Daily Journal Turns to Manatt Partner on Increased Lender Liability Suits

“Suits Against Commercial Lenders Spike”
Daily Journal

December 1, 2011 – The Daily Journal turned to Manatt’s Adam R. Salis, a partner in the firm’s Real Estate & Land Use Practice Group, for insight into the soaring number of lawsuits that commercial property owners are filing against CMBS lenders.

According to the Daily Journal, commercial mortgage-backed securities (CMBS), which are real estate loans that banks bundle and sell as bonds to investors, represent about a quarter of the total commercial loan market. The paper reports that the market has seen a record number of loan defaults, and consequently, real estate attorneys are seeing a significant increase in lender liability cases.

Attorneys representing borrowers claim that lenders often “strong-arm” borrowers and lead them to foreclosure, regardless of whether they are current on their loan payments. On the other side, attorneys like Salis, who represent lenders, think a vast majority of these claims are baseless and are used more as coercion.

“I’m sure borrowers are frustrated, but the special servicer is going to look at a loan in default and say, ‘what are the prospects of getting money from this thing?’” said Salis. “That’s the price [borrower’s] pay for that good interest rate and that securitized loan – you’re dealing with a special servicer and with people you don’t know.”

Despite the tough economy, Salis said there is a bright spot for businesses: “There is a lot of capital out there that is looking for distressed real estate and distressed real estate loans, and will pay a premium price to get it.”