’s ReportBy Chip Deale, FASAE, CAE, ACMA Executive Director

Adapting and Progressing

Continued on page 6

THE ABSTRACT 4 FALL 2020

Although the COVID-19 pandemic required the cancellation of ACMA’s 2020 Spring Board of Regents meeting and the upcoming 2020 Annual Meeting, the Fellows have still been busy. ACMA’s committees have been extremely active holding Zoom meetings, working on the upcoming Mortgage Law Summary, encouraging business referrals, and drafting mission statements. Linda Koffman, Gibson Hoffman & Pancione P.C., Los Angeles, California, has joined the Publications Subcommittee, and with her assistance, there are some terrific articles for this edition, and a few teed-up for the 2021 spring edition!

In this edition you will find an article written by Mark S. Sharpe, Burr Forman McNair, Charleston, South Carolina, titled “CFIUS—It’s Not Just for M&A Lawyers Anymore.” This article is extremely timely given the present administration’s concern regarding Chinese investment in U.S. companies and Chinese control over “personal information” (Twitter). CFIUS stands for the “Committee on Foreign Investment in the United States.” CFIUS assists the president in monitoring direct foreign investment. It has the power to block a purchase or requirement divestment. If you are representing foreign investors, it behooves you to be cognizant of the rules promulgated by the committee and political sensitivities!

Mauricio Leon De La Barra, Leon De La Barra Attorneys at Law, with offices in Los Angeles, Tijuana, and Mexico City, has written an article titled “Potential Benefits of Accepting Mexico Real Property as Collateral.” The article covers some of the issues that arise when lenders secure loans with real property collateral located in Mexico. This article, along with new Fellow Guillermo Rivera Belden’s, CDMX, summary of Mexican real estate law for ACMA’s Mortgage Law Summary, expected to be available in the fourth quarter of 2021 ___, 20___, should greatly assist Fellows in representing clients lending on collateral located in Mexico.

Wendy S. Gibbons, Old Republic National Title Insurance Company, Charlotte, North Carolina, has written an article on PACE Liens titled “Harnessing the Superpower Priority of Pace Liens.” She has also provided us with a 50-state summary of state laws pertaining to PACE liens. This summary can be found on ACMA’s website.

We sle y K . Da g e s t a d , RG A Reinsurance Company, Chesterfield, Missouri, a colleague of Fellow Lisa C. Grimes, has submitted his second article within the last year, this one titled “Fauci-Mac: Fannie & Freddie’s Multi-Family Response to COVID-19.” Wesley’s article summarizes the guidance released by Fannie & Freddie Mac and addresses its impact on

multi-family borrowers and lenders. Many thanks for your continued contributions, Wesley. We hope to see you on the new Fellows list in the near future!

The a r t ic le “Hea lt h Sav ing s Accounts—A Triple Play,” by Ned Graber, retired from AIG Investments, Houston, Texas, is a submittal from the newly formed Senior Fellows Task Force. Although not an article on substantive real estate law, this article provides advice important to our members. We hope to see articles in the future pertaining to matters important to the health and well-being of ACMA’s Fellows.

In this edition, we have created a new section titled “College News.” It is our intent to provide capsulized information on what some of the committees, task forces, and Fellows are up to.

Andrew Palmieri, Saul Ewing Arnstein & Lehr LLP, Washington, D.C., has submitted a statement titled “Reflections on Challenging Times” on behalf of the Diversity & Inclusion Committee. ACMA, in its desire to Partner with the Best™, actively seeks diversity and inclusion in all forms in its membership, so as to inform its thinking about industry policies, customary practice, and the betterment of the communities in which our Fellows serve. Andrew’s short article is welcome in these challenging times.

Editor’s NotesBy Dena M. Cruz, Berding Weil LLP, Walnut Creek, California

THE ABSTRACT 5 FALL 2020

Michael C. Flynn, Buchalter, Los Angeles, California, has graciously provided us with a short statement for the newly formed Residential & Regulatory Committee. Please reach out to Michael or Justin Early, First American Title Insurance Company, Santa Ana, if you are interested in serving on this committee.

Ned Graber, chair of the newly formed Senior Fellows Task Force, also has provided a short statement on the goals of this important task force. ACMA Past President Alec Nedelman, formerly with iStar Inc., Los Angeles, and now senior counsel, Business & Talent Development, Katten Muchin Rosenman LLP, Los Angeles, agreed to be interviewed by Past President Mark Manulik, Schwabe, Williamson & Wyatt, Portland, Oregon. Mark and Alec give us a tip on how to address the transition to retirement.

Many thanks to Linda Koffman for agreeing to serve as a future editor of The Abstract. Two of ACMA’s strengths are its focus on mentoring and the recognition that the College is better served when leadership passes on the baton to younger Fellows in a timely manner.

Thanks a lso to the Executive Committee for helping us solidify the Guidelines for Submission of Articles to the Abstract, a copy of which will be provided to all Fellows interested in drafting future articles for The Abstract. Please do not hesitate to reach out to Linda or me if you have an idea for an article or would like to work with us on the Publications Subcommittee or the ACMA blog.

We hope to see you at the 2020 Virtual Annual Meeting, September 9–11. If you have not done so already, please log in and register for what will surely be an exciting and interesting program!

Executive Director’s ReportContinued from page 4

I close with the words of one of my favorite musical artists, the award-winning Mary Chapin Carpenter, who ends each of her “Songs from Home” performances on Facebook with this declaration of hope:

Stay wellStay strong

Wear your maskAnd stay mighty

THE ABSTRACT 6 FALL 2020

Introduction

CFIUS is a U.S. government entity with the power, on national security grounds, to block or unwind foreign investor transactions in the United States. Until recently, CFIUS’s author-ity extended mostly to foreign invest-ments in “U. S. businesses” and prin-cipally impacted mergers, acquisitions, and takeover transactions. Any regula-tion of real estate by CFIUS was indi-rect and incidental to its regulation of foreign business acquisitions.

Recent legislation, however, has granted CFIUS the power to directly regulate real estate transaction by for-eign investors. This article will review the scope of that newly granted power as well as the prior power of CFIUS to regulate real estate transactions.

What Is CFIUS?

CFIUS is the Committee on Foreign Investment in the United States. This is an interagency committee originally formed in 1975 by executive order1 but later achieving statutory sanction.2 CFIUS consists of the heads of the major cabinet departments and agen-cies of the United States, including the heads of the Departments of Treasury, Justice, Defense, State, Homeland Security, and Commerce.3 CFIUS is chaired by the secretary of the trea-sury, and its regulations are issued by the Department of the Treasury.

What Is the Purpose of CFIUS?

CFIUS assists the president in moni-toring foreign direct investment in the United States for possible national

security risks.4 CFIUS does this by reviewing proposed (and completed) foreign investment transactions; if CFIUS determines a transaction poses a risk to national security, CFIUS can block the transaction, or if already completed, CFIUS can require the foreign investor to divest itself of the investment. CFIUS can also order the parties to undertake mitigation in addition or in lieu of blocking the transaction entirely or ordering com-plete divestment.5

What Transactions Are Subject to CFIUS Review?

Broadly speaking, CFIUS applies to three classes of transactions. The first class is merger, acquisition, and take-over transactions that could result in foreign control6 of a U.S. business.7 These merger, acquisition, and take-over transactions and related foreign control issues were the original focus of CFIUS. The regulations implement-ing this core function of CFIUS are set forth in 31 C.F.R. § 800, and the core powers set forth in the regulations are frequently referred to a CFIUS’s Part 800 powers.

The second class of transactions to which CFIUS applies are “other invest-ment” transactions. These are trans-actions that do not result in foreign control of U.S. businesses, but grant a foreign investor access to informa-tion held by U.S. businesses that relate to critical technology,8 critical infra-structure,9 or sensitive personal data,10 or grant foreign entities the right to participate in the decision-making by

such U.S. businesses. The power of CFIUS over these “other investment transactions” first arose from the 2018 FIRRMA amendments to the Defense Production Act of 1950 discussed below.

Applicability of CFIUS to Real Estate Transactions

The third class of transaction to which CFIUS applies consists of “covered real estate transactions,” which are speci-fied types of transactions relating to “covered real estate.” The extension of CFIUS’s powers to include such direct regulation of real estate transactions was effected by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). This Act amends section 721 of the Defense Production Act of 1950, which provided the first statutory sanction for CFIUS.

The final FIRRMA regulations relat-ing to CFIUS powers with respect to real estate transactions became effec-tive February 13, 2020.11 These regu-lations are set forth in 31 C.F.R. § 802, and, reflecting this codification, the power of CFIUS to directly regu-late real estate transactions as a result of FIRRMA is sometimes referred to CFIUS’s Part 802 power.

“Covered real estate transactions” sub-ject to CFIUS review include any “pur-chase, lease, or concession”12 of “cov-ered real estate” to a foreign person, if the foreign person is granted any three of the following rights:13

The right to physically access the real estate;

CFIUS—It’s Not Just for M&A Lawyers AnymoreBy Mark S. Sharpe, K&L Gates LLP

THE ABSTRACT 7 FALL 2020

The right to exclude others from physi-cally accessing the real estate;

The right to improve or develop the real estate; or

The right to attach fixed or immovable structures or objects to the real estate.

Property is “covered real estate” if any of the following are true:14

The property is an airport or seaport meeting minimum cargo or traffic requirements, or as to airports, the property serves as a hub or is used jointly for both military and civilian traffic;15

The property is located within “close proximity” of any (i) designated mili-tary installation or (ii) another desig-nated facility of the US government. Property is in “close proximity” to an installation or facility if it is within one mile of the boundary of such facility or installation;16

The property is located within the “extended range” of any designated military installation. These designated military installations are army combat training centers, range and test facility bases, and Navy and Air Force ranges and test facilities located in Oregon, Nevada, Idaho, Wisconsin, Mississippi, North Carolina, or Florida. Property is within the extended range of a facil-ity if located within 99 miles of the facility;17

The property is located anywhere in certain listed counties containing bal-listic missile facilities; 18 or

The property is located within offshore military ranges and complexes in in the territorial waters of the United States.19

To assist parties in determining whether any property is covered real estate, the Treasury Department pro-vides links to an online list of the rel-evant hub airports, cargo airports, and

seaports.20 The Treasury Department also provides a link to an online CFIUS Geographic Reference Tool: this is an interactive map into which one can insert an address and receive a list and map of all military facilities within 100 miles of the subject address, as well as the distance of each facility from the subject address.21

Excepted from the definition of “cov-ered real estate transactions” are trans-actions with “excepted investors”22 designated by the Department of the Treasury. These currently include the following:23

Foreign nationals from Australia, Canada, and the United Kingdom;24

The governments of Australia, Canada, and the United Kingdom; and

Entities that have (i) their principal place of business in the United States, Australia, Canada, or the United Kingdom, and (ii) are controlled by citizens of those states or the govern-ments of those states, and as to which there is no significant minority interest held by persons who do not meet the excepted investor requirements.

Also excepted from the definition of “covered real estate transactions” are the following real estate transactions:25

Transactions with respect to property in an urbanized area or urban cluster that is not part of a port or near a mili-tary institution;

A single family housing unit;

A lease or concession of airport facili-ties to a certified foreign air carrier;

A lease or concession solely for retail sales of goods or services to the public; and

A lease or concession of not more than 10 percent of the commercial space in a multi-unit building and where the

foreign investor does not represent more than 10 percent of the tenants.

Real Estate Review Under Part 800

Even though CFIUS has direct “Part 802” authority over covered real estate transactions, it reserves the right to review real estate transactions under its Part 800 authority if the real estate itself (or the operation of the real estate) might be deemed a “U.S. busi-ness.” Use of its Part 800 power allows CFIUS to focus on national security risks arising from the foreign control issues in a real estate transaction, while under its Part 802 powers, CFIUS focuses on largely national security issues arising from the location or inherent nature of the property.

An example illustrating CFIUS’s potential Part 800 power over real estate is the 2015 sale of the Waldorf Astoria hotel in New York City. The purchaser was Anbang Insurance Group, a Chinese insurance company. Anbang sought and obtained CFIUS preapproval of the transaction. The apparent concern was that the trans-action would result in foreign control of the hotel, as a business, and that there were perceived national security concerns because the hotel frequently housed the U.S. ambassador to the United Nations and other U.S. diplo-matic personnel.26

The Notice and Review Process

The parties to a proposed real estate transaction can file a voluntary notice of the transaction with CFIUS. 27 Upon receipt of the notice, CFIUS is autho-rized to conduct a 45-day national security review, followed by a 45-day national security investigation, which is then followed by a 15-day period for a presidential determination. 28

There is no mandatory notice filing requirement, but where no voluntary

THE ABSTRACT 8 FALL 2020

notice has been filed, CFIUS may con-duct a review on its own initiative. As part of this review, CFIUS may request the parties to provide information suf-ficient to allow CFIUS to determine whether the transaction is a covered real estate transaction. If CFIUS deter-mines the transaction to be a covered real estate transaction, then CFIUS may require the filing of a formal notice of the transaction.

CFIUS encourages the filing of draft notices for review and discussion prior to the filing of actual notices29 and, as a practical matter, draft notices or notices for transactions that are likely not to be approved are frequently with-drawn. All notices and accompanying information filed with CFIUS are con-fidential and exempt from disclosure under the Freedom of Information Act, although the parties themselves are free to disclose the information.

In 2018, 229 notices were filed with CFIUS. After its initial reviews, CFIUS conducted a subsequent inves-tigation with respect to 158 of those notices. CFIUS adopted mitigation requirements with respect to the trans-actions referred in 29 of the notices. Of the 229 total notices filed, 66 were ultimately withdrawn. Of the with-drawn notices, 42 were subsequently refiled. Two notices were rejected on procedural grounds, and one resulted in Presidential Order prohibiting the transaction.30

CFIUS in Action; the Broad Scope of the President’s Remediation Powers

There is a significant pre-FIRRMA case that prefigures the application of the later-adopted real estate proxim-ity rules and illustrates the expansive power granted to CFIUS with respect to transactions deemed national secu-rity risks.31 The case arose from an acquisition made by Ralls Corporation, a corporation formed in Delaware but

owned by two Chinese nationals. Ralls acquired the membership interests in four limited liability companies, each of which owned and operated a wind farm in rural Oregon. The assets of the limited liability companies consisted principally of easements with local landowners, under which the limited liability companies could install and maintain the wind turbines on the land, along with transmission intercon-nection agreements and government permits—all typical assets of wind and solar power farms.32

Ralls did not file a voluntary notice with CFIUS prior to closing, and thus did not obtain pre-clearance. Unfortunately, three of the wind farms were located within seven miles of U.S. Navy restricted airspace and a bomb-ing zone, and the fourth was located within the restricted airspace.

About a month after the closing, CFIUS contacted Ralls and requested the filing of a voluntary notice, which Ralls and the seller promptly made. Shortly thereafter, CFIUS issued an interim order requiring all construc-tion operations to cease, requiring removal of all material stockpiled on the sites, and prohibiting access to the sites except by CFIUS-approved U.S. citizens.33 The following month, the president signed an order (1) declaring the transaction prohibited, (2) ordering Ralls to remove all structures or other physical objects or installations from the project sites within 14 calendar days, and (3) ordering Ralls to divest its interest in the project companies within 90 days.34

The presidential order went further, providing (1) that the companies and persons acting on their behalf were prohibited from accessing the project sites and (2) that Ralls was prohibited from completing a sale or transfer of the limited liability companies or other assets to any third party without

complying with all CFIUS require-ments.35 After further litigation, Ralls received the consent of CFIUS to sell the projects to a third party.

Other Real Estate Implications

Ralls subsequently brought an action against the seller of the membership interests,36 alleging that as a result of the CFIUS order declaring the mem-bership acquisition prohibited the entire transaction was void ab initio. Ralls demanded that the seller repay the money paid to date by Ralls to the seller. The seller counterclaimed, threatening to enforce the seller’s pur-chase money security interest in the sold memberships. This case was dis-missed on procedural grounds,37 and its ultimate disposition is unknown.

This case gives a hint of possible real estate consequences as the FIRRMA amendments are enforced against real estate transactions. Had the transac-tion been a direct real estate acquisi-tion, would the transaction have been void ab initio? Would Rall’s title have been void, or merely voidable? Would the order of divestment, or the order permitting the sale of property only to a CFIUS-approved purchaser, consti-tute an inchoate title defect present at closing, for which there might be title insurance coverage? Had the purchase money security interest instead been a purchase money mortgage, would the mortgage be invalid?

Conclusion

The expansion of the authority of CFIUS to real estate acquisitions calls for additional due diligence by real estate attorneys. A determination should be made as to whether there is foreign ownership of the acquiring entity or joint venture. If such foreign ownership is present, then the transac-tion attorneys must determine whether the target real estate itself may be a “U.S. business,” such that the proposed

THE ABSTRACT 9 FALL 2020

foreign control may bring the transac-tion within the Part 800 powers of CFIUS. If there is any possibility of a perceived impact on national security as a result of the transaction, counsel should consider the advisability of a CFIUS filing.

In addition, where the acquisition of real property will result in foreign ownership, transaction counsel should determine whether the property is “covered property,” either because of the critical infrastructure nature of the property itself or because it is in close proximity to or within the extended range of designated military facilities. If the property does appear to be cov-ered property, and the transaction is otherwise a covered real estate transac-tion, then counsel should address the potential need for a CFIUS filing.

Finally, a giver of a third-party opin-ion in a transaction that may be within either the Part 800 or the Part 802 powers of CFIUS should consider an exception to that portion of the opinion that states that all necessary approvals for the transaction have been obtained, absent a CFIUS filing and clearance. Likewise, where CFIUS approval has not been obtained, an opinion giver in such a transaction should consider a CFIUS exception to its enforceability opinion, since a subsequent divestment order may give rise to a claim that the prohibited transaction may be void ab initio.

Endnotes1 See Executive Order 11858 (as amended by Executive Order 13456), promulgated under the authority of Section 721 of the Defense Production Act of 1950, as amended, 50 U.S.C. App 2170. 2 CFIUS first gained statutory recognition in the 1988 Exon-Florio amendment to the Defense Production Act, 50 USC §4565; Section 721 of the Defense Production Act. CFIUS was first implemented sub-stantially in its current form largely by the Foreign Investment Risk Review Modernization Act of 1977 (FINSA), which further amended the Defense Production Act.3 The complete list is as follows: The Department of the Treasury; The Department of Justice; The Department of Homeland Security; The Department of Commerce;

The Department of Defense; The Department of State; The Department of Energy; and The Office of the US Trade Representative; and the heads of any other executive department, agency, office, as the president or the secretary of the treasury may from time to time determine. 4 See Cathleen D. Cimino-Isaacs, Cong. Research Serv., IF10952, CFIUS Reform under FIRRMA (Feb. 21, 2020), https://crsreports.congress.gov/product/pdf/IF/IF10952.5 See 50 U.S.C. app. § 4565(d)(1).6 “Control” is very broadly defined to include any power to determine or direct major decisions of the subject entity, whether or not a foreign investor owns a majority of the voting interests in the entity or its governing board. 31 C.F.R. § 800.208.7 “U.S. Business” is broadly defined to include any entity engaged in interstate commerce in the United States. 33 C.F.R. § 800.252. FIRRMA added an express provision that a merger, acquisition, or by a joint venture would be a covered transaction. See 50 U.S.C. app. § 4565(a)(4)(B)(i); 31 C.F.R. § 800.301(e).8 Critical technology includes defense or weapons technologies, nuclear technologies, and items subject to export controls pursuant to the Export Control Reform Act of 2018. See 31 C.F.R. § 800.215.9 “Critical infrastructure” includes infrastructure in telecommunications, utilities, energy, and transporta-tion, the destruction of which would have an adverse effect on national security. See 31 C.F.R. § 800.21410 “Sensitive personal data is (1) data used to target products to services to U.S. military members and employees of sensitive federal agencies, (2) data col-lected on over 1 million people, and (3) data collected by business with an objective of collecting or main-taining data on more than 1 million people and is an integrated part of the U.S. business. Sensitive per-sonal data includes financial information, geolocation information, health data, and genetic testing data. 31 C.F.R. § 800.241.11 These regulations are codified at 31 C.F.R. § 802.12 For CFIUS purposes, “concession” means a grant by a U.S. public entity of the right to operate (or develop) infrastructure for an airport or seaport, other than by lease or purchase and sale. 31 C.F.R. § 802.206.13 31 C.F.R. § 802.301.14 31 C.F.R. § 802.210 and § 802.111.15 31 C.F.R. § 802.211(a).16 31 C.F.R. § 802.203.17 31 C.F.R. § 802.217.18 31 C.F.R. § 802.211(b)(3).19 31 C.F.R. § 802.211(b)(4)20 The l ist of a irports and seaports can be accessed at https://home.treasury.gov/policy-i s sue s / i nt e rna t iona l /t he - c om m it t e e - on-for-e i g n- inve s t ment- in-t he -u n it ed- s t a t e s - c f iu s /cfius-real-estateinstructions-part-802.21 The Geographic Reference Tool can be accessed at https://home.treasury.gov/policy-i s sue s / i nt e rna t iona l /t he - c om m it t e e - on-for-e i g n- inve s t ment- in-t he -u n it ed- s t a t e s - c f iu s /cfius-real-estate-instructions-part-802.22 31 C.F.R. § 802.215.23 The list can be accessed at https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cf ius/cfius-excepted-foreign-states.

24 FIRRMA expressly provides that CFIUS can in its transaction review process discriminate among dif-ferent countries, and take into consideration whether the foreign country involved is a country of “special concern.” See James K. Jackson, Cong. Research Serv., RL 33388, The Committee on Foreign Investment in the United States (Feb. 26, 2020), available at https://crsreports.congress.gov/product/pdf/RL/RL33388.See Cathleen D. Cimino-Isaacs, Cong. Research Serv., IF10952, CFIUS Reform under FIRRMA (Feb. 21, 2020), https://crsreports.congress.gov/product/pdf/IF/IF10952.25 31 C.F.R. § 802.216.26 Natalie Rodriguez, CFIUS Clears 1.95B Waldorf Sale to Chinese Insurance Co., Law 360 (February 2, 2015), https://www.law360.com/articles/617431.27 31 C.F.R. § 802.501.28 31 C.F.R. § 802.503.29 31 C.F.R. § 802.502.30 See Committee on Foreign Investments in the United States: Annual Report to Congress (Report Period: CY 2018), https://home.treasury.gov/system/files/206/CFIUS-Public-Annual-Report-CY-2018.pdf.31 Section 721 of the Defense Production Act grants the President the power to “suspend or prohibit any covered transaction that threatens to impair the national security of the United States.” 50 U.S.C. app. § 4565(d)(1).32 We know the details of these transactions and the actions of CFIUS because of litigation commenced in federal court by Ralls, in which the following decisions were rendered:. Ralls Corp. v. Comm. on Foreign Inv. in the United States, 987 F. Supp. 2d 18, 24 (D.D.C. 2013, rev’ d on other grounds by Ralls Corp. v. Comm. on Foreign Inv. in the United States, 758 F.2d 296, 304 (D.C. Cir. 2014)). Ralls in these cases challenged the action of CFIUS and the President on due process grounds—specifically, the failure of CFIUS to make available the national security information that formed the basis for the decision of the President and CFIUS. The court required the disclosure of additional, non-classified information, but did not challenge the power of CFIUS and the President to issue the divestment order and related remedies. The facts discussed below are taken from the foregoing opinions. After further litigation, Ralls received the consent of CFIUS to sell the projects to a third party, and the case was settled. See Joint Status Report and Joint Motion to Stay Litigation Deadlines, Ralls Corporation v. Committee on Foreign Investment in the United States, Case No. 1:12-cv-01513-AB, (Dkt # 79) (D.D.C. October 9, 2015).33 Ralls Corp. v. Comm. on Foreign Inv. in the U.S., 926 F. Supp. 2d 71 (D.D.C. 2013).34 Regarding the Acquisition of Four U.S. Wind Farm Companies by Ralls Corporation, 77 Fed. Reg. 60, 281 (October 3, 2012), https://obamawhitehouse.archives.gov/the-press-office/2012/09/28/ordersigned-president-regarding-acquisition-four-us-wind-farm-project-c.35 See Ralls Corp. v. Comm. on Foreign Inv. in the United States, 987 F. Supp. 2d 18, 25 (D.D.C. 2013, rev’ d on other grounds by Ralls Corp. v. Comm. on Foreign Inv. in the United States, 758 F.2d 296, 304 (D.C. Cir. 2014))36 See Ralls Corp. v. Terna Energy USA Holding Corp., 820 F. Supp. 2d 27 (D.D.C. 2013).37 Id.

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Lending to middle market companies has been gaining inter-est in recent years among some banks and private investors seeking higher yields and better protections. These middle market companies are typically owned by families or are closely held. They manufacture, distribute, or otherwise pro-vide a necessary product or service, filling an important mar-ket niche; generate approximately one-third of the private sector GDP; employ roughly 48 million people; contribute nearly $6 trillion to the national economy annually; and are likely to accept reasonable yet stronger covenants and protec-tions for their lenders.

Financing transactions involving middle market companies with affiliated companies located in a foreign country (e.g., companies headquartered or with manufacturing facilities abroad) have also increased dramatically in terms of volume of loans, number of transactions, and number of market participants, mainly as a result of globalization, the rise of emerging economies, the development of global lending mar-kets, and the premium or higher yields that these companies are willing to pay in exchange for financing. According to the Bank for International Settlements, global cross-border lending (“cross-border loans” or “cross-border lending”) grew by $660 billion during Q3 2019, reaching $31 trillion at end of September, the highest year-on-year growth rate since the end of March 2008.

Lenders involved in cross-border lending want the repay-ment of their loans to be properly secured just like any other loan. Otherwise, if the borrower defaults and the lender is forced to sue, the lender’s sole relief may be a money judg-ment, which, depending on the effectiveness of execution, may or may not allow the lender to collect the amount owed. Secured transactions, on the other hand, provide lenders a greater incentive to enter into a credit transaction. If a lender obtains adequate security, the risk of the transaction is miti-gated because the lender will have a claim to specific assets, generally with priority over other creditors, thus relieving the lender from facing the risk that the borrower or the third-party guarantor will have no assets, that any assets would be taken by another creditor, or that the borrower or third-party guarantor would file for bankruptcy and prevent the

lender from collecting the amounts due. However, many lenders feel uncomfortable with, or just reject, cross-border loan applications when the collateral is located in a foreign country, thus missing what could potentially be a profit-able—and well secured—business opportunity.

Among the different forms of collateral, real property is generally preferred because it is hard to destroy or relocate, it typically conserves its value or appreciates overtime, its value is easier to estimate and predict, and the interest on the property can be recorded and enforced against third par-ties. If real property is utilized, a lender’s security would be perfected by a mortgage or, more commonly in California, a deed of trust. This article, consequently, compares the advan-tages and disadvantages of California mortgages and deeds of trusts against Mexico mortgages and “guaranty trusts” to illustrate how, under certain circumstances, accepting col-lateral based outside of the U.S. may be not only reasonable, but also preferable.

Mortgages

Mortgages in General

Under California law, a mortgage is a contract by which specific property, including an estate for years in real prop-erty, is hypothecated for the performance of an act, without the necessity of a change of possession. Similarly, mortgages under Mexico law may be defined as a contract under which the debtor or a third party confers to the mortgagee the right to sell or be paid with the value of certain assets that are not delivered to the mortgagee upon breach of a secured obliga-tion. Thus, under both legal systems, mortgages give lenders the right to sell certain real property to satisfy a debt.

Statute of Frauds

In California, a mortgage can be created, renewed, or extended only by writing, executed with the formalities required in the case of a grant of real property. Similarly, Mexico law requires mortgages to be in writing and for-malized by a notary public (Mexico notaries are licensed attorneys.

Potential Benefits of Accepting Mexico Real Property as CollateralBy Mauricio Leon de la Barra, Leon de la Barra Attorneys at Law, LLP

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Right of Redemption and Deficiency Judgments

English common law courts allowed the debtor who failed to make prompt payment of its obligations to show evidence that the deed was in fact a security for a loan and to redeem the property prior to making the corresponding payment. This right became known as the mortgagor’s “equity of redemption” and is codified in the California Civil Code as follows:

“§ 2903. Every person, having an interest in property subject to a lien, has a right to redeem it from the lien, at any time after the claim is due, and before his right of redemption is foreclosed, and, by such redemption, becomes subrogated to all the benefits of the lien, as against all owners of other interests in the property, except in so far as he was bound to make such redemp-tion for their benefit.”

“§ 2905. Redemption from a lien is made by perform-ing, or offering to perform, the act for the performance of which it is a security, and paying, or offering to pay, the damages, if any, to which the holder of the lien is entitled for delay.”

California’s right of redemption allows the mortgagor to keep the property under the mortgagor’s possession, and even to redeem it, during a certain period following the sale. The right of equity of redemption may be avoided if the lender waives its claim to a deficiency judgment (i.e., a judgment requiring the mortgagor to pay the unpaid bal-ance if the price received at foreclosure does not fully pay the secured debt):

“CCP §726(e). […] If a deficiency judgment is not waived or prohibited, the real property or estate for years therein shall be sold subject to the right of redemption […]”.

Mexico laws by contrast, do not provide for any type of redemption or otherwise restrict a lender’s right to sue for any deficiency. While the mortgagor may not be as protected as it would otherwise be under California law, borrowers may find it easier to motivate lenders to facilitate a cross-bor-der loan as they would not have to choose between the right of redemption and a deficiency judgment. Furthermore, Mexican federal courts have ruled that the purpose of fore-closing on a mortgaged asset is to cover the indebtedness and that it would be contrary to judicial efficiency to send the creditor to a new process whenever the product of the sale fails to cover the total amount due. Accordingly, the courts

may extend the lien to other assets of the debtor as part of the same foreclosure procedure.

Guarantee Trust

Deeds of trust, or, as called in Mexico, guaranty trusts, are an alternative for securing a credit transaction with real property. Guarantee trusts were codified in Mexico as part of an effort to reduce transaction costs and interest rates; increase the type of guarantees available under Mexico law, motivate lenders to enter into credit transactions, help boost the economy and development of Mexico, and mitigate the risk of collection.

Guarantee Trust in General

Under Mexico law, a guaranty trust is a fiduciary agree-ment under which the grantor transfers to a trustee title to certain property to secure the repayment of a loan. Because legal title to the trust assets is transferred to the trustee, the courts consider that the trustee is the legal owner of the assets. Accordingly, the trust assets—and the beneficiary’s right to request the sale of the same in case of indebted-ness—will not be negatively affected if the guarantor is the subject of a bankruptcy proceeding, becomes insolvent, or is sued by another creditor. Once the guaranty trust agreement is entered into and title to the assets has been transferred to the trustee, the guarantor loses the power and authority to convey or encumber the trust assets (unless the trust agree-ment allows it).

The Trustee

A Mexican trust is similar to a U.S. trust, with one sig-nificant difference: under Mexico law, only certain types of entities authorized by law may act as trustees. These include credit institutions, insurance companies, some brokerage firms, and credit unions.

Non-Judicial Foreclosure

Both California deeds of trust and Mexico guaranty trusts allow the creditor to pursue the non-judicial foreclosure, which also makes them preferable over mortgages.

Flexibility

One of the greatest advantages of the guaranty trust is its flexibility. While there are certain statutory requirements that need to be met, it is one of the most flexible types of contracts available in Mexico. This is particularly valuable because it allows the parties to agree on the procedures that

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need to be followed in the event of foreclosure. For instance, the parties may (a) authorize the trustee to initiate the non-judicial foreclosure upon receiving a written communication requesting that the assets be sold; (b) allow the guarantor to oppose the sale only if the outstanding amount is paid or is shown to have been paid; and (c) set the timeframe in which the abovementioned activities must occur.

Deficiency Judgment

Generally, California law permits a deficiency judgment after a judicial foreclosure, but not after a non-judicial fore-closure. Conversely, Mexico law imposes no restriction on the lender’s right to obtain a deficiency judgment, expressly providing that whenever the value of the assets is lower than the amount owed, the creditor may dispose of the trust assets while maintaining all rights with regard to the balance.

Given that under Mexico law there is no right of redemp-tion and a lender can obtain a deficiency judgment under a mortgage or a deed of trust (sometimes even under the

same foreclosure proceeding), lenders involved in cross-bor-der financing should consider accepting Mexico real estate collateral. When doing so, lenders must take all steps to ensure that the mortgage or deed of trust is properly docu-mented and recorded, that proper due diligence is made on the property, and that the risk of enforcement is mitigated by adequately selecting the venue and applicable law. A similar comparison should be done when the collateral is located in a foreign country other than Mexico.

Lastly, lenders should take into account that title to the Mexican collateral will likely be owned by a third-party guarantor (typically an affiliated entity). If that is the case, the Mexico collateral could be in addition to, and not exclu-sive of, any collateral offered by the U.S. borrower.

Assuming the proper conditions are met, accepting foreign assets as collateral may open the door to a large, and highly underserved, market of middle market companies that are willing to pay a high premium in exchange for financing.

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A Property Assessed Clean Energy (PACE) loan provides residential and commercial property owners with a long-term, low-cost option for financ-ing environmentally friendly improve-ments for energy efficiency, renewable energy, disaster protection, and water conservation instead of an install-ment contract or home equity loan. Commonly called R-Pace (Residential) and C-Pace (Commercial), PACE loans provide property owners with funds upfront to be repaid over time as a spe-cial assessment on the real property tax bill, which becomes a tax lien against the property. There are only three states that have active R-PACE programs: California, Florida, and Missouri. While C-PACE programs have been around for some time, they are growing in popularity along with “green” build-ing initiatives. There are 25 states that have active C-Pace programs (Alaska, California, Colorado, Connecticut, D.C., Delaware, Florida, Illinois, Kentucky, Maryland, Michigan, Minnesota, Montana, Nebraska, Ohio, Oregon, Pennsylvania, Minnesota, Nebraska, New York, Rhode Island, Texas, Utah, Wisconsin); four states in which programs are under devel-opment (Georgia, Massachusetts, Nevada, New Jersey); and seven states with enabling legislation only (North Carolina, Vermont, New Hampshire, New Mexico, Nevada, Oklahoma,Washington).

The following are considerations for real estate lenders when analyzing

a property that could be subject to a PACE lien. The information provided here is general and is intended to help identify common issues. Lenders should consult specific state law for methods of notice, means to perfect the PACE lien, the priority of the PACE lien, and consequences for non-pay-ment, all which vary by state. For your reference, a 50-state PACE lien chart is available for review as an addendum to this article on the ACMA website.

Statutory Authorization RequiredState and local legislation must autho-rize PACE loans. State law must enable PACE before a local government can legally administer the PACE loan pro-gram. The programs can be organized at the state or local level. Each state statute and local program is different and may or may not require notice of the PACE loan to be recorded in the public records. Lien priority also var-ies from state to state. Most PACE leg-islation authorizes local governments to create PACE financing districts for property eligible for PACE financing. Either the local government entity or a third-party administrator may administer the established program guidelines.

Pace Loan Approval and Financing ProcessThe typical PACE loan process involves a program administrator reviewing a PACE loan application under the established guidelines for qualifying

property and projects. Once approved, a lender or a bond issue funds the proj-ect capital. A property tax assessment for the loan amount is placed on the property tax rolls in the county where the property is located. The county tax collector collects the assessment like real property taxes. A contractor qualified under the program guidelines completes the PACE eligible improve-ments. The property owner pays for the completed work by paying the property tax assessment in installments. The county tax collector then remits the assessments to the lender.

Key PACE Financing FeaturesMost state statutes provide that PACE financing can finance 100 percent of a project’s hard and soft costs, typically based on the value of the property, not an assessment of the borrower/owner’s creditworthiness, the borrower’s credit score or ability to repay. The typical term of financing is the useful life of the improvements, which can be 20 years or more. Loan funds are available for new construction or upgrades to existing improvements. Pace financing can be funded through bonds issued by the local government or private capital by lenders partnering with local gov-ernment. The assessment lien runs with the land. The repayment obligation is transferable to a new owner and is a continuing obligation on the tax bill for the property that must be paid by subsequent owners. There is usually a maximum permissible loan amount. 

Harnessing the Superpower Priority of PACE LeinsBy Wendy S. Gibbons, Old Republic National Title Insurance Company

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Super-Priority Lien StatusUnder most state statutes, PACE assessments are accorded the same pri-ority as ad valorem property taxes and have priority over existing and future mortgages, including purchase money mortgages. Foreclosure of a mortgage on the property will not extinguish a PACE lien, and non-payment of PACE assessments could cause property to be sold at tax sale. In several states, espe-cially regarding C-PACE loans, priority over mortgage liens is not an issue. In those states, PACE liens are statutorily subordinated to a first lien mortgage on the property and to property taxes. Because the super-priority status of the PACE loan lien alters traditional lend-ing priorities, lender’s counsel should apprise themselves of applicable state law and associated PACE programs in the jurisdictions where the lender does business. 

Determining If Property Is Affected by a PACE LienIt is not always easy to determine whether a property is subject to a PACE lien. A search of the public records in the county recorder’s office may not disclose a PACE loan on the property. Not all states require recordation of a notice of PACE financing, and some-times the necessary document to be recorded is not recognizable as a typi-cal financing instrument. Counsel for the mortgage lender should review title commitments and purchase documents for any indications of a PACE loan affecting the property to address these issues upfront. Another source that may reveal that the property could be subject to a PACE loan or assessment is the real property tax records in the county where the property is located. However, because there could be a delay of up to 12–18 months between completion of the project and the assessment appearing on the tax rolls,

the tax records may not be reliable. The PACE Nation website1 also maintains an interactive online map listing active PACE programs for states and counties with links to program information. If you know the property is located in a state or locality with a PACE program, it is also recommended that lender’s counsel review enabling legislation and any local ordinances to determine which standard forms may be recorded to evidence PACE assessments and rules concerning priority of PACE liens. The local tax collector or the administrator of the PACE program may also be of assistance in advising if a particular property is in a district where PACE financing is active. 

Although most mortgage loan docu-ments contain covenants that require the borrower to obtain lender’s consent for additional financing secured by a mortgage on the property, lender’s counsel should consider whether a specific covenant relating to consents and approval for PACE financing is necessary. Some state statutes, espe-cially those dealing with C-PACE, require lender consent and approval as a prerequisite for PACE financing. If lender’s counsel learns of C-PACE financing affecting the property that will not be paid in full at closing, the lender’s counsel may want to consider requiring reserves or escrows in the same way reserves or escrows are estab-lished for property taxes and insurance premiums.

Recent Developments for R-Pace ProgramsThere has been increasing concern for additional consumer protections and several roadblocks on the fed-eral level regarding R-PACE financ-ing. In 2010, the Federal Housing Finance Authority (FHFA) issued a directive prohibiting Fannie Mae and Freddie Mac from buying mortgages

on PACE-encumbered properties.2 Fannie Mae and Freddie Mac Uniform Security Instruments also prohibit loans subject to a senior lien such as PACE. In 2017, the Federal Housing Authority announced that property encumbered by a PACE loan is not eli-gible for a Federal Housing Authority insured mortgage.3 On January 16, 2020, Freddie Mac and Fannie Mae issued a Request for Input for policy change on residential PACE proper-ties, with comments due by May 16, 2020.4 In March 2019, the Consumer Financial Protection Bureau issued an Advance Notice of Rulemaking required under the 2018 Economic Growth, Regulatory Relief and Consumer Protection Act, focusing on the applicability of the ability to repay requirements for PACE loans under the Truth in Lending Act.5

Title Insurance and PACE LiensThe title company issuing a title policy insuring the lender’s mortgage in first lien position is also concerned with the possibility of an existing PACE loan on the property having priority over the mortgage to be insured. If the title company’s search of the pub-lic records discloses evidence of a Pace lien assessment, the title company will require payment of the assessment lien in full at closing. The following is an example of a typical requirement that would appear in Schedule B-I of the title commitment: 

Pay off, release or termination of PACE assessment by tax collec-tor and entity administering the PACE program. 

Because of potential delays in the col-lection and remittance of payments from the tax collector to the PACE lender, the final assessment due may not be included in the payoff. To address this issue, the title company

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requires confirmation of payoff from both the tax collector and administra-tor of the PACE program. The title company may also require additional funds to be held in escrow for the esti-mated amount of the final assessment. If the transaction is a purchase transac-tion, the title company may require an escrow of seller’s funds in the amount of the current year’s assessment to ensure payment in full. The title com-pany is also likely to require the parties to execute an escrow agreement, which may include indemnification language and a compliance clause that requires the parties to indemnify the title com-pany for any loss relating to a short payment and to comply with requests to pay additional sums as needed for the release and termination of the PACE lien. Another matter worth noting is that some PACE programs prohibit pre-payment, potentially lim-iting a property’s marketability. There is pending legislation in some states voiding any prohibitions against pre-payment for PACE financing.

If the title company confirms that the insured Buyer and/or Lender will accept an exception for a PACE lien in the title policy, and the exception is not prohibited by the lender’s closing instruction, the insured’s title objection letter, or a sales contract, the title com-pany will delete the above requirement and issue its policy with an exception in Schedule B for the PACE lien. The title company may require written doc-umentation from the lender and parties specifically authorizing the PACE lien exception to remain on the property and in the policy.

The following is an example of a typi-cal PACE lien exception:

Any assessments, liens, loans, or obligations for improvements to the Land pursuant to a Property Assessed Clean Energy Program or other similar program.

If there is a recorded notice of the PACE assessment disclosed in the search of the public records, the title company will take an exception for the

recorded document in Schedule B in lieu of the general exception above.

Notwithstanding the challenges of lending on properties subject to PACE loan programs, there are certain ben-efits associated with PACE financ-ing. PACE loans can fill in gaps in a developer’s financing plan. Energy savings resulting from PACE financed improvements can reduce operating costs for a project, resulting in a poten-tial increase in the property value. It remains to be seen what type of addi-tional requirements and regulations will be adopted by federal agencies to address R-PACE loans and whether there will be similar efforts regarding C-PACE loans. 

Endnotes1 www.pacenation.org2 See https://www.fanniemae.com/content/guide/sell-ing/b5/3.4/01.html.3 HUD Mortgagee Letter 2017-184 85 Fed Reg. 2, 736, January 16, 20205 https://f iles.consumerfinance.gov/f/documents/cfpb_anpr_residential-property-assessed-clean-energy-financing.pdf

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Fauci-Mae I? Fannie and Freddie Mac’s Multifamily Attack on COVID-19 By Wesley K. Dagestad, Reinsurance Group of America Incorporated

As health experts, pharmaceutical companies, politicians, and people around the globe continue to search for answers on how to grapple with the coronavirus curveball nature has dealt mankind, the Federal Housing Finance Agency (FHFA) and the gov-ernment-sponsored enterprises it over-sees have issued a number of directives in an attempt to shore up the potential economic shockwaves the pandemic may fissure into the foundations of multifamily housing markets. Tracking each COVID-19 related mandate may seem as daunting as counting the num-ber of times you’ve heard or read the term “unprecedented” this year, but this article will endeavour to summa-rize the borrower, lender, and servicer implications included in multifam-ily guidance issued by Fannie Mae and Freddie Mac under the purview of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the pandemic.1

Borrower Impacts

Federal Eviction Moratorium2

As ominous COVID-19 clouds began to descend on the United States, Congress enacted the CARES Act, which distributed billions in aid to American taxpayers (to the point where even Santa Claus and Oprah were jealous) and established two forms of temporary tenant eviction moratoria. Specifically, multifamily landlords were temporarily prohibited from evicting residents occupying units in all federally backed properties3 for

nonpayment of rent as of March 27, through July 25, 2020, under Section 4024 of the CARES Act. Further, applicable landlords may not charge fees or penalties for missed rental pay-ments during the covered period and are obligated to provide residents with 30 days’ notice to vacate prior to com-mencing legal action to recover posses-sion of a multifamily unit after July 25. Secondly, Section 4023 of the CARES Act requires multifamily landlords obtaining mortgage payment relief to suspend rent-related eviction actions while in forbearance of a Fannie/Freddie loan.

Forbearance Relief and Requirements

Efforts to constrict the spread of COVID-19 sent businesses into health-ordered hibernation and the number of jobless claims soaring to more than three times higher than the peak of the Financial Crisis, such that Fannie and Freddie mobilized disaster relief forbearance programs that histori-cally had only been implemented for borrowers battered by hurricanes and wildfires. The CARES Act initially granted borrowers with Fannie and Freddie financed multifamily proper-ties the ability to obtain up to three months of mortgage payment relief, provided borrowers met the following conditions:

• Mortgage was current as of February 1, 2020.

• Show proof of financial hardship due to COVID-19.

• Suspend tenant evictions during for-bearance for nonpayment of rent.

• Escrow excess cash flow to servicers and provide monthly operating statements during each month of forbearance.

Effective June 29, 2020,4 Fannie and Freddie issued supplementary guid-ance permitting eligible multifam-ily borrowers to seek an additional three-month COVID-19 cushion on mortgage payments, conditioned upon landlords’ agreement to (i) allow tenants to repay missed rent in non-lump sum amounts over a reasonable time, (ii) adhere to tenant protections originally set forth in Section 4023 of the CARES Act (suspension of rent evictions and late fees and providing 30-day notices to vacate) while in for-bearance, and (iii) certify compliance with the original forbearance require-ments listed above.

Fannie Mae multifamily borrowers in forbearance are required to bring qualifying loans current by the ear-lier of (a) borrower’s receipt of busi-ness income insurance proceeds (e.g., business interruption insurance) or (b) the date that is the product of number of months in forbearance multiplied by four (e.g., six months of forbear-ance = 24-month repayment period). Although Freddie Mac guidance does not expressly detail its alignment with the Fannie repayment calculation, the federal enterprise is providing forborne borrowers the flexibility to either (1) delay the start of repayment period following forbearance, (2) extend their

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forbearance period up to three months in accordance with the requirements above, or (3) extend forbearance with an optional extended repayment period after resumption of mortgage payments.

On August 6, 2020, Fannie and Freddie implemented additional renter protection measures by requir-ing multifamily landlords entering new, extended, or amended forbear-ance arrangements to inform tenants directly of all prescribed tenant pro-tections within 14 days of executing a forbearance agreement, which include the following:

• Tenants may not be evicted or given notice of eviction during the for-bearance period.

• Landlords must provide residents with 30 days’ notice prior to com-mencing eviction proceedings after forbearance.

• Tenants may not be charged late fees, penalties, or other charges related to missed rental payments during forbearance and repayment periods.

• Landlords are required to provide f lexible, non-lump sum tenant repayment plans for missed rent (applicable as of June 29, 2020).

• No tenant proof of COVID-19 related hardship is neces-sary to receive these enumerated protections.

Lender Impacts

Fannie and Freddie multifamily mort-gage lenders and servicers are charged with the elusive, nuanced task of doc-umenting forbearance agreements in accordance with the constantly evolv-ing COVID-19 guidance and ensuring that implicated borrowers are comply-ing with the terms of loan documents generally, including any loan modifi-cation arrangements related thereto.

Fannie Mae has issued a flurry of lender letters5 detailing how its designated lending partners and servicers should administer pandemic economic aid procedures, and grants them author-ity to provide borrower mortgage relief pursuant to that guidance for certain federally backed mortgage loans with unpaid principal balances less than $50 million.6

Multifamily Fannie/Freddie lenders were initially required to document and verify borrowers’ eligibility for mort-gage relief in accordance with Section 1 of this article as well as obtaining a pre-negotiation letter covering ongoing loan negotiations prior to executing a forbearance agreement. After June 29, 2020, Fannie and Freddie lend-ing partners were authorized to extend existing forbearance agreements up to three months or execute new forms of mortgage relief based on prescribed borrower requirements. However, des-ignated lenders are not authorized to modify loan maturity dates in connec-tion with granting borrowers Fannie/Freddie mortgage relief, and cannot charge borrowers fees associated with executing an extension to forbear-ance agreements already in place. Additionally, covered lending institu-tions must certify to their respective government sponsored enterprise that they (i) acted as a prudent commercial real estate lender (ii) conducted suffi-cient due diligence in documenting a borrower’s COVID-19 financial hard-ship, and (iii) reviewed all applicable information to determine appropriate borrower relief was necessary. Any loan modification arrangement not expressly authorized by Fannie/Freddie directives requires their prior written consent. Finally, lenders and servicers must submit certain loan monitoring information to Fannie and Freddie in connection with loans in forbearance by the 24th of each month.

Fannie and Freddie lenders and servicers that accommodated the inf lux of borrowers participating in the recently expired Small Business Administration’s Paycheck Protection Program (PPP) were required to con-firm the following prior to approving borrower receipt of an unsecured PPP loan:

• PPP loan amount is less than 10% of the outstanding unpaid prin-cipal balance of the underlying mortgage loan and is otherwise immaterial.

• Any required repayment (recapture) of the PPP loan would not nega-tively affect borrower’s liquidity.

• Borrower covenants are included in executed amendments to the loan documents providing that: (a) all PPP loan proceeds will be used directly for the benefit of the multifamily property and in strict compliance with the CARES Act/PPP loan documents; (b) borrower will use its best efforts to obtain forgiveness of 100% of the prin-cipal and interest accrued on the PPP loan; and (c) lender is indem-nified and held harmless for, from, and against any and all actions, suits, claims, demands, and liabili-ties arising under the PPP loan.

Multifamily lenders are encouraged to monitor impending federal COVID-19 aid initiatives and Fannie/Freddie’s reactionary guidance that is sure to follow.

A Masked Outlook

Thus far, Fannie and Freddie appear to be asymptomatic with respect to the initial disruption COVID-19 inflicted on the U.S. economy to the tune of a reduction in gross domestic product of 32.3%, but each offered cautionary forecasts of the fiscal land-mines that could lie ahead once initial

THE ABSTRACT 18 FALL 2020

forms of government aid dry up and the potential that additional spikes of coronavirus cases could prompt further shutdowns.

Fannie Mae reported a profit of $2.5 billion during the first half of 2020, largely driven by revenues derived from single family mortgage transactions, and mildly below the $3.4 billion fig-ure it posted at the same time in 2019.7 As of June 30, 2020, Fannie reported that multifamily property vacancy rates had slightly increased by 0.5%, while effective rents decreased by the same amount (0.5%) compared to 2019 metrics. Although it noted that prop-erty valuations continued to remain steady, the enterprise anticipates the multifamily market will trend down-ward for the remainder of 2020 due to projected rising vacancy rates and negative rent trends associated with the unwavering pandemic.

Freddie Mac announced that as of June 25, it had entered into forbear-ance agreements comprising nearly $8 billion in outstanding unpaid princi-pal loan balance, which represented approximately 2.6% of its total portfo-lio.8 The enterprise touted the overall credit quality of the loans in forbear-ance, noting that roughly 97% of those loans maintained a loan to value (LTV) ratio of less than or equal to 80% based on pre-pandemic valuations, and esti-mated that it would take an extreme reduction in property values and cash flow declines in excess of -10% before over 80% of its forbearance portfolio would be in danger of default.

Surprisingly, Freddie cited encouraging rent payment metrics that as of June 20, 2020, 92.2% of renters had made full or partial rental payments, which mirrored figures from the same time-frame in 2019. However, the enterprise cautioned that historically robust fed-eral unemployment benefits and other forms of government COVID-19 aid likely drove high collection rates. Overall, Freddie Mac highlighted a decrease in forbearance requests, eas-ing of consumer lockdowns, and the likelihood of continued distributions of government aid as reason for opti-mism, and did not anticipate rent col-lections to sharply decline in the com-ing months.

A common thread among both Fannie and Freddie’s discussion of the impact of COVID-19 on federally backed multifamily housing markets were the perceived positive impacts initial forms of government pandemic aid had on rental data points, but each report was fraught with the uncer-tainty surrounding what happens when the government COVID cash stops f lowing to American taxpayers, the direction unemployment claims will move, and the continued threat the pandemic poses to the U.S. economy. As Congress looks to enact its CARES Act sequel, look for Fannie and Freddie to continue to tap into their borrower disaster relief playbooks; unfortunately for borrowers and lenders alike, experi-ence has shown the pandemic’s spread is much vaster than the wildfire disas-ters Fannie/Freddie borrowers have previously experienced.

Endnotes1 This article was drafted while federal proposals of a COVID-19 relief package aimed at supplementing the CARES Act were being volleyed back and forth in Congress. Accordingly, any federal legislative initia-tives passed subsequent to August 7, 2020 may alter the content discussed in this article, which had to be finalized in the interest of publication of The Abstract. For additional information related to how new legis-lation may impact the contents of this article, please contact the author. 2 Additional state and local tenant protections may also apply depending on the jurisdiction.3 Includes mortgages purchased or securitized by Fannie and Freddie.4 This date appears to be inconsistent between Fannie/Freddie’s multifamily COVID-19 guidance, as Fannie’s latest updates apply to forbearance agree-ments (including any amendments/extensions thereof) are effective as of July 1, whereas these requirements applied to Freddie Mac loans as of June 29.5 Lenders may monitor mult i fami ly gu id-ance at ht tps://mult i fami ly.fanniemae.com/docu ment s -forms/ lender- commu nic at ion s ?_g a=2 .259 0 69578 .1239 08 4 687.159683 4 6 40 -1071105522.15960574696 Designated lenders do not have the authority to execute forbearance agreements for senior housing, bond credit enhancement, or non-performing Fannie mortgage loans. 7 Fannie Mae, Quarterly Report (Form 10-Q) at 4, (June 30, 2020). 8 Freddie Mac, Multifamily Securitization Forbearance Report (June 25, 2020).

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Health Savings Accounts—A Triple Play

By Ned W. Graber, AIG Investments (Retired)

A Health Savings Account (HSA) is a medical savings account1 that can be used to pay the increasing costs of health care. It is the only tax saving shelter with three tax advantages—a triple play. Contributions to the account are pre-tax, the money in the account grows tax-free, and it can be withdrawn tax-free to pay quali-fied medical expenses in any year. Employee contributions are not subject to Federal Insurance Contribution Act (FICA) and Medicare taxes. In most states, withdrawals are not subject to state taxes. Many employers contribute money to their employees’ accounts, and those contributions are also tax-free. The HSA account is individual to the employee, who can direct invest-ment of its funds. The funds continue to be available if the person changes health insurance plans or employers or retires.

To be eligible to contribute to an HSA, a person must be covered by a quali-fied high-deductible health insurance policy2 (with a deductible of at least $1,400 for singles and $2,800 for families in 2020 and a maximum out-of-pocket of $6,900 for singles and $13,800 for families). For 2020, a person can contribute up to $3,550 for single coverage or $7,100 for fam-ily coverage, plus $1,000 catch-up con-tribution if the person is 55 or older.3 There are no minimal distributions. HSAs are not subject to a use-it-or-lose-it rule like a Flexible Spending Account. Unused HSA funds roll over

and accumulate year to year. If HSA funds are used to pay a nonqualified medical expense, the distribution is taxable, and there is an additional 20% penalty if the taxpayer is under age 65. There are no penalties if funds are used to pay nonqualified medical expenses by a taxpayer at least age 65 or the withdrawal is due to death or disability of the taxpayer.

The funds in the account can be used to pay qualified medical expenses and for prescription drugs for the taxpayer, his/her spouse, and tax dependents, even if the family members are covered by a different policy, according to Roy Ramthurn, CEO of HSA Consulting Services.4 An explanation of quali-fied medical expenses may be found in IRS Publication 502, Medical and Dental Expenses, available at www.irs.gov. Individuals can even use an HSA to reimburse medical expenses paid in past years with receipts. A person can use HSA money to pay premiums for Medicare Part B, Medicare Advantage, and Part D drug coverage, but not Medigap supplement insurance premi-ums.5 HSA funds can be used to pay a portion of the premiums for long-term care insurance based upon a taxpayer’s age. The annual age-based limits for 2020 for a tax-free withdrawal are age 40 or less $430, 41–50 $810, 51–60 $1,330, 61–70 $4,350, and 71 and older $5,430.6 I use my HSA to pay my wife’s and my dental and vision expenses that are not paid by Medicare. Finally, when a person dies, the funds

in the account are transferred to the beneficiary. An HSA account left to a spouse becomes his/her own tax-advantaged health savings account. If the account is left to a person’s estate or non-spouse, the fair market value of the HSA account (less any unreim-bursed qualified medical expenses of the decedent paid within the one-year anniversary of his/her death) is taxable to the beneficiary in the year in which the HSA account owner dies.7

TIPS for Your HSA

• To maximize the HSA, a person can pay for healthcare costs out-of-pocket while working and tap the HSA during retirement. If a person age 55 made the maximum 2020 fam-ily contribution for nine years, at a 5% rate of return, there would be over $103,000 in the HSA at age 65. If you are concerned that you may overfund an HSA, remember that once a person reaches age 65, there is no penalty for using a dis-tribution for a purpose other than a nonqualified medical expense, although a distribution used for that purpose is not tax-free and is included in gross income for fed-eral income taxes.

• Please remember that a person can-not make contributions to an HSA if enrolled in Medicare. When calculating HSA contributions for the last year of employment prior to retirement, if a person worked

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beyond age 65 and delayed enroll-ing in Medicare past his/her Initial Enrollment Period at such age, the Social Security Administration will deem that the person enrolled for Medicare Part A as of the beginning of the sixth month prior to his/her enrollment in Medicare (or 65th birthday if sooner). For anyone in this situation, he/she needs to reduce the HSA contributions in the last tax period before retire-ment so that he/she will not over-fund the HSA beyond the permit-ted tax limit.

Endnotes1 Internal Revenue Code Section 2232 IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans3 IRS Rev. Proc. 2019-444 Kimberly Lankford, 10 Myths About Health Savings Accounts, www.kiplinger.com (November 2, 2018)5 Using an HSA for Long-Term-Care Insurance, 21 Kiplinger’s Retirement Report, No 9 (September 2014) p. 146 IRS Rev. Proc. 2019-447 The Retirement Advantages of Health Savings Accounts, 28 Bob Carlson’s Retirement Watch, Issue 12 (December 2017)

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Reflections on Challenging Times

By Andrew Palmieri, Saul Ewing Arnstein & Lehr LLP (Diversity and Inclusion Committee)

2020 will be marked in history as a year of challenge and change. Whether one considers the global pandemic brought on by COVID-19, killing hundreds of thousands of people worldwide and crippling national economies, or, within the United States, the addi-tional overlay of a national discussion on racial inequities in the aftermath of George Floyd’s murder at the hands of law enforcement officers sworn to protect and defend our communities, this year will indelibly affect the lives of millions of people and generations to come. It is difficult to find the right words to express the emotions evoked by these events.

As real estate finance attorneys, we have plowed through these crises, collaborating with our clients to find unique ways to preserve pending transactions, work out existing loans, navigate insurance claims for dam-aged property and, of course, reinvent new and creative uses for force majeure clauses. But despite our day-to-day rou-tines, many have also come together (virtually) with our partners and co-workers, in our communities and with our families, to have frank discussions about equity in America. For me, these discussions are sometimes uncomfort-able and frequently enlightening.

I have chaired several organizations, and I have served on many nonprofit boards. In those capacities, I have always strived to create diverse groups on the basis that diverse teams bring different perspectives that generate

creative problem-solving. I have always found this approach preferable to uni-form group-speak. This is not ground-breaking news, and in fact, there are hundreds of books and articles written on the subject. To me, this is simply common sense, and it is for this reason that I am grateful to ACMA’s leader-ship team for asking me two years ago to follow Norma Williams’ great lead-ership in chairing ACMA’s Diversity and Inclusion Subcommittee. Through this group, I have forged new friend-ships and have learned much from the uniquely personal perspectives of my ACMA colleagues.

You may have noticed that ACMA could be more diverse in its member-ship. This anecdotal observation was confirmed through a member survey conducted over the summer of 2020. These survey results provide a statisti-cal benchmark against which we may compare future progress by our orga-nization. ACMA’s leadership is com-mitted, and is taking tangible steps, to expand its membership base.

In 2019, ACMA adopted the following mission statement for the Diversity and Inclusion Subcommittee:

In 2018, the American College of Mortgage Attorneys (ACMA) adopted a branding moniker of “Partner with the Best™.” Indeed, ACMA’s vision is to foster a colle-gial environment in which pre-emi-nent commercial finance attorneys, both private practice and in-house

counsel, may convene to share thought-leadership on issues affect-ing real estate finance and estab-lish trustworthy, national business networks.

To fully realize ACMA’s vision and implement ACMA’s 2018 Strategic Plan, ACMA is committed to expanding its industry-wide appeal to attract and retain a diverse and inclusive membership base that reflects the communities in which its fellows serve. Diversity encom-passes many classifications: race, ethnicity, gender, gender identity, sexual orientation, age, disability, geography, industry-specialization, and representation, to name just a few. Populating the college with diverse perspectives enhances the level of thought-leadership and extends ACMA’s hospitality across a cultural spectrum that will ensure that members of ACMA will con-tinue to be the best attorneys with whom to partner for the future.

The Diversity and Inclusion Subcommittee of the Membership Development Committee is tasked with creating new and innovative methods to identify, attract, recruit, and retain diverse candidates for fellowship in ACMA.

In 2020, the Diversity and Inclusion Subcommittee developed a Diversity and Inclusion Toolbox, providing links to academic studies and articles on antiracism; social justice; and creating

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equity across all racial, ethnic, and socioeconomic categories. These arti-cles are designed to inform and edu-cate those who are open to learning more about these important subjects. The Diversity and Inclusion Toolbox also provides links in all 50 states (and U.S. territories in which ACMA has a state chair) and Canada’s provinces to diverse bar associations through which ACMA may seek introductions to recruit new Fellows. As ACMA suc-cessfully recruits new, diverse Fellows, we must ensure that we provide an open and welcoming environment.

As recently noted in a statement posted by ACMA leadership to the public page of its website:

ACMA is a professional group of experienced real estate finance attorneys across North America dedicated to developing professional excellence, trustworthy referral net-works, and lasting collegial relation-ships. As lawyers, we recognize the critical importance of diversity, inclusion, equity, and justice in our organization and our democracy. We reject racism and discrimina-tion of any kind and guard against it, as it jeopardizes the inclusive atmosphere we have cultivated at ACMA, and the close professional relationships and friendships that ACMA fellows enjoy across many miles and many cultures.

Accordingly, we affirm our com-mitment to mutual understanding, diversity and inclusion, and pledge to redouble our efforts and do our part in educating and leading on these issues, as we fulfill our mis-sion to “Partner with the Best.”

Indeed, ACMA fellows enjoy collegial-ity and friendships across many years and many miles. These relationships sustain us in challenging economic times, and especially now as we are confronting the effects of COVID-19 and the troubling images of brutal-ity and injustice faced by Americans. In this spirit, we need to pause and listen to the pleas for understanding and solutions to create a level playing field that provides opportunities for all. Some of these solutions may affect immediate change, but many will take years before they have a tangible soci-etal impact.

This has been a time of reflection and learning. People don’t typically envi-sion real estate finance lawyers in the forefront on social justice issues. But we are not merely defined by what we do for a career; we are defined by how we make an impact on our families, friends, and communities and the orga-nizations that we serve. We can com-mit to be more receptive to different perspectives, and we can make space in the conversation for those voices…in our home, at work, and in our

community. Although we do not need to, some of you may march in protests or write amicus briefs, but we are lead-ers in our law firms, corporations, and communities, and we can demand more action to hire diverse attorneys and support diverse businesses and great opportunities to provide quality education, because it is through educa-tion that each child has an opportunity to succeed, and it is through education that we adults learn to accept people who are different.

Our ability to expand our inclusiveness to those who are different from the majority will enrich our lives and ben-efit ACMA for generations to come.

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ACMA Residential and Regulatory Committee

By Michael Flynn, Buchalter

The Residential and Regulatory Committee is charged with focusing on residential mortgage and mortgage regulatory issues that are of interest to College members.   Mike Flynn is the chair, and Justin Earley is the vice-chair.   

The committee leadership has deter-mined that to establish and grow the committee, we are going to initially undertake two types of programs/activities:

A. Develop programs for presentation at ACMA meetings or as webinars that

would appeal to all members of the College with an interest in residential mortgages. Our first topic, which we hope to present at the next Board of Regents Meeting (or in a Spring 2021 webinar), will focus on the (by then) new ALTA Residential Owner’s and Lender’s title insurance policies.

B. Hold quarterly “virtual cocktail hour” group calls with no set agenda, where members of the committee can discuss any residential mortgage and regulatory issues of interest to the com-mittee. We intend this to be an open

forum of a type not usually offered by other legal trade associations in the residential mortgage area. We intend to recruit senior in-house counsel from major lenders and other institutions to join us on these calls. The managing regulatory counsel for the Mortgage Bankers Association, the chief single family residential counsel, and the director of legal compliance for the Federal Home Loan Bank of Chicago have already agreed to join us for our first happy hour on October 14, 2020.

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Senior Fellows Task Force

By Ned Graber, AIG Investments (Retired)

Note: The Senior Fellows Task Force is a new ACMA task force. It is not a formal committee.

In 2019, Jacob Reby formed a Senior Fellows Task Force to address issues of interest to older Fellows in ACMA. The purpose of this task force is to provide information, ideas, and guidance for senior Fellows and older Fellows who

are contemplating retirement or par-tial retirement. Ned W. Graber is the chairman of the task force. As part of the virtual 2020 Spring Meeting, a 75-minute presentation was given titled “Transition to Your Next Stage: Questions to Consider for Retirement,” and written materials were posted on the ACMA website. In this issue of The

Abstract, the first of a series of articles from task force members appears on health savings accounts. The task force is planning another presentation for the next spring meeting and is consid-ering various formats for discussions on topics of interest to older Fellows at ACMA meetings and on the ACMA website.

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Manulik & Nedelman: A Conversation on Transitioning Into Retirement

2006–2007 ACMA President Mark A. Manulik recently sat down, virtually, with 2017–2018 ACMA President Alec G. Nedelman to discuss the latter’s recent transition from the full-time practice of law as a corporate counsel to a newly created part-time role at the law firm of Katten Muchin Rosenman LLP. The fol-lowing is an excerpt of that interview.

Mark Manulik: Hello this is Mark Manulik visiting with the esteemed Alec Nedelman to get some words of wisdom about the golden years in gen-eral and how to approach retirement. Alec, you know I’m right behind you with retirement plans. One of my prin-cipal objectives is to de-stress. You, like most lawyers, are a Type A. I think it is understood by most of us in this line of work that to be good, you have to be obsessive, detail-oriented, and driven. You have taken a position at Katten. Congratulations on that.

Alec Nedelman: Thanks.

MM: How does that affect the goal of de-stressing?

AN: Well, I think it depends on how you structure it. For me, there were some key things that I wanted to structure. Number one is I don’t have a billable hour requirement. So that was important to me. In fact, I am not billing time at all, and if I help on a matter, my time is free to the client. Also, I am on a part-time schedule, so nobody is counting my hours and I can work as I want to. But I thought it was

important not to go from 60 miles an hour as a partner or in-house counsel to zero. You need a transition where you are still active in some way, keep-ing your mind involved. Also impor-tant for me was this idea that I wanted to give back in some way and do what I really enjoy, and that would be a way to de-stress. So what I’m doing is coach-ing associates and counsel and putting on training programs and trying to bring in business. I enjoy those parts of the practice. And I really feel like it is fun to be able to talk to an associ-ate or counsel and say, “I’m just here to make you successful. So, let’s talk about questions you may have that you see in documents that you don’t really understand, but you have been reluc-tant to ask partners to explain.” A lot of time on our coaching sessions has just been life coaching. I really enjoy this chance to give back and to be entirely focused on helping other people, which I think is in itself a way to de-stress.

MM: Well said, and they are lucky to have you sharing your wisdom. That is a real contrast to how you and I came up. The school of hard knocks. Throw the young lawyers in the river and see who can swim. That’s a great idea from that firm. So, do you have a one or two-year run or is it open ended?

AN: Well, it is two years, but we are going to review it at the end of year one to see if it still makes sense. And with the onset of the pandemic, it clearly hasn’t gone the way we intended it

because I was supposed to be in the office socializing with the associates and counsel, out having lunches with them, and out having breakfasts and lunches with prospective clients. None of that has actually been happening. What I am doing is a lot of video calls with people. At least it’s contact.

MM: So for those who plan a clean break from practice, do you have any thoughts as to whether you should give up your license and your memberships? I cherish my ACMA relationships and I’ll maintain that membership for a while after I’m done. I’m not sure how long. Maintaining the liability cover-age, meeting CLE requirements and all those things that go with the license can be a burden. Do you think about that much?

AN: My sense is that I will probably give up my license. I will keep up with organizations that I enjoy, like ACMA, but the organizations that I find stress-ful, I will exit. To some extent, I want life after the grind to be more of a tran-sition into, as you said, smelling the roses and enjoying things more and appreciating each day and each person I’m with.

MM: So, segueing from there, what are some of the pursuits you are going to undertake, as far as self-improvement, pure enjoyment, challenging your cre-ative side? Are you going to paint? Are you getting on the piano? What’s the plan?

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AN: The long-range plan is to learn a language. If you think that it is likely we have 20 to 25 years left, that’s plenty of time to learn a language, learn an instrument. So I want to do something like that.

MM: So, what is Libby’s plan for you? I am assuming she doesn’t want you hanging around the house too much?

AN: She’s gotten me involved in one of her charities. She’s been involved with the Santa Monica Conservancy that works to help preserve historic resources and promote adaptive reuse.

MM: Cool.

AN: And it’s a really good organiza-tion. It fits my interest in real estate, so I will be involved in the development committee, where I’m trying to help them bring in new donors and spon-sors and help them grow the organiza-tion. I didn’t want to be on the board and have that full time, but I do want to help them.

MM: Excellent.

MM: I’m not going to get in the weeds on all of the different Medicare issues, Social Security, getting your home office set up, and getting new email accounts and all that good stuff. It’s covered elsewhere thoroughly. But, as far as the timeline, do you think you should start about six months out? Is that enough time to get your ducks in a row for the day you walk out of your office?

AN: Based on my experience, if you are not already familiar with the Medicare world, you are going to need some time to transition, and that was one of the factors in going to Katten and mak-ing sure I would have health insurance there so I didn’t really have to deal with all the Medicare stuff yet. I didn’t expect to be working from home so much so fast, so getting a home office set up has moved much faster than I expected. If I had known that I would be doing this, I would have set things up differently and sooner. I would say at least six months.

MM: Any last nuggets you want to share as we close this interview?

AN: I think it’s important as you tran-sition to retirement to keep your mind active in some way, so this has been good for me. I’m still involved with stuff. But I have no pressure with it. I still can be that old man in the cor-ner who has his feet up on the desk, reading the newspaper, and people are coming in for advice.

It’s a good transition for me because I like the social dynamic of talking to people and sharing wisdom and feeling like I am helping people. And it’s nice I can do it without the pressure of meet-ing this goal or billing this number of hours and all of all of that.

MM Yeah. How do you avoid becoming a curmudgeon? Because as you know, the filters start failing, the varnish comes off, and there’s a ten-dency not to hold your tongue. At least speaking from my perspective. You’re far more diplomatic and circumspect than me. But, any tips on how to be nice as you age?

AN Well, one of the nice things about joining a new place is you have the opportunity to meet a lot of new people. I frankly spend a good part of most of my conversations just getting to know the people. So I’m putting off that curmudgeon phase. So far it has been good.

MM You’re a lot nicer than me. Thank you, Alec.

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IN MEMORIAMMary Coon Biggs1941–2019

It is with profound sadness that we inform you of the passing of longtime ACMA Fellow Mary Coon Biggs, retired, Biggs, Supple, Cremaldi & Curet LLP, Monroe, Louisiana, on September 12, 2019. Mary gradu-ated from Ouachita Parish High School in 1959 and then attended H. Sophie Newcomb College in New Orleans before returning to Northeast Louisiana State College, where she earned her bachelor of arts degree in history and English in 1963. She received her bachelor of law degree from Tulane University in 1966. Mary practiced law for 45 years.

In addition to 40 years as an ACMA Fellow, Mary was a member of the American Bar Association and the

Louisiana Bankers Association. She was a member of the St. Mary Parish Bar Association and the Louisiana State Bar Association for 45 years.

Mary served on the St. Mary Parish Library Board for many years and, in 1992, was presented with the James O. Modisette Award for Public Library Trustees. She also served on the Teche Federal Savings Bank Board of Trustees and the Iberia Bank Advisory Board in Monroe.

Our heartfelt condolences to her husband, Robert Biggs, and her son, Robert Carson Biggs.

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