Real estate is land and that which affixed to the land. Your house sits on a permanent foundation, so it is affixed to the land. It is real estate. But what about a mobile home? A mobile home is personal property until it is attached to a permanent foundation.
Personal property is every kind of property that is not real estate. Cash, gold coins, stocks, bonds, partnership interests and membership interests in a limited liability company (LLC) are all examples of personal property.
If a commercial real estate lender secures its loan with a mortgage or a deed of trust, the commercial lender cannot foreclose any faster than about four to five months. The foreclosure process is defined by state statute.
If a commercial lender, however, secures its loan on personal property - rolling stock (cars, trucks, railroad cars, excavators, etc.), aircraft, business equipment, inventory, stock, or membership interests in an LLC - the commercial lender can foreclose on the collateral and sell it as soon as it is commercially reasonable. This means the lender has to advertise that the personal property is available for sale in a manner reasonable for the type of personal property involved. If the collateral is a car, an ad in the classified section of a local newspaper would probably be commercially reasonable. If the collateral is a painting by Picasso, then perhaps an auction by Sotheby's or another fine auction house may be required for reasonableness.
Mezzanine loans are loans secured by the stock of a corporation or by the membership interests in an LLC. Since stock and membership interests are personal property, the commercial lender can foreclose very, very quickly, perhaps in as little as 40 days.
So why don't all commercial real estate lenders require that the borrower put the property in a single-asset LLC and just make mezzanine loans instead of mortgages?
The answer is scary. In bankruptcy, mezzanine lenders are considered to be unsecured creditors! There is an old saying: There is only one kind of creditor in bankruptcy - secured ones. The unsecured creditors seldom see a dime.
So why would a mezzanine lender risk making a potentially unsecured loan? Most mezzanine loans have a springing personal guarantee. If the owner of the property puts the LLC into bankruptcy in order to delay the foreclosure by a creditor, a personal guarantee of the loan springs from the owner to the mezzanine lender.
Very few mezzanine lenders have ever foreclosed. The next recession will be an interesting one for mezzanine lenders.
You can apply to scores of mezzanine lenders using C-Loans.com.
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