The current economic crisis has not only impacted residential mortgages, but commercial mortgages as well. For a business owner, a commercial foreclosure can have a devastating impact because it may mean the end of his business and, thus, the end of his ability to earn a living.
Are There Defenses To A Commercial Foreclosure?
As with a residential foreclosure, there are defenses to foreclosure of commercial properties. However, some of the defenses available in a residential foreclosure do not apply in a commercial foreclosure situation. Most of the residential foreclosure defenses which are not applicable in the commercial foreclosure context are grounded in consumer protection theories and include:
- Truth-in-Lending Act;
- Residential Settlement Procedures Act (RESPA);
- Homeowner Equity Protection Act (HOEPA); and
- Fair Debt Collection Practices Act.
Nevertheless, a number of defenses are available to a business owner facing commercial foreclosure. The available defenses can be divided into four categories:
- Equitable;
- Contractual;
- Statutory; and
- Lender Liability.
Equitable Defenses To A Commercial Foreclosure Action
Equitable defenses are grounded in principals of fairness. There are several equitable defenses that a business owner can raise in a commercial foreclosure action including:
- Equitable Estoppel;
- Waiver;
- Merger;
- Laches; and
- Unclean Hands.
Contractual Defenses
Contractual defenses arise from the terms of the loan documents. The most common contractual defenses are:
- Lack of Consideration;
- Lack of Notice;
- Defective Acceleration;
- Accord and Satisfaction;
- Reinstatement and Tender; and
- Promise to Renew.
Statutory Defenses
Statutory defenses are legal defenses which are grounded in the statutes of the state in which the property being foreclosed on is located. Examples of statutory defenses include:
- Usury (which usually comes into play in cases involving private lenders);
- Lack of notice;
- Statute of Limitations; and
- Statute of Frauds.
Lender Liability Defenses
Lender liability defenses generally go to the conduct of the lender in making and servicing the loan. Examples of lender liability defenses include:
- Unconscionability;
- Breach of duty of good faith and fair dealing; and
- Fraudulent Inducement.
Other Available Defenses
Depending on the circumstances of the business owner and whether he is considered “creditworthy” by virtue of the fact that his mortgage payments are current, another defense to a commercial foreclosure may be available. In some cases, a lender may attempt to foreclosure because it believes that its investment is no longer adequately protected – the value of the collateral is less than the amount owed on the mortgage. In such instances, a business owner whose payments are current may be protected from a foreclosure which is based solely of the fact that his property is worth less than what he owes the lender.
Getting Legal Help
Crafting a viable commercial foreclosure defense requires the knowledge and expertise of an commercial foreclosure attorney. A commercial foreclosure defense attorney understands the intricacies of commercial foreclosure law and can advise you as to whether you should pursue settlement negotiations with the lender, sell the property, or fight the foreclosure.
