The recent collapse in the credit market and decline in value of commercial property has led to a staggering number of defaults of commercial mortgages over the past two years. In prior periods of recession, borrowers’ attorneys had some degree of success in “working-out” or restructuring commercial real estate loans with banks or other traditional lenders. This time around, however, such work-out efforts have been complicated, and in many instances entirely frustrated, by the fact that a large portion of the mortgages on commercial real estate that are now distressed have been “pooled” and used to secure the issuance of commercial mortgage backed securities (CMBS).
Notwithstanding the challenges now facing borrowers’ attorneys, there are indications that attorneys who understand how CMBS transactions work and the players involved in such transactions are beginning to have some success with foreclosure defenses, as well as affirmative lender liability claims, that either have been, or likely would have been, rejected by courts in the past. Indeed, judges appear to acknowledge that CMBS transactions are the very type of exotic investment instrument that contributed to the current economic condition, and seem willing to entertain new and creative legal theories for dealing with distressed real estate that has been securitized.
CMBS Structure
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