First American Corporation (new) · NYSE:FAF
First American Corporation (new) — First American — Investor Presentation (April 2010)
36 slides from First American Corporation (new)'s investor presentation, April 2010
Slide 1: Mortgage Modification Agreements in Difficult Economic Times; Deeds in Lieu of Foreclosure/Deeds in Escrow
Mortgage Modification Agreements in Difficult Economic Times; Deeds in Lieu of Foreclosure/Deeds in Escrow April 2010 John C. “Jack” Murray Vice President-Special Counsel
Slide 2: Business Reasons for Modification of Loan Documents
Business Reasons for Modification of Loan Documents
Slide 3: Business Reasons for Modification of Loan Documents
Business Reasons for Modification of Loan Documents • Extend (or shorten) maturity date. • Capitalize delinquent interest. • Raise (or lower) interest rate. • Increase (or decrease) default rate. • Change or postpone payment dates, or amount of payments. • Permit assumption and/or release borrower f
Slide 4: Business Reasons for Modification of Loan Documents (continued)
Business Reasons for Modification of Loan Documents (continued) • Opportunity exists to add or update mortgage provisions, or to correct defects, or to add clauses providing lender right to share in potential upside: – Provisions: • Due-on-sale clause • Cross-default • Guaranty / guaranties • Enviro
Slide 5: General Legal Considerations
General Legal Considerations
Slide 6: General Legal Considerations
General Legal Considerations • Modification agreements are useful prior to acceleration of loan and foreclosure, and may give borrower “breathing room” to bring loan current (especially if borrower is cooperative and solvent, and/or property may increase in value). • Make certain that language in or
Slide 7: General Legal Considerations (continued)
General Legal Considerations (continued) • Some courts may hold that entire priority will be lost and priority of original loan will be entirely subordinated as result of modification without consent of subordinate lienholder (usually in connection with subordinated purchase-money loans; loans where
Slide 8: General Legal Considerations (continued)
General Legal Considerations (continued) • Always conduct title search before modification of mortgage (including federal tax liens and UCC filings), and determine what modification endorsements are available from title company based on nature and scope of modification and regulatory and statutory p
Slide 9: General Legal Considerations (continued)
General Legal Considerations (continued) • Obtain appropriate title insurance endorsement (if available), to be paid for by borrower, insuring (if available based on facts of the transaction) continuing priority, validity, and enforceability of first mortgage lien after recording of Modification Agr
Slide 10: General Legal Considerations (continued)
General Legal Considerations (continued) • Where possible, have subordinate lienholders execute subordination or intercreditor agreement to establish rights and obligations of respective parties, including future modification rights and limitations. • Determine if mortgage loan has been securitized,
Slide 11: General Legal Considerations (continued)
General Legal Considerations (continued) • In properties requiring capital improvements, or significant tenant improvements and leasing commissions, estimated expenditures for such items should be set forth in budget prepared by borrower for lender's review and approval on an annual basis, if not mo
Slide 12: General Legal Considerations (continued)
General Legal Considerations (continued) – Modification of an existing loan may constitute taxable event if modification is so substantial that it amounts to issuance of new security. Gain or loss will be realized depending on borrower's adjusted basis in debt instrument and amount realized from "di
Slide 13: General Legal Considerations (continued)
General Legal Considerations (continued) • RP 2008-28 (2008) applies to modification of mortgage loan held by a REMIC or an investment trust. – “Describes conditions under which modifications of certain mortgage loans will not cause the IRS to either challenge the tax status of certain securitizatio
Slide 14: General Legal Considerations (continued)
General Legal Considerations (continued) – generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with foreclosure, qualifies for relief. – This provision appli
Slide 15: General Legal Considerations (continued)
General Legal Considerations (continued) • Bankruptcy issues: – Chapters 7 (liquidation), 11 (reorganization), and 13 (wage-earners) of Bankruptcy Code currently prevent modification of rights of holder of claim secured only by security interest in an individual debtor’s principal residence and prev
Slide 16: Summary
Summary: • For tax and/or economic reasons (or statutory and/or regulatory reasons), lenders may be amenable to entering into modification agreements with distressed borrowers (who are cooperative and willing to work with their lenders, and ) under certain circumstances, in hope that present unsettl
Slide 17: Deeds in Escrow
Deeds In a fe a ge | First American 3c Title Insurance Company NATIONAL COMMERCIAL SERVICES
Slide 18: Deeds in Escrow
Deeds in Escrow • To benefit of both parties; time, expense, publicity, forbearance, avoid adverse tax consequences, avoid bankruptcy, no personal liability. Often in connection with forbearance agreement. Author has done more than 300 both inside and outside of bankruptcy • Consideration must be ac
Slide 19: Deeds in Escrow
Deeds in Escrow • Clogging doctrine; give deed to mortgagee in future if certain events occur; prevents redemption rights and constitutes “collateral advantage.” Clog is provision in mortgage itself (or related document) denying redemptive rights if subsequent default (e.g., option to purchase, deed
Slide 20: Deeds in Escrow
Deeds in Escrow • State statutes – evidence may establish that deed is actually security device (Restatement). See p. 10 of article in materials for Restatement tests. Parol evidence may be allowed, even where separate writing exists. • Parties’ intention (to actually create an equitable mortgage in
Slide 21: Deeds in Escrow
Deeds in Escrow • Loan workout – courts generally approve if: delinquency; workout subsequent to original mortgage; valid consideration (no personal liability; agree to forebear from exercising remedies if non-recourse loan; borrower acknowledges loan default.) Restatement says “close question”; “ex
Slide 22: Deeds in Escrow
Deeds in Escrow • “Must be fair, frank, honest, and without fraud, misconduct, undue influence, oppression or unconscionable advantage of the poverty, distress or fears of the mortgagor.” • Consideration can be either release of personal liability or forbearance from legal remedies. • Subordinate li
Slide 23: Deeds in Escrow
Deeds in Escrow • Bankruptcy Concerns: – Executory Contract – No delivery, part of debtor’s estate, unenforceable. Bankruptcy courts generally so hold. Relation back? – Violation of Sec. 362 automatic stay – can’t deliver deed. – Fraudulent conveyance, preference, or unperfected lien – Sec. 544 of C
Slide 24: Deeds in Escrow
Deeds in Escrow – See In re Webb Mtn., LLC, 2009 WL 4250333 (Bankr. E.D. Tenn., Feb. 11, 2009), a copy of which is in the materials. • Contains excellent “roadmap” regarding criteria for successful deed in escrow. • Bankruptcy court found deed in escrow (as part of mortgage extension and workout) va
Slide 25: Deeds in Escrow
Deeds in Escrow • Exploding and Springing Guaranties and Indemnities – see p. 24 of article: - Becomes enforceable at filing of bankruptcy petition by or against mortgagor; or - Assertion of lender-liability claims against mortgagee; or - Institution of litigation by mortgagor seeking injunctive rel
Slide 26: Deeds in Escrow
Deeds in Escrow • Fortunately for lenders, § 524(e) of Bankruptcy Code provides that bankruptcy discharge does not discharge obligation of any non-debtor party. Courts generally have construed this statutory provision as prohibiting bankruptcy plans from modifying or releasing obligations and liabil
Slide 27: Deeds in Escrow
Deeds in Escrow • Because bankruptcy court will have specifically approved this type of arrangement, it should be enforced even if mortgagor is later subject of second bankruptcy case is filed by or against mortgagor, based on collateral estoppel, res judicata principles, and equitable grounds. Mort
Slide 28: Deeds in Escrow
Deeds in Escrow • Possibility of negation of voluntary conveyance by subsequent bankruptcy was minimized in 203 N. LaSalle St. case, because one of debtor’s principals personally had agreed to pay mortgagee $10 million (via indemnity agreement) if any of debtor’s equity holders caused debtor to file
Slide 29: Deeds in Escrow
Deeds in Escrow • But in Metropolitan Life Ins. Co. v. Olsen (In re Olsen), fn. 61(8th Cir. 1988), court found that the debtor’s confirmed Chapter 11 reorganization plan had not been substantially consummated even though quit claim deed had been placed in escrow. Court ruled that because plan was no
Slide 30: Deeds in Lieu of Foreclosure – Subsequent Foreclosure of Subordinate Liens
Deeds in Lieu of Foreclosure – Subsequent Foreclosure of Subordinate Liens
Slide 31: Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens
Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens • Recent case law generally supports ability of mortgagee to foreclose its mortgage after acceptance of deed in lieu of foreclosure, at least where settlement agreement and deed contain an anti-merger provision. • Courts gener
Slide 32: Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens
Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens • See also: Restatement 3d of Property: Mortgages § 8.5, Reporter’s Notes, Comment E.: Under this section, however . . . the mortgagee who takes a deed in lieu with actual knowledge of a junior lien will lose the right to fore
Slide 33: Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens
Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens • Vast majority of states rely (at least in part) on intention of parties, either express or implied, to determine whether merger occurred as result of deed-in-lieu transaction. • Doctrine of merger is not favored by courts, a
Slide 34: Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens
Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens • Courts may not be willing to enforce non-merger provision in deed in lieu of foreclosure where rights of innocent third parties may be affected – or even lost – because of fraud or inequitable conduct by parties to deed. (Bu
Slide 35: Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens
Deeds in Lieu of Foreclosure: Subsequent Foreclosure of Subordinate Liens • Court noted that non-merger provisions are generally upheld in Michigan, but this case was distinguishable from other Michigan cases where non-merger language contained in deed-in-lieu had been enforced, as this was not situ
Slide 36: Questions & Answers
Questions & Answers Thank you for choosing First American National Commercial Services