State	Security Instrument	Foreclosure Type	Initial Step	# of Months	Redemption	Deficiency
Alabama	Mortgage	Nonjudicial	Publication	1	12 MM	Allowed
Alaska	Trust Deed	Nonjudicial	Notice of Default	3	None	Allowed
Arizona	Trust Deed	Nonjudicial	Notice of Sale	3	None	Allowed
Arkansas	Mortgage	Judicial	Complaint	4	None	Allowed
California	Trust Deed	Nonjudicial	Notice of Default	4	None	Prohibited
Colorado	Trust Deed	Nonjudicial	Notice of Default	2	75 DD	Allowed
Connecticut	Mortgage	Strict	Complaint	5	None	Allowed
Delaware	Mortgage	Judicial	Complaint	3	None	Allowed
Dist. of Col.	Trust Deed	Nonjudicial	Notice of Default	2	None	Allowed
Florida	Mortgage	Judicial	Complaint	5	None	Allowed
Georgia	Security Deed	Nonjudicial	Publication	2	None	Allowed
Hawaii	Mortgage	Nonjudicial	Publication	3	None	Allowed
Idaho	Trust Deed	Nonjudicial	Notice of Default	5	None	Allowed
Illinois	Mortgage	Judicial	Complaint	7	None	Allowed
Indiana	Mortgage	Judicial	Complaint	5	3 MM	Allowed
Iowa	Mortgage	Judicial	Petition	5	6 MM	Allowed
Kansas	Mortgage	Judicial	Complaint	4	6-12 MM	Allowed
Kentucky	Mortgage	Judicial	Complaint	6	None	Allowed
Louisiana	Mortgage	Exec.Process	Petition	2	None	Allowed
Maine	Mortgage	Judicial	Complaint	6	None	Allowed
Maryland	Trust Deed	Nonjudicial	Notice	2	None	Allowed
Massach- usetts	Mortgage	Judicial	Complaint	3	None	Allowed
Michigan	Mortgage	Nonjudicial	Publication	2	6 MM	Allowed
Minnesota	Mortgage	Nonjudicial	Publication	2	6 MM	Prohibited
Mississippi	Trust Deed	Nonjudicial	Publication	2	None	Prohibited
Missouri	Trust Deed	Nonjudicial	Publication	2	None	Allowed
Montana	Trust Deed	Nonjudicial	Notice	5	None	Prohibited
Nebraska	Mortgage	Judicial	Petition	5	None	Allowed
Nevada	Trust Deed	Nonjudicial	Notice of Default	4	None	Allowed
New Hampshire	Mortgage	Nonjudicial	Notice of Sale	2	None	Allowed
New Jersey	Mortgage	Judicial	Complaint	3	10 DD	Allowed
New Mexico	Mortgage	Judicial	Complaint	4	None	Allowed
New York	Mortgage	Judicial	Complaint	4	None	Allowed
North Carolina	Trust Deed	Nonjudicial	Notice Hearing	2	None	Allowed
North Dakota	Mortgage	Judicial	Complaint	3	60 DD	Prohibited
Ohio	Mortgage	Judicial	Complaint	5	None	Allowed
Oklahoma	Mortgage	Judicial	Complaint	4	None	Allowed
Oregon	Mortgage	Judicial	Complaint	5	None	Allowed
Pennsylvania	Mortgage	Judicial	Complaint	3	None	Allowed
Rhode Island	Mortgage	Nonjudicial	Publication	2	None	Allowed
South Carolina	Mortgage	Judicial	Complaint	6	None	Allowed
South Dakota	Mortgage	Judicial	Complaint	3	180 DD	Allowed
Tennessee	Trust Deed	Nonjudicial	Publication	2	None	Allowed
Texas	Trust Deed	Nonjudicial	Publication	2	None	Allowed
Utah	Trust Deed	Nonjudicial	Notice of Default	4	None	Allowed
Vermont	Mortgage	Judicial	Complaint	7	None	Allowed
Virginia	Trust Deed	Nonjudicial	Publication	2	None	Allowed
Washington	Trust Deed	Nonjudicial	Notice of Default	4	None	Allowed
West Virginia	Trust Deed	Nonjudicial	Publication	2	None	Prohibited
Wisconsin	Mortgage	Judicial	Complaint	Varies	None	Allowed
Wyoming	Mortgage	Nonjudicial	Publication	2	3 MM	Allowed

 

The first consideration in dealing with distressed property is to determine the applicable law. If the real property is located all within one jurisdiction, there is generally no problem and the law of that state will be applicable unless one of the parties is in bankruptcy in which case federal law is applicable. If the property is partially located in more than one state, there may be a conflict of laws.

The second consideration is to determine the type of agreement which is in effect. Most distressed real property is financed and normally a problem arises only when there is a default in loan payment. It is necessary to determine whether a mortgage, deed or trust, or installment land contract is involved. Further variations of these agreements, such as wraparound or all-inclusive mortgages, will sometimes be involved.

It is important to recognize that financing may sometimes involve informal or hidden security agreements. The characteristic of a hidden security agreement is that the formal paperwork does not indicate that there is a mortgage or deed of trust, but the intent of the parties is that there is a loan and that this loan is secured by real estate. If the true intent of the parties can be established with regard to a loan and security for the loan, then mortgage-type law may be applicable.

The type of agreement usually determines the appropriate category of law to be utilized.

The third step is to identify all of the parties having an interest in the real property and the status of each party. Quite often, the dispute as to the rights and liabilities in distressed property will involve a question of priorities among the parties. Thus, all parties having a stake in the outcome must be identified. For example, the holder of a first mortgage will normally have priority over the holder of a second mortgage unless there is some reason to reverse the priorities. Priority questions are covered throughout the book.

The represented party may be not a secured lender but, rather, an unsecured creditor having rights against the property. If the property is under construction or there has been an improvement on the property, these creditors are likely to have been contractors or sellers of goods or services utilized in the property. The rights and alternatives available to these parties are considered in workouts, workouts of farm/ranch loans, junior lenders and lienholders, priority among lienholders. Here, again, the unsecured contractors need to be aware of the rights and alternatives available to both the secured creditor, such as the secured lender, and the rights and alternatives available to the owner- borrower. The unsecured creditor is usually in competition with these parties for whatever assets can be realized from the real property or from the owner. Bankruptcy may also be a consideration.

A fourth group of parties may be represented who are not creditors but who nevertheless are intimately involved with the success or failure of the property. For example, tenants having leases on a property which is in trouble are vitally interested in their own rights. Landlords who are not owners may be involved, as where a landlord holds a leasehold interest in a shopping center which is in default. The rights and alternatives available to parties other than secured lenders and unsecured creditors may depend upon rights to possession, receivers and rents after default, bankruptcy-- effect on leases and executory contracts, bankruptcy-- anticipatory lease drafting strategies, tax liens, and obtaining possession to real property.

Investors, such as limited partners, are affected from a tax standpoint when the property in which they have invested is foreclosed.

The fourth step is to determine the type of mortgaged property involved. If the mortgaged property is under construction, then questions of construction financing and priorities among lien claimants arise. When a construction project becomes distressed the liability of bonding companies is relevant. If the mortgaged property is an owner-occupied residence, some states provide additional protection to the owner-borrower, particularly with regard to foreclosure, deficiency judgments, and right of redemption. Similarly there may be protections for farm land.

After identifying the applicable law, the type of agreements involved, the parties involved, and the type of property involved, it is helpful to consider the problem from a chronological viewpoint. Typically, this chronology will proceed from default, or imminent default, by the owner-borrower and potential bankruptcy, foreclosure, and other terminations to the final resolution of the problem. The options and remedies available often depend upon which stage in the chronology the problem arises. The format of the book is organized in the typical chronological occurrence of events for simplicity and better understanding. Special circumstances may alter the sequence but the general information still will apply.