Beyond Traditional Enforcement — Optimizing Outcomes When Conventional Approaches Fall Short
While traditional enforcement often requires judicial intervention, alternative resolution strategies can deliver superior outcomes with reduced costs, compressed timelines, and diminished reputational impact. Understanding these alternatives—and how they intersect with potential bankruptcy proceedings—is essential for maximizing recovery.
Voluntary Resolution Strategies
Deed-in-Lieu of Foreclosure (DIL)
- Facilitates voluntary property transfer directly to the lender
- Eliminates costly and time-consuming foreclosure litigation
- Often includes negotiated releases or covenants not to sue
- Requires careful structuring to protect against undisclosed liens or claims
- Can be paired with cash contributions or management transition provisions
A well-crafted DIL agreement should incorporate comprehensive property representations, and detailed cooperation obligations regarding property records, permits, and operational transitions, including tenant communications. Strategic lenders may also negotiate for turnover of existing rents, deposits, and property documentation as part of the settlement package.
Stipulated Foreclosure Agreements
- Particularly effective in Connecticut and similar jurisdictions
- Can provide tax advantages over direct property transfers in a DIL
- Establishes clearer title chain than voluntary conveyances
- Offers judicial certainty and expeditious resolution thereby avoiding protracted litigation
- Creates more predictable timeline than contested proceedings
Navigating Borrower Bankruptcy Scenarios
When borrowers seek bankruptcy protection, lenders must pivot to specialized strategies:
Automatic Stay Considerations
- Collection and enforcement actions are immediately suspended
- Stay relief is available where property lacks equity ("362(d)(2) motion")
- Additional relief may be granted for "cause" including bad faith filings
- Specialized relief exists for single asset real estate (SARE) cases
Strategic Bankruptcy Opportunities
- Adequate protection requirements and cash collateral orders can create leverage for secured creditors
- Debtor-in-possession (DIP) financing provides senior secured position
- Section 363 sales allow credit bidding and influence over procedures, and can allow for a value-maximizing sale of collateral.
- Plan confirmation requires approval from at least one impaired class
- Cram-down protections exist for secured creditors to be paid the present value of secured client
- Special purpose entity (SPE) structures with independent directors can significantly impact whether a bankruptcy can be filed
Proactive lenders who understand these dynamics can navigate bankruptcy proceedings advantageously, often achieving better outcomes than traditional enforcement approaches would deliver.
Develop your optimal exit strategy. Schedule a confidential consultation with our specialized workout team to evaluate your specific situation and develop a tailored approach—whether through deed-in-lieu arrangements, stipulated foreclosures, or strategic bankruptcy positioning. If you’re interested in scheduling a private and customized presentation on navigating borrower defaults, workouts, and enforcement actions, please contact any of the attorneys below.
