USA – ALABAMA Law and Practice Contributed by: Adam J. Sigman, Crystal H. Walls, Nathan Stotser, Katie Sinclair and Courtney Dow, Dentons
require an environmental indemnity agreement from the borrower and one or more beneficial owners. If the lender forecloses and becomes the property owner, the only way to qualify for liability exemptions under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for existing contamination is to conduct all appropriate inquiries (AAI), according to the ASTM E1527-13 standards, in a timely manner prior to the date the loan is made. AAI must be conducted no more than one year prior to the loan closing. Any report more than one year old is of no value in establishing an innocent purchaser defence under CERCLA. Certain portions of the AAI are only good for 180 days. If AAI is not performed or completed in a timely manner, a lender can be liable once it takes possession of the property for contamination it did not cause. In addition to AAI, most mortgage lenders in Alabama require the borrower (and other indemnitors) to agree to indemnify the lender against potential environmen - tal liability. 3.9 Effects of a Borrower Becoming Insolvent Lenders should consider the general principles of US federal bankruptcy law. Typically, loan documents will include provisions dealing with a borrower’s potential bankruptcy, though such provisions are of limited or When a borrower files a bankruptcy petition, there is an automatic stay of all actions against a borrower’s property, including foreclosure. If a security interest is foreclosed prior to the bankruptcy filing, then, in the absence of some defect in the foreclosure process, the foreclosed property does not become part of the borrower’s bankruptcy estate, and the lender is free to exercise its state law rights regarding the property (including taking possession). Even in that scenario, a lender may be forced to ask the bankruptcy court for permission via a motion for relief from the automatic stay. In addition, the foreclosing lender may have an unsecured claim (a deficiency claim) to assert against the borrower in bankruptcy. no value in a bankruptcy proceeding. Borrowers Filing Bankruptcy Petitions
Alternatively, if a secured lender fails to foreclose its lien prior to a borrower’s bankruptcy filing, the lender will be forced to assert its rights in the borrower’s bankruptcy case. Typically, a lender will file a proof of claim and, depending on which bankruptcy chapter the borrower files under (eg, Chapter 7 (liquidation), or Chapter 11 or 13 (business or consumer reorgani - sation, respectively)), will participate in the confirma - tion process as to the borrower’s proposed plan of reorganisation. While in bankruptcy, the lender may assert the rights granted to it under the relevant loan documents. Petitioning the Court Prior to taking many actions that would otherwise be allowed outside bankruptcy, a lender must petition the court for relief from the automatic stay. In addi - tion, as to non-residential property that is not a bor - rower’s homestead, a lender’s secured lien can be “valued” – ie, bifurcated into secured and unsecured portions after a valuation hearing with the bankruptcy court. Likewise, a wholly unsecured junior lien may be stripped off the property and treated as completely unsecured in certain circumstances. Defaults A borrower’s insolvency will ordinarily lead to a default under the terms of the relevant loan documents and subsequent foreclosure of the secured collateral. In the commercial context, and depending on the com - mercial loan and property’s size and characteristics, a borrower’s insolvency might lead to a receiver being appointed under Alabama law; see Section 6-6-620 to -628 and Section 6-6-780 to 6-6-807 (the Alabama Uniform Commercial Real Estate Receivership Act). 3.10 Taxes on Loans There are no real property or ad valorem taxes related to loans besides taxes due on interest and income therefrom, and other doing-business taxes and fees applicable to lenders.
4. Planning and Zoning 4.1 Planning and Zoning Framework
Under Title 11, Counties and Municipal Corporations, Alabama regulates land use, development, design and
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