Dear Valued Partners,
In this uncertain and rapidly evolving world environment caused by the COVID-19 pandemic, we are concerned and unsure about every aspect of our lives. Geraci LLP cares about how the current crisis touches the lives of our families, friends, and business partners. We aren’t experts on COVID-19, but we do know how to offer our experience to help shepherd your business through this ordeal.
Reflecting on previous recessions, many of our clients will likely experience increases in borrower defaults, foreclosures, borrower litigation and bankruptcies, along with government actions to protect borrowers until things can stabilize. It is not only vital to appropriately respond to the obstacles which arise, but also to be proactive in preparation for impending obstacles and opportunities.
Our team at Geraci LLP has the necessary expertise to understand the impact that this volatility has on you, and we are dedicated to assisting you in every manner possible. Here are some of the ways that we can provide you with peace of mind, as well as help you strengthen your business so you can hit the ground running when normalcy returns to our lives.
We hope that you and your loved ones remain safe and healthy during this time.
Geraci LLP anticipates that COVID-19 will present clients with the following issues:
Corporate and Securities
Current Mortgage Fund Managers:
Ensure your funds are fully capable and stress tested and have the right tools you need to (i) preserve capital, (ii) exercise workouts and modifications, (iii) prevent a run on the fund, and (iv) protect yourselves from excessive liability. We can provide advice on best practices in working with potential investor disputes, distressed fund economics, and government regulators. Take this time to ensure your fund is up to date on its compliance obligations, including Blue Sky, Form D, and Risk Disclosures. We can also assist and advise on installation of the necessary infrastructure to manage periodic investor reporting and heightened investor communication that is necessary in times like these.
Fund Opportunities:
As dry powder grows and capital markets recede, debt fund managers will be in a unique position to serve the robust market we stand in today. We can work with you to ensure you are positioning yourself to capitalize on opportunities as they present themselves including (i) working with loan originators to purchase, fund and JV on the loans they typically would have sold to capital markets, (ii) purchasing distressed assets, and (iii) funding unique scenarios such as participations, fractional deals, and junior and mezzanine loans.
Licensed Lenders:
We can work with you to ensure you are conforming with best practices regarding loan origination, loan sale, and brokerage. In addition, we can evaluate if you have conformed with your annual and periodic reporting requirements. It’s these little things that avoid heartburn during an audit.
Kevin Kim manages our Corporate & Securities practice and is available at k.kim@geracillp.com.
Loan Documents and Lending Compliance
Existing Loans:
During this time, borrower defaults will be common. We can assist you through loan workouts, defaults, foreclosures, and assist with loss mitigation measures including loan modifications and forbearances. Many of you have strong relationships with your borrowers and it will be crucial to work with them through this period.
Loan Forbearances:
Many borrowers will seek short term relief from payment obligations. Prudent lenders will need to consider entering into short term forbearances for these vulnerable borrowers during this time period.
Opportunities:
Many local small businesses will be struggling during this time and this is your chance to help. Many states allow unlicensed lenders to make business purpose loans secured by the primary residence of the borrower. This could provide business owners with the opportunity to make it through this uncertain time and develop new relationships for you going forward. Look for our webinar on Thursday, March 26 for more information.
Loan Auditing:
Knowing that defaults are likely to increase, lenders should expect an increase in borrower, investor and regulatory issues during this time. Be ready to understand what exposure you may have and be preemptive about ways to mitigate your exposure.
MLPA Reviews:
Many of our clients are selling and participating their loans pursuant to lengthy and often poorly negotiated loan purchase and sale agreements. Clients should fully understand their recourse rights compared to their counterparties during this time period to make sure they understand repurchase rights, reps and warranties and other potential liability.
Nema Daghbandan manages our Loan Documents and Lending Compliance practice and is available at nema@geracillp.com.
Litigation and Bankruptcy
Borrower Defaults:
Unfortunately, not every borrower will make it through this period and you will need help navigating their defaults. We can assist with receiverships, settlement agreements, borrower and guarantor related litigation, and managing insolvency proceedings as secured and unsecured creditors.
Investor Litigation:
Investors will likely ramp up litigation against brokers and other co-investors in default loan situations.
In good health,
The Team at Geraci
