Corporate Materials - South Carolina Bar

2017 South Carolina Bar Convention

Corporate, Banking & Securities Law Section Seminar

Friday, January 20, 2017

presented by

The South Carolina Bar Continuing Legal Education Division

SC Supreme Court Commission on CLE Course No. 170435

Uniform Commercial Code/ Commercial Real Estate Issues

Harriet P. Wallace Greenville, SC

Lindsey C. Livingston Columbia, SC

Article 9 considerations in commercial

foreclosures/collections

Prepared and Presented by: Harriet Pollitt Wallace, Esquire

Lindsey Carlberg Livingston, Esquire SOUTH STATE BANK

I. COMMERCIAL SPECIAL ASSET LITIGATION

COMMERCIAL SPECIAL ASSET LITIGATION.

Commercial special asset litigation is different than most consumer transactions. Commercial transactions typically involve multiple notes (and renewals, extensions, and/or modifications). Collateral consists of real property (or multiple pieces of real property sometimes located in multiple counties or states), collateral assignments of rents and leases, personal property (such as furniture, fixtures, equipment, machinery, and inventory), other collateral such as deposit accounts, certificates of deposit, and almost always personal guaranty agreements of the principals of the borrowing entity.

In addition, the same commercial borrowers and/or guarantors could have multiple loans with the same lender and also multiple loans with other lenders. When a commercial loan goes into default and is referred to litigation, it is likely that all or many of the borrower's loans are also in default.

To complicate matters, there can be many different procedures for liquidating the collateral, and the final litigation analysis determined by the attorney and the secured party is often based on multiple judgment calls, and could result in multiple actions.

STEP ONE: Understand the Transaction.

First of all, Review All Loan Documentation.

The following is a list of documents that are typically sent to the lender's attorney when the matter is referred. If anything is missing, it is prudent to ask the client whether the missing items exist, and if so, ask for full copies.

A. Promissory Note (original note is required in some counties and can be specifically requested if needed in other counties or if the case becomes contested), including all renewals, modifications, renewals, assignments and/or endorsements, if any. a. Place close attention to the "chain" of the notes, renewals, etc.: 1) Does the loan number change? 2) Are there gaps between maturity dates and the next renewals? 3) Are they all signed by the same borrower?

B. Recorded Mortgage and any and all Assignments.

C. Recorded Assignments of Rents and Leases and all Assignments.

D. Mortgagee title insurance binder and policy or title certificate. Were opinions/assurances of counsel issued at the origination of the loan?

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a. The client decides whether or not to order a full title search or update from the title policy, but it is your job to make the recommendation.

b. If there is only a title opinion, recommend a full title search. c. If there is anything that raises red-flags in a title policy or the title update,

recommend a full title search. d. If the loan amount is very high, it is often prudent to go ahead and order a full

search to avoid delay in OREO. e. Full search for commercial properties is 60 years; full search for residential

properties is 40 years.

E. Security Agreements, UCC-1 Filings, and UCC-3 Amendments/Continuations.

a. Were the UCC-1 filings properly continued and/or assigned? b. Always order a new UCC Search with the Secretary of State of the state in which

the owner of the collateral is incorporated or lives.

F. Corporate (or LLC) Documents - If the borrower, owner of any of the collateral, or guarantor is an entity, request copies of the resolutions/certificate of members/partnership agreements from the origination of the loan. Order copies of the Articles and Certificate of Existence with Secretary of State of the state in which the entity was formed, and articles authorizing business to be conducted in South Carolina, if applicable.

G. Personal Guaranty Agreements.

H. All default letters and correspondence.

I. PACER searches on all borrowers, guarantors and owners of collateral.

a. Department of Defense searches on individuals, as well

J. The lender should, in addition, provide the following items of information, IF they are available to the lender:

a. Loan number (or "numbers", if renewals, modifications, or if loans are crosscollateralized or cross-defaulted).

b. Current name(s) and mailing address(s). c. Social Security Numbers of individuals and EIN of entities d. Any known occupants of property who are not the owners. e. Property address. f. Identity of any insurer/government guarantor (such as SBA, etc.). g. Itemized payoff statement, including the unpaid principal balance, date of default,

corporate advances already made (i.e., insurance, taxes, late fees) h. Current interest rate.

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