Mediation

The Benefits of Mediating Commercial Real Estate Forelcosure Actions

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Commercial real estate foreclosure cases in particular benefit from early mediation and repeat mediation sessions perhaps more than any other type of case. This is because in most cases now the asset is illiquid. In other words, no one wants to buy it. If the bank doesn't want to own it (and most banks do not want to own REOs long term) and the developer or current owner wants to try to keep it if they can (most do and feel they only need to uy a little time before the market turns around) then it makes sense for all parties to try to work out a way to make that happen. If the lender forecloses the lender's going to end up owning the property - thats the ONLY possible outcome in an illiquid market. If everyone knows thats not a desired outcome for the lender, everyone knows foreclosure makes no sense. Mediation allows the parties to put their heads together in a neutral forum to try and come uip with a solution that works better for everyone. And who better to know the property and the parties than the parties themselves (in foreclosure the parties are leaving many decisions up to a judge) especially if the parties hire a mediator experieicned in commercial real estate to facilitate the mediation for them! In this type of case, the sooner mediation can be initiated, the more likely the parties are to achieve a win-won outcome and avoid the costs associated with litigation as well as possible loss in the value of the real estate asset, for example, by expiration of permits, tenant, unit buyer or sub-contractor disputes or physical damage at a project site. In some jurisdictions, early mediation yields a 90% success rate.


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You are 100% correct. I've been a developer for over 30 years. I've been recently through foreclosure litigation and through mediation. The bank ended up owning a pice of vacant land I'd planned to develop as a result of the foreclosure and they STILL own it (I'm hoping to buy it back for much less than what my mortgage was). With the bank that encouraged mediation, we've worked out a playment plan and what they called a "hope note" for me if I can't make payments, in which case I will just give them the property...a much smarter business solution for the bank. When the market recovers I plan to do development again. I will definitely work with the second bank. The first bank...forget about it.

Charlie Mawwell 2/18/2009
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