USA – FLORIDA Law and Practice Contributed by: Eduardo M. Soto and Fabio Giallanza, Weiss Serota Helfman Cole + Bierman, P.L
pledge their ownership interests as collateral, allowing the lender to step into their shoes as an alternative to foreclosing on the real estate. 3.2 Typical Security Created by Commercial Investors Typically, the real property and personal property of the borrower are pledged as collateral along with the revenues from the property. Depending on the nature of the asset, the lender may require an interest reserve which may be fully funded at closing or drawn from loan proceeds each month and then added to the principal balance. Lenders may also require the bor - rower to pledge additional property or cash collateral. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders While Florida’s SB 264 prohibits the purchase of Flor - ida real estate interests by residents of certain foreign countries of concern, it does not prohibit the acquisi - tion of a security interest in Florida property. Note, however, that for those particular “countries of con - cern”, other federal laws and sanctions programmes may de facto prohibit payments. Additionally, pay - ments to a foreign lender may be subject to tax with - holding as FDAP income, unless the loan has been properly structured to take advantage of the so-called “portfolio interest” exemption. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security In Florida, loans secured by real property are subject to documentary stamp and intangible taxes based on the size of the loan. These fees are paid to the state of Florida and are paid at the time of recording. The actual recordable instruments are also subject to nominal recording fees. 3.5 Legal Requirements Before an Entity Can Give Valid Security Generally, the entity must be registered and in good standing in its state of organisation. Depending on the type of asset, it may also have to be quali - fied to do business in the state. With respect to the entity’s authority to grant valid security over the real estate, this is usually governed by its organisation - al documents (ie, operating agreement, by-laws or partnership agreement). These documents must be
reviewed carefully to ensure that the entity has prop - erly approved the transaction. 3.6 Formalities When a Borrower Is in Default As far as formalities, this is governed by the actual loan documents. Regardless of whether formal writ - ten notice is actually required under the loan docu - ments, it is best practice to provide written notice of the default. Different types of defaults may trigger notice requirements, cure periods, or afford the bor - rower the opportunity to cure the default through alter - native methods. For example, if a property does not satisfy a debt service coverage covenant because it is not generating sufficient income, the borrower may be allowed to pay down the debt to a level which would satisfy the covenant. Generally, the intention is that the mortgage is a first position lien on the property at the moment it is recorded. In order to accomplish this, the lender’s attorney will review a title commit - ment and ensure that any liens or instruments that could have priority over the mortgage are satisfied or subordinated at closing. There are certain liens that will retain priority over a mortgage such as real prop - erty taxes, so it is important to make sure that taxes are current at closing and are timely paid each year. The timeline for realising upon the collateral can range from a couple of months to years. There is an active market for purchasing distressed loans and there are several private debt funds which may purchase the loan with the intention of either attempting a work out or moving towards foreclosing on the asset. 3.7 Subordinating Existing Debt to Newly Created Debt It is possible to subordinate existing debt, but this requires the existing lender’s consent and a recorded subordination agreement. 3.8 Lenders’ Liability Under Environmental Laws A lender holding a mortgage or other security interest is generally not treated as an “owner” or “operator” for purposes of environmental liability solely by virtue of making a loan or enforcing its remedies. However, lender liability can arise under certain federal and state environmental laws if the lender takes title (for exam - ple, through foreclosure or deed in lieu) or otherwise participates in the management or operation of the
759 CHAMBERS.COM
Powered by FlippingBook