Practices: Mortgage Workouts, Restructurings and Foreclosures

Ungaretti & Harris has the multi-disciplinary capabilities to help clients make effective decisions in difficult economic circumstances. Our attorneys are experienced in dealing with complex restructuring, financing, acquisition and disposition, litigation and bankruptcy issues in a variety of industries.

Defaulted mortgage loans and real estate related mezzanine loans can present a myriad of issues depending on the borrower and type of project involved. Foreclosure is not always the best method for a lender to use to protect its interest in real estate collateral. We work closely with our lender clients to explore other options, including loan restructuring terms, deed-in-lieu of foreclosure transactions, "consent foreclosures" under the Illinois Mortgage Foreclosure Act and UCC sales of mezzanine loan collateral.

U&H attorneys have experience in assisting our lender clients with defaulted construction loans, permanent loans on income producing properties of all types, and mezzanine loans related to both construction projects and completed income producing projects. We can help clients formulate strategies to approach defaulted loan situations no matter the type of loan, the project involved or the nature of the defaults at issue. We work closely with clients to negotiate and document appropriate results, whether those involve loan restructuring or agreed upon transfers of title. In some circumstances, however, foreclosure or pursuit of other remedies is appropriate. In those cases, our real estate attorneys work closely with attorneys in our litigation group to pursue the remedies available to our lender clients under their loan documents, including foreclosure of defaulted mortgages and interim relief such as appointment of receivers.

Ungaretti & Harris’ work in this area is complemented by its practices in Real Estate, Bankruptcy and Creditors’ Rights, and Litigation, as well as other areas of law.

RELEVANT REAL ESTATE EXPERIENCE

Real Estate Workout Transactions

• Represented a major investment bank in connection with realization of its collateral for a $22.5 million mezzanine financing for the construction of multi-use development in the Streeterville area of Chicago. This representation involved the negotiation of settlement agreements with the developer and the holder of the $49 million first mortgage on the property, along with completion of settlements with multiple mechanics lien claimants. As a result of these settlements, the client took title to the property by deed-in-lieu of foreclosure and is in the process of re-starting construction of phase one of the projects, which had been stalled by approximately 18 months of litigation prior to settlement.
• Represented a major insurance company in the settlement of the foreclosure of a $30 million mortgage loan on a combination office/hotel complex. The settlement resulted in our client obtaining title to the property through the mechanism of a consent foreclosure judgment, which ended protracted and vigorously contested litigation.
• Represented a major developer in connection with the settlement, by deed-in-lieu of foreclosure, of a defaulted construction mortgage loan on a multi-use downtown Chicago property valued in excess of $140 million which was held by a consortium of U.S. and foreign banks. The transaction resulted in the client and its partners being released from all guaranty obligations related to the loan.
• Represented a major fund manager in the workout and restructuring of defaulted tax-exempt bond indebtedness related to failed real estate developments in numerous jurisdictions, particularly Colorado and Florida. His representation has included negotiating new bond issues to refund defaulted bonds, representing the client in “forcing out” developers of those projects, and locating and installing new development entities in their place. 

Other Real Estate Activities

U&H’s real estate practice offers full service capabilities to meet our clients’ diverse needs. Following are descriptions of work we have done for corporate, developer and lender clients:

• Workouts and restructurings:
  • Resolve defaults on loans for office, hotel and retail properties around the country.
  • Restructure deals or take title by deed-in-lieu transactions or by foreclosure.
  • Handle the redevelopment of foreclosed properties as demonstrated by helping a
  • major lender restructure a $78 million shopping mall loan in California to incorporate additional property and funding.
  • Counsel a lender in connection with a deed-in-lieu on a partially completed midrise.
• Construction:
  • Represent general contractors in all aspects of the construction process.
  • Emphasize preparation of project bids, contracts and surety bonds.
  • Represented a client in negotiation of construction management contracts in its role as construction manager for a pension fund.
  • Negotiated architect’s agreement for design of addition to a Chicago-area hospital.
    Preparation of form construction contracts for hospital system wide use on various projects. Also negotiated with three different general contractors a single master form of contract for use by the system in connection with campus expansion projects. Each contract is designed to allow the system to let multiple sub-projects to each of the contractors without necessity of preparing new contracts for each new project.
• Regulatory approvals:
  • Use our contacts and skill to quickly help major corporations with critical zoning issues, including variances and appeals.
  • Handle such specialized matters as landmark designations for properties.
  • Achieve zoning variances that meet client image needs for a headquarters campus while satisfying the requirements of the local municipality.
• Residential:
  • Handle land acquisition and zoning for single-family residential developers, nationwide or in the Chicago area.
  • Help multi-family property developers buy, sell and finance complexes throughout the country.
  • Facilitate conversions of multi-family properties to condominiums. In one instance, we helped a client acquire a multi-unit building, convert the building to a condominium and dispose of the individual units.
• Forbearance agreements
  • Represent banks in forbearance agreements with home builders. 

Finance and Investment

Ungaretti & Harris helps financial institutions and investors make profitable equity and loan financings for real estate acquisitions, development and new construction. Our clients include national lenders, investment partnerships, insurance companies and specialized mortgage lenders. These are sophisticated clients who require a cohesive team. That’s why our real estate, corporate and tax lawyers collaborate to help with every part of the deal process: land acquisition, zoning, financing, construction, leasing and sale. We’re often called upon to develop unique financing concepts and vehicles and can provide you with solutions such as:

• Multiple interest rate options based on fixed, Eurodollar and prime rate indices.
• Loans secured by low-income housing tax credits.
• Public and private purchases of commercial real estate made by investment syndicators for ERISA portfolios.
• Loans that secure foreign currency debt.

RELEVANT BANKRUPTCY EXPERIENCE

Creditors’ Rights

Secured lenders (including commercial banks, finance companies and private investors), lessors creditors’ committees, insurers, management companies and trade creditors rely on us to develop practical recovery strategies in bankruptcy and reorganization. Your lending institution can use our extensive knowledge of finance documentation and credit policies to advance your interests at every stage of a bankruptcy to ensure the fullest recovery of your assets.

Real Estate

Real estate lenders and developers rely on us for help with the workouts of problem properties and mortgage investments, including restructurings, foreclosures and bankruptcies. Our lawyers can work with you to:

• Resolve defaults on loans for office, hotel and retail properties around the country.
• Restructure deals or take title by deed-in-lieu transactions or by foreclosure.
• Handle the redevelopment of foreclosed properties (Example: helping a major lender restructure a $78 million shopping mall loan in California to incorporate additional property and funding).
• Complete reorganization even when contested by lenders (Example: conducting a multi-day trial to confirm a “cramdown” Chapter 11 plan of reorganization for a commercial real estate company by using a novel interpretation of the Supreme Court’s ruling in Bank of America National Trust v. 203 N. LaSalle St. Partners.

A recent success involved a New York-based commercial mortgage lender client. At issue was a default on over $17 million in distressed debt secured by 17 Chicago area fast food franchises. Our aggressive representation resulted in foreclosure at the summary judgment stage, over the vigorous objections of the debtor and its guarantor parent.

RELEVANT LITIGATION EXPERIENCE

Foreclosure and Construction Litigation

• Represented a Canadian insurance company in foreclosing on and/or taking title to a number of problem loans ranging from $1 million to $7 million. The loans were secured by various retail, office, and apartment projects in the Chicago Metropolitan area.
• Negotiated Settlement Agreement for a deed-in-lieu of foreclosure of a defaulted $22 million construction loan on the Grand Pier project in River North on behalf of Lehman Brothers.
• Obtained a successful multi-million dollar arbitration award on behalf of a fiber optic company against a railroad company for various claims arising out of construction of a nationwide fiber optic network.
• Handled a construction fraud case involving mechanics’ liens and allegations of shoddy construction work under the Illinois Home Repair and Remodeling Act.
• Litigated mechanic’s lien cases involving damages associated with a $50 million tenant buildout.
• Represented sub-contractor in mechanic’s lien case to collect holdbacks from the general contractor on disputed drainage system installation issues associated with the building of a new development.
• Represented owner in a significant construction project involving foundation, settlement issues and related structural distress, city ordinance issues, claims against the general contract, mechanic’s liens or claims against the architect, and potential property damage claims. Included retention of structural engineers to investigate.