USA - ALABAMA Law and Practice Contributed by: Adam J. Sigman, Crystal H. Walls, Nathan Stotser and Katie Sinclair, Dentons
a one-year statutory right of redemption under Section 6-5-248(b). 3.7 Subordinating Existing Debt to Newly Created Debt Existing secured debt can be subordinated to newly created debt if the parties execute and
tors) to agree to indemnify the lender against potential environmental 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 no value in a bank - ruptcy proceeding. Borrowers Filing Bankruptcy Petitions 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 exer - cise its state law rights regarding the property (including taking possession). Even in that sce - nario, a lender may be forced to ask the bank - ruptcy court for permission via a motion for relief from the automatic stay. In addition, the fore - closing lender may have an unsecured claim (a deficiency claim) to assert against the borrower in bankruptcy. 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 (busi - ness or consumer reorganization, respectively)), will participate in the confirmation process as to the borrower’s proposed plan of reorganiza - tion. While in bankruptcy, the lender may assert
record a subordination agreement. 3.8 Lenders’ Liability Under Environmental Laws
Unless the lender is deemed to be a partner in the transaction, it cannot be held liable under environmental laws for merely holding security (ie, a mortgage) unless it directly causes the pol - lution or contamination. Nonetheless, most Ala - bama lenders typically require an environmental indemnity agreement from the borrower and one or more beneficial owners. If the lender forecloses and becomes the prop - erty owner, the only way to qualify for liability exemptions under the Comprehensive Environ - mental Response, Compensation, and Liability Act (CERCLA) for existing contamination is to conduct all appropriate inquiries (AAI), accord - ing 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 defense 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 Ala - bama require the borrower (and other indemni -
1122 CHAMBERS.COM
Powered by FlippingBook