Non-Judicial Foreclosure Not Good Enough For Bank of America
November 18, 2009
Came across an article on Globe St. about Bank of America filing a complaint against Maguire Properties for a debt owed on the 16-story, 308,000 SF office property on Michelson Drive in Irvine.
It isn’t news that the building is in trouble, or that Maguire defaulted – after all Maguire Properties has made it clear that it intended on defaulting on a number of properties just to get out from under them and stop the bleeding.
What was interesting however was the article indicating that Bank of America had requested a judicial foreclosure on the project (as opposed to a non-judicial).
In a non-judicial foreclosure, the lender takes the property back and that’s pretty much that. In a judicial foreclosure however, the lender can go after the deficiency as well. This was apparently a CMBS loan so that may or may not have something to do with it. It might have been cross-collateralized and that may have something to do with it also. But the fact that Bank of America is electing to go down the more timely and costly road of judicial foreclosure on this project does raise some questions.
Perhaps it doesn’t like the fact that Maguire Properties announced that it will be defaulting, or it wants to make an example for others who elect to “strategically default” on their loans.
If anybody has any insight on this, we’d be curious to hear other thoughts. What we do know though is that banks are nervous about taking a property back and then making a profit on it out of concern about lawsuits which might come back to hassle them. Sounds crazy, but they are wary of this.
On a side note, five of the other properties Maguire has defaulted on are part of the infamous Blackstone EOP portfolio.
[via Globe St.]
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Tags: Bank of America, Distressed Assets, Foreclosure, Irvine, Maguire Properties
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maguire has three OC properties in default – park place, 2600 and stadium towers. i was under the inpression that there was some cross collateralization going on for the acquisition from blackstone. all three are in default but only the 2600 is getting coverage. with banks going the judicial route on some homes with large shortfalls im not surprised to see the judicial route taken on larger commercial deals and expect to see it more often in cases of 2006/07 vintage deals where values have collapsed. the bank doesnt want to be on the hook for a 50% loss. that deal in south coast metro selling for under $100 psf makes it pretty clear that something drastic has to be done on these deals. and since most are non-recourse, whats a bank to do? also, undera judicial foreclosure, i believe they may be able to get a receiver appointed. sounds like their taking a strong position.
There may be some guarantees associated with the loan that BofA is going after, or using it as leverage to have Maguire cave on other parts of the workout.
correction to my earlier comment – maguire defaulted on 6 deals, not 3. bofa said they are going the judicial route because of the CMBS holders and are seeking a receiver. maguire is saying that the owner of each asset in a SPE and (i assume he thinks) that means hell be able to bk the llc and walk away if he has to. well see how this scenario plays out.
Thanks Cap Rate. Figured it had to do something with guarantees but still odd given vintage of deal and fact that it was CMBS. Anyhow, guess we'll find out more as things unfold as Joshua indicated.