Legal Question in Real Estate Law in New Mexico
Commercial Real Estate Foreclosure Protection
I may be foreclosed on in a few months if my business doesn't pick up. I want to make sure I don't get taken to the cleaners.
I bought an Assisted Living facility from the previous owner who holds all the paper for the loan. The value of the property is about $1.5 million (purachased in 2005 for $1.4million plus improvements of about $150k), and I still owe about $850k. I am worried that if I am foreclosed on, the property will be sold at fire-sale pricing and I will not recuperate any of my money down or improvement costs. Worse, I'm worried that, due to a personal guarantee, I will still owe money if the property is sold for less than the balance I owe on the mortgage.
Question: do I have some sort of protection from my lender (a private person, not a corporation) if he wants to make me suffer by selling it for less than it's worth?
For the record, it's currently under contract to sell for $1,525,000 but that deal looks like it's going to fall through.
PS -the property is in New Mexico, as is my S-Corporation, but I live in California.
Thank you very much for your help!
3 Answers from Attorneys
Re: Commercial Real Estate Foreclosure Protection
Your rights in the event of a default in payment under a mortgage are governed by (1) the terms of the contract, and (2) NM law. The provisions of each of those must be followed to the letter. Your best action if default is inevitable is to attempt a voluntary settlement with the mortgagee. That would include re-conveying the property to him and negotiating any other payments which have been necessitated by the default. Your other option is to read the financing documents carefully, know what your borrower's rights are, and monitor the mortgagee's actions in dealing with the property to ensure strict compliance. Mortgage foreclosures require that suit be filed in the District Court, so you will have the opportunity to require adherence to the terms. Usually foreclosed property is sold at public sale by a Special Master appointed by the Court. You will be able to attend that sale and see what bids are made. Often the mortgagee bids the amount of the mortgage and ends up with the property. Expenses and deficiencies are determined by the terms of the mortgage.
Re: Commercial Real Estate Foreclosure Protection
Personal guarantees mean exactly what they say - you are responsible for any losses the lender suffers on the property. Do what you can to ensure the property sells before foreclosure for enough to cover the loan; anything above that is yours.
Re: Commercial Real Estate Foreclosure Protection
You need to post this question to New Mexico attorneys, as it is going to be a question of New Mexico law. I would say, however, that nobody can really render an opinion without reviewing the entire deal including all of the documentation thereof. I can say that, given this is not a primary residence, and you personally guaranteed the loan, you are not in a very good position if it does go into foreclosure.
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